Avoiding Insurance Coverage Gaps

Volume 3, Number 1, Winter 2002

After working as a clinical social worker in a successful solo practice for several years, Carol and her husband started a family. They decided that Carol would close her practice two months before the baby was born and remain home during the child’s early years. Living on one income would be difficult, but they would be able to manage since Carol would not incur work expenses. Unfortunately, one of the first cuts they made was her malpractice insurance. Thinking she did not need it, Carol terminated it after closing her practice.

Five years later, Carol decided to return to her private practice on a part-time basis and purchased a new malpractice policy from her former malpractice carrier. Shortly thereafter, Carol was sued for malpractice in the conduct of social work services she performed prior to closing her practice. Although the allegations seemed unfounded to her, they had to be addressed with legal expertise. Carol submitted the claim to her malpractice carrier, but was horrified to learn that it would be denied because she did not have a valid malpractice insurance policy in force during the period the claim occurred because it had been dropped.

This is an all too common scenario among private practitioners. Carol had been insured under a claims made policy which is unfamiliar to many social workers. A claims made policy requires that the alleged malpractice had to occur during the policy period AND that the policy is in force at the time the claim or lawsuit was filed. Claims made coverage must be renewed each year continuously.

Claims made policies contain an important “extended reported period” option, known as a “tail”, which allows one to stop renewing the claims made policy, but still have protection for claims that actually occurred during the policy period, but surface much later. The superior policy offered by the NASW Insurance Trust, provides a free “tail” in the event of death, permanent disability, or full retirement. For social workers insured under the NASW Insurance Trust who do not qualify for the free “tail”, it is offered for a one time fee of 100% of the last annual premium.

What would happen if a claims made policy ended without securing a “tail”? NO COVERAGE would be available for the entire period that the claims made insurance was in force in the past nor is there coverage for future claims. This is what happened to Carol.

Each state’s statute of limitations for mental health suits or claims usually starts when the client has realized or should have known that the malpractice occurred. This is not necessarily near the date services ended. It is common for a claim to be filed five, ten or sometimes twenty years later. A successful defense necessitates a qualified attorney. It is essential to purchase a “tail” when closing a private practice, or taking any hiatus, however brief, to avoid critical gaps in malpractice insurance protection.

Carol’s claim was dismissed, but only after personally spending thousands of dollars on a private attorney. A “tail” would have cost her about $200 which would have covered all of the legal fees plus any monetary judgment that was awarded or a settlement amount up to her limit of insurance purchased.

Margaret A. Bogie, MHSA, Insurance Consultant, is a contributing writer and Mirean Coleman, LICSW, Senior Staff Associate at NASW, is a contributing editor to this series for the NASW Insurance Trust. The names and case examples used in “Practice Pointers” articles are completely fictitious, and any resemblance to persons living or dead is purely coincidental. Questions about this article should be directed through the NASW Insurance Trust via blawrence@naswasi.org.

For professional liability insurance call the NASW RRG Plan Administrator at 888-278-0038.