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This glossary defines the terms that are frequently used in medical professional liability insurance.

A B C D E I L M N O P R T V



A

Absolute Liability
Liability regardless of fault.

ACH Payments
ACH payments utilize an electronic network (Automated Clearing House) established by the Federal Reserve that allows consumers to authorize the direct debit of their bank accounts to pay their bills rather than pay using a credit or debit card.

Adjudication
The act of determining an issue or settling a dispute in court.

Annual Aggregate Limit
For claims-made carriers, the annual aggregate limit is the maximum amount the carrier will pay for all claims arising from incidents that occurred and were reported during a given policy year. For occurrence carriers, the annual aggregate limit refers to the maximum amount the carrier will pay for all claims arising from incidents that occurred during a given year of insurance.

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B

Bestís Rating
A rating given to insurance companies by the A.M. Best Company, independent analyst of the insurance industry. The ratings range from A++ (superior) down to D (poor). Also, ratings of E and F are given to companies under state supervision or in liquidation. The ratings reflect A.M. Bestís evaluation of an insurance companyís financial strength and operating performance relative to the norms of the property/casualty insurance industry.
Professionals Advocate is rated "A-" (Excellent)
by the A.M. Best Company.

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C

Claims-Made Insurance
The Claims-Made policy covers claims reported in a single year, provided that an incident occurred on or after the Retroactive Date and on or before the termination of the policy period. However, claims-made premiums must increase significantly in a step fashion during the initial years of coverage. This is necessary because each subsequent year provides coverage for claims reported as a result of medical treatment provided over a longer period of time. These step increases are over and above rate increases and continue for a certain number of years until the policy is "mature." Click here to learn more about claims-made step increases.

Claims Reserves
Under a claims-made policy, claims reserves are funds set aside to satisfy those claims that have been reported to the company but not yet resolved or paid. Under an occurrence policy, an additional reserve must be set aside for incidents that occurred, but were not formally reported, during the policy year and are expected to be reported after the close of the policy year. A company that underestimates its claims reserves may face financial difficulties in the future.

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D

Date of Incident
The date on which a situation of alleged malpractice took place. Also called "date of occurrence."

Date of Reporting
The date of reporting is the date on which the incident was reported to the insurance company. The closer together the date of incident and date of reporting (i.e., if the insured promptly reports the incident or claim), the easier it is for the company to investigate the case and handle the insuredís defense.

Declarations
Also called "Declarations Page," this portion of the policy states such information as the name and address of the insured, the policy period, amount of insurance coverage, and premiums due for the policy period.

Direct Written Premium
A carrierís gross premium written, adjusted for cancellations, before deducting any premiums paid or ceded to a reinsurer.

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E

Earned Premium
The portion of premium that applies to an actual coverage period. Insureds usually pay a calendar quarter or more in advance of the actual coverage period; the advance payment is initially unearned and becomes earned incrementally during the ensuing coverage period.

Economic Damages
Out-of-pocket damages, such as incurred medical expenses and lost wages.

Endorsement
An amendment, sometimes referred to as a rider, added in writing to an insurance contract or policy.

Excess Insurance
A separate insurance policy with limits above the primary (or "first dollar") policy.

Extended Reporting Coverage
See "Tail Coverage"

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I

Incident
An occurrence that the plaintiff claims has led to culpable injury.

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L

Limit
The maximum amount paid under the terms of a policy. A professional liability insurance policy usually has two limits, a per-claim limit and an annual aggregate limit. See "Annual Aggregate Limit."

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M

Malpractice
Professional negligence: An abrogation of a duty owed by a health care provider to the patient; the failure to exercise the degree of care used by reasonably careful practitioners of like qualifications in the same or similar circumstances. For a plaintiff to collect damages in a court of law, the plaintiffís attorney must show that the provider owed the patient a duty and that the providerís violation of the standards of practice caused the patientís injury.

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N

Non-Economic Damages
Pain, suffering, inconvenience, loss of consortium, physical impairment, disfigurement, and other non-pecuniary (damages for which there is no formal monetary scale of award) damages.

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O

Occurrence Insurance
An Occurrence policy covers claims that arise from incidents that occur during the policy period regardless of when the claim is made. Coverage will be provided by the policy that was in force when the incident that resulted in the claim occurred. ProAd does not offer this type of coverage.

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P

Paid Losses
The amount paid in losses during a specified time period.

Policy
The contract between an insurance company and its insured. The policy defines what the company agrees to cover for what period of time and describes the obligations and responsibilities of the insured.

Policy Term
The length of time for which a policy is written.

Premium
The amount a policyholder pays for insurance protection. The amount deemed necessary to pay current losses, to set aside reserves for anticipated losses, and to pay expenses and taxes necessary to operate the company during the time period for which the policies are in force. Premiums allow the company to generate a reasonable return that reinforces future solvency.

Premium Credits
A credit included in the premium computation that recognizes a reduction in hazard, which makes the account a better risk.

Punitive Damages
Also called "Exemplary Damages." These damages are intended to punish the defendant for willful, fraudulent, oppressive, malicious, or otherwise outrageous behavior that should not be covered by insurance.

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R

Retroactive (Prior Acts) Coverage
Under a claims-made policy, this coverage provides insurance for claims arising from incidents that occurred while a previous claims-made policy or policies were in effect, but that were not reported until that policy (or the last in a succession of policies) was terminated. With retroactive coverage, the new policy covers such claims. With such coverage, purchase of tail coverage from the previous carrier is not necessary.

Risk Management
A systematic approach used to identify, evaluate, and reduce or eliminate the possibility of an unfavorable deviation from the expected outcome of medical treatment, and thus prevent the injury of patients due to negligence and the loss of financial assets resulting from such injury.

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T

Tail Coverage (Extended Reporting Endorsement)
"Tail" coverage is another name for an extended reporting period endorsement. This type of coverage protects you from future claims caused by incidents that occurred while your Claims-Made policy was in effect. Tail coverage is needed only when your Claims-Made policy is terminated, as at retirement. In certain circumstances, you may become eligible to receive tail coverage at no cost. Click here to learn more about tail coverage.

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V

Vicarious Liability
Liability for the acts of someone else.

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