Glossary
INSURANCE TERMS
Declaration Page: Declarations made by the Applicant/Insured regarding underwriting information are stated in the Declaration Page. This information includes the full name of the Insured, his or her practice location(s), dates the policy is in effect and the limits of coverage. New Declaration Pages are issued annually for each new policy period. Typically Insureds submit a copy of their Declaration Page to hospitals for credentialing purposes and as proof of insurance.
Captive Insurance Company: A captive insurance company is a company established and owned by a parent firm for the purpose of insuring the parent firm's loss exposure. A captive is a closely held insurance company whose insurance business is primarily supplied by and controlled by owners, and in which the original insureds are the principal beneficiaries. The insureds have direct involvement and influence over the company or group's major operations, including underwriting, claims, management policy, and investments. There are currently over 4,000 captives licensed worldwide, serving their parents' risk financing needs. PRF was formed in 1976 in response to the medical malpractice insurance crisis of 1975, when many commercial insurers were either tripling their rates or withdrawing from the medical malpractice market entirely. PRF operated as a captive insurance company from 1976 through 1998. PRF made the transition from captive insurance company to risk retention group in 1998.
Risk Retention Group (RRG): A capitalized member-owned insurance company licensed under the federal Liability Risk Retention Act of 1986 that is limited to writing liability insurance for groups with similar liability exposures. The company may be licensed in one state and market its product in other states. An RRG must be registered in any state in which it does business. PRFRRG is a risk retention group licensed and domiciled in the state of Vermont and registered with the state of California. For a more detailed explanation of a risk retention group visit the National Risk Retention Association's (NRRA) Website at http://www.nrra-usa.org/faq.htm#. This page has a link to the online copy of the Federal Liability Risk Retention Act.
MICRA
Medical Injury Compensation Reform Act of 1976 (MICRA): MICRA is the term used for legislation arising out of the medical malpractice liability crisis of 1975 when malpractice insurers either drastically increased their rates or withdrew from the malpractice market entirely due to the skyrocketing cost of medical injury awards. MICRA has been responsible for containing the cost of medical malpractice liability insurance in California. Other states without similar legislation are currently experiencing the type of crisis that California went through in 1975. MICRA's basic provisions are:
- Limits on non-economic damages ($250,000 cap)
- Evidence of collateral source payments (such as Workers' Compensation)
- Limits on attorney contingency fees
- Advance notice of intent to sue (90-day notice)
- Statute of limitations
- Periodic payments of future damages
- Binding arbitration of disputes
For a more detailed explanation of MICRA visit http://www.micra.org/, the Website of Californians Allied for Patient Protection (CAPP).
Californians Allied for Patient Protection (CAPP): Californians Allied for Patient Protection (CAPP) is a broad-based coalition of health care providers, business, labor and consumer organizations, and insurers created to preserve the Medical Injury Compensation Reform Act of 1975 (MICRA), California's landmark medical malpractice law. For more than three decades, MICRA's provisions have been working to ensure quality medical care for consumers, protect the rights of those that have been negligently injured, and assure that medical malpractice insurance is available at realistic and affordable rates.
TYPES OF COVERAGE
Occurrence Based Coverage: Liability insurance coverage for injuries suffered by others as a result of events that occurred during the time the policy was in force regardless of when a claim is filed. Occurrence based coverage eliminates the need for the insured to purchase a "tail" if and when the insured elects to change malpractice insurance carriers, for whatever reason. Very few insurance providers still offer occurrence-based coverage, since it can extend the life of the company's potential liability. PRF offered occurrence based coverage since its inception and it continues to provide its insureds with occurrence-based coverage.
Claims Made Coverage: A method of determining whether or not coverage is available for a specific claim. If a claim is filed during the time period when the insured's liability policy is in effect, an insurance company is responsible for its payment, up to the limits of the policy. Conversely, if a claim is filed during a period of time when the insured's policy is not in effect (even if the event causing the claim occurred when the policy was in effect) an insurance company is not responsible for its payment. Therefore, claims made coverage necessitates the need for the insured to purchase costly "tail" or "prior acts" coverage to extend coverage beyond the policy period. (See Prior Acts Coverage and "Tail" Coverage below.)
Primary Level / Excess Level of Coverage: Liability insurance generally has two tiers of coverage, i.e., the primary level and the excess level. The first $500,000 of loss coverage is considered the primary level of insurance. Any portion of a settlement, judgment or award exceeding $500,000 penetrates the excess level of coverage. Professional liability insurance carriers often purchase reinsurance for the excess level of coverage ($501,000 to $1, 000,000). Effective January 1, 2003, PRF has retained the potential liability for both the primary and excess levels of coverage.
