Nebraska Department of Insurance

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PRESS RELEASES AND NOTICES

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NOTICE

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We have received a number of questions and there has been confusion regarding the implementation of LB 998, which raises the qualifying limits from $200,000 / $600,000 ($200,000 / $1,000,000 for hospitals) to $500,000 / $1,000,000 ($500,000 / $3,000,000 for hospitals).

An earlier notice on our website focused on the unusual January 2nd (instead of January 1st) implementation date. We also noted that the implementation date was to be "rolled on" as policies were renewed, but we didn't realize that there would be so much confusion on that point. The purpose of this explanation is to eliminate that confusion, primarily by means of giving examples.

Things are simple when a provider has his/her own individual policy. If the policy has an effective date prior to 1/2/2005, and the provider uses that policy to qualify for some date prior to 1/2/2005, then the required limits are $200,000 / $600,000. For instance, if the provider qualifies (or renews qualification) with the Excess Fund as of 1/1/2005 using a policy with an inception date of 1/1/2005, then the required limits are $200,000 / $600,000. But if a provider with a 1/1/2005 policy waits until 3/1/2005 to come under the Act, then the policy will need to provide limits of $500,000 / $1,000,000 as of 3/1/2005 (the date of the provider's qualification).

Many of the questions that we receive relate to professional corporations (PCs) that are qualified under the Act. The basic principle to keep in mind with PC questions is that a PC is a separate legal entity. It will be relatively common during 2005 for a PC (as a separate legal entity) to have $200,000 / $600,000 limits while some of its affiliated providers have $500,000 / $1,000,000 limits.

Suppose that Brain Surgery Unlimited, PC, renews its qualification on 1/1/2005. The policy covers the PC and also covers its five member physicians that are qualified under the Excess Fund. Clearly, the coverage requirements for both the PC and its five affiliated providers are $200,000 / $600,000 each.

Suppose now that another doctor joins Brain Surgery Unlimited on 7/1/2005 and is added to the policy covering the PC and the other five doctors. This doctor will need to have $500,000 / $1,000,000 limits applying for his/her actions on or after 7/1/2005.

Suppose for the moment that this doctor was previously qualified with $200,000 / $600,000 limits in another practice, and the coverage on Brain Surgery Unlimited's claims-made policy is written to pick up the new doctor's old retro date. If so, even though incidents occurring on or after 7/1/2005 will have a $500,000 / $1,000,000 threshold requirement applying, the policy will only need to provide $200,000 / $600,000 coverage for prior acts. (The same requirement for $200,000 / $600,000 limits for prior acts would also apply if the doctor's prior PC picked up tail coverage.)

The limits for the PCs themselves have also been a source of confusion. In the example of Brain Surgery Unlimited, the "master policy" will now cover 5 doctors with $200,000 / $600,000 limits each, and one doctor with $500,000 / $1,000,000 limits. So what limits are now required of the PC? The answer is that they don't change. While the PC's ownership and exposure may have changed (with 6 doctors instead of 5), the PC is still the same legal entity covered under the same policy. If the premium for the PC is increased (because there are now 6 doctors instead of 5), then the Excess Fund should get 50% of that increased premium, but the insurer should only be charging increased premium for the PC at $200,000 / $600,000 limits, not $500,000 / $1,000,000.

The question has arisen about a doctor written with PC "A" moving to PC "B" on or after 1/2/2005, where the same insurer wrote both PCs; where both PCs have 1/1/2005 effective dates, and the rates applying to the doctor would be the same in either PC. Does this doctor need to go to $500,000 / $1,000,000 limits? The answer is yes. Even though the doctor is not new to the Excess Fund, and the doctor is not new to the insurer, the doctor is still new to the policy for PC "B," which is now the PC that will provide coverage. That is to say, a new qualification must occur because the old qualification ceases when the policy for PC "A" ceases to cover the doctor.

Perhaps the reason that this last example seems confusing is that things wouldn't work the same way if the doctor had an individual policy and made the same switch. That is, even though the doctor was affiliated with PC "A," suppose that he/she had an individual policy and, when the doctor became newly affiliated with PC "B," that policy was not cancelled, but remained in force. In that hypothetical situation, the doctor's individual policy wouldn't need to be increased to the higher limits. But that is not the way that coverage is normally provided when PCs are involved. Typically, coverage will be provided under a "master policy" of sorts. (The increased limits would also not be required if the doctor's coverage with PC "A" was merely left in force for the rest of the policy term, and the policy for PC "B" didn't pick up the new doctor until its renewal on 1/1/2006. Again, however, that is not the way that coverage is typically provided.)

In summary, providers won't need to increase their limits on or after 1/2/2005 until they must make a filing to qualify with the Excess Fund, while almost everything that requires a filing with the Excess Fund with an effective date of 1/2/2005 or later will need to be at $500,000 limits. The following are the only exceptions that we can think of:

• A PC's policy is effective 1/1/2005 or prior and the premium for the PC increases during the policy term (usually because providers are added). In this circumstance, the PC does not need to increase its limits from $200,000 / $600,000, even though the limits must be $500,000 / $1,000,000 for providers added to the PC 1/2/2005 or later. Remember, the PC is a separate legal entity.
  
• A hospital adds beds or otherwise increases its exposures during the policy term and an additional premium is charged. Even though a surcharge would be due on the additional premium, the limits for the hospital would not need to be increased.
  
• During 2005, a provider qualified prior to 1/2/2005 leaves the Excess Fund prior to the expiration date of his/her qualification, files evidence of tail coverage and pays a surcharge on the tail coverage. In this instance, only $200,000 / $600,000 limits would be necessary for the tail coverage.

In general, tail coverage requirements are relatively simple. The fact that tail coverage is being purchased to cover some period of time in the past doesn't change the coverage requirements applying to that period of time. If coverage was required at $200,000 limits for the prior claims-made policy or policies, then tail coverage only needs to be for $200,000 limits. Similarly, for insurers writing claims-made coverage, the requirement for $500,000 limits only applies to medical incidents occurring after the provider has made the transition to $500,000 limits. It follows that insurers writing ongoing claims-made policies should only charge providers the increased premium for the higher limits ($500,000 instead of $200,000) on a first-year basis during 2005.