6 Ways your Malpractice Insurer Ends Coverage
Your agent states your malpractice coverage is set. Nothing for you to worry about. Beware of the sin of omission. The lack of full disclosure or misleading disclosures can sink your coverage. Insurers have tools to end coverage if there is a lack of full or misleading disclosures.
From cancellation at inception to policy rescission, your insurer has six different means to get off a coverage risk. Rescission is the most extreme tool that an insurer has available for material misinformation, but there are other more likely tools that an insurer can use:
- Cancel Coverage at Inception—Policy language may allow the insurer to revoke or cancel coverage during the first 30 to 60 days of coverage inception. For instance, a material issue not disclosed at the effective date of coverage. Sometimes a conditional binder was issued at inception subject to conditions. Not meeting the conditions results in coverage cancellation. Getting replacement claims-made coverage backdated 30 to 60 days is difficult.
- Denial of Claim—The claims department denies coverage for the alleged act. The claims department states that your malpractice policy either excludes or provides no coverage. A leading cause of claim denial is prior knowledge. Depending on the denial reason, the insurer may proceed with other tools to eliminate policy coverage.
- Midterm Cancellation—A material risk change or premium non-payment can allow an insurer to cancel midterm. Without a material change or premium non-payment coverage must continue until expiration.
- Non-Renewal—Prior to renewal an insurer by giving proper state required notice to the insured, informs the insured in writing that the insurer will not be renewing coverage. The reasons for this can range from changes in exposure, the insurer withdrawing from the market, underwriting reasons, claims experience, or a variety of other reasons.
- The 30-Day (60-Day) extension—When there is not time to give proper 30/60-day notice for the non-renewal at expiration date the insurer extends coverage. This provides the insurer with the needed notice for the non-renewal to normally meet state requirements. A common reason for coverage extensions is information disclosed on the renewal application. Coverage extensions may require further explanation with another insurer when obtaining replacement coverage.
- Rescission—A rescission results from a material misrepresentation by the insured, i.e., not telling the insurer on the application about claims activity that has occurred, or a disciplinary action taken against the insured. The issue arises when reporting a claim and the claims department finds non-disclosed material issues that insured should have disclosed during the application process. Often the insurer goes to court getting a declaratory judgement (Dec Action) that allows the insurer to remove coverage back to a certain date. This date may be the original policy inception date. With claims-made coverage such a recession results in the insured losing past acts coverage. The insurer returns your policy premium. There is no effective way to get past acts coverage back after a rescission. It is as if the insured never had malpractice insurance.
When an insurer uses the above methods to get off a risk the insured usually finds that their insurance costs increase. The potential for malpractice claims without any insurance coverage rises. This can put your financial health at risk.
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Lee Norcross, MBA, CPCU
California License # 0D87292
L Squared Insurance Agency, LLC ® DBA in California as L2 L Squared Insurance Agency, License # 0L93416
Managing Director, CEO
Lee@L2Ins.com
616-726-7080