Prior Acts Coverage: Liability insurance coverage for claims arising from acts that occurred before the beginning of the policy period. Policies written on a "claims made basis" cover only claims filed during the policy period. Prior acts coverage is necessary for covering a claim made during a current policy period for an event that occurred before a policy was in force. Prior acts coverage is often referred to as "nose" coverage, because it is purchased when entering into a contract (policy) with a new insurance company, as opposed to "tail" coverage, which is purchased when leaving a previous carrier. In effect "nose" and "tail" coverage cover the same time period, but from a different perspective.
"Tail" Coverage: Liability insurance that extends beyond the end of the policy period of a liability insurance policy written on a claims made basis. Liability claims are often made long after the accident or event that caused the injury. Many liability policies are written on a claims made basis, which means the insurer pays only claims that are made during the policy period. In this instance, the insured needs tail coverage to protect against claims not known (unasserted or incurred but not reported) at the end of the policy period. When a policy is written on a claims made basis, "tail" or "nose" coverage is necessary when a physician changes insurance carriers or retires.
Medical Board Coverage: An optional product, which PRF offers its Insureds. A PRF Insured may elect to purchase Medical Board Coverage in addition to his or her malpractice insurance policy for a nominal annual premium. If an Insured has purchased Medical Board Coverage and he or she is called to appear before the Medical Board, PRF will pay for the cost (up to $35,000) of an attorney to review the case in question and to accompany the Insured to the Medical Board hearing.
PRF TERMS
PRF Annual General Meeting: In April or May of each year, PRF has an Annual General Meeting and all Insureds are invited to attend. Proxies are sent out to all shareholders in PRF's holding company, Sphargis, Inc. (all PRF Insureds) and via the proxy vote and the vote of those members in attendance the Board of Directors is elected. Board members and other members of PRF's management team are in attendance. The Board of Directors presents a review of the events of the previous year regarding the financial and administrative state of the Company.
METHODS OF DISPUTE RESOLUTION
Binding arbitration: Is an alternative method of resolving disputes. While the discovery process is similar in arbitration and jury trial, arbitration is less time consuming for the Insured physician and provides a less public forum than a jury trial. At the same time arbitration allows for a fair hearing of the plaintiff's complaint. Arbitration is conducted in a neutral setting, usually with a panel of three arbitrators, one selected by the plaintiff, one selected by the physician and a mutually agreed upon neutral arbitrator. It is PRF's policy that Insureds make every good faith effort to have each patient sign an arbitration agreement. PRF provides arbitration agreements free of charge to all Insureds. They are available in English, Cantonese and Spanish.
Mediation: Disputes can often be resolved with mediation where the parties in dispute meet in the presence a mutually agreed upon mediator. The mediator works with the disputing parties in the hopes of reaching a resolution that is agreeable to all concerned. Typically, the mediation process takes 4 to 8 hours. The process of mediating is not binding to any of the parties, that is, if a resolution cannot be agreed upon by all parties, any or all of the parties can withdraw from the mediation. If the parties agree to a resolution (settlement), the agreeing parties will sign a Full and Final Release. Once executed the Release is binding. If a formal Complaint has been filed in the courts, the terms of dismissal will be stated in the Release.
Trial: If no arbitration agreement exists, and if the parties cannot resolve the dispute through negotiation or mediation, there will be a trial by jury to determine the judgment. A court trial is a formal, public process. Twelve jurors are selected, and usually the plaintiff and the defendant testify. Other interested parties may also be called to testify, such as family members, treating physicians, and expert witnesses. A trial can take one to two weeks to complete, and from the insured's perspective may be the least desirable method of resolution. Since PRF insureds use arbitration agreements and since PRF is proactive in resolving claims even before a claim is asserted by the patient, there have been very few trials in PRF's 30-year history.
Informal Negotiation: Informal negotiations can take many forms. Even when a formal Complaint has been filed with the Court, PRF attorneys are often able to negotiate with the plaintiff's attorney to resolve the matter before it goes to arbitration or trial. If the insured physician is aware of a mal occurrence, and reports the incident to PRF before a claim is asserted, a representative from PRF will work with the insured to "coach" him/her through the Code Green process. If the physician insured is not comfortable discussing the matter with the patient, a PRF representative may work directly with the patient to come to a mutual agreement. In this instance, the patient will be asked to sign a Full and Final Release barring them from asserting any future claim based on the same mal occurrence.