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Professional Liability Insurance For Psychologists

Professional Liability Insurance

American Professional Agency, Inc. is committed to serving the profession of psychology not only by providing professional liability insurance but also by offering risk management services and general guidance.

New APA member benefit through American Professional Agency

Who is the American Professional Agency, Inc., and what is the benefit?

American Professional Agency, Inc. is the largest writer of mental health professional liability insurance in the United States, with more than 100,000 health care professional policyholders. The agency provides high-quality professional liability offerings for applied psychologists as well.

As an APA member you are entitled to a minimum discount of 20 percent, every year, when you purchase a policy of any size through American Professional Agency. Some members may be able to save up to 35 percent on already competitive rates. Existing American Professional Agency policyholders will be able to obtain this APA member benefit on renewal of their policy with American Professional.

How does this affect my coverage?

While APA has switched insurance partners, this will have no impact on current insurance policies held by members themselves. Members are under no obligation to switch. The new partnership with the American Professional Agency means APA members will get discounts and additional benefits that are exclusive to APA members. This is a change from our past provider, who offered those same rates and discounts to everyone: APA members and non-members alike.

As an APA member, am I required to switch insurance companies?

Absolutely not. APA members are under no obligation to switch, although it may benefit them to get a competitive quote from American Professional the next time the member’s insurance policy is up for renewal.

APA has identified American Professional Agency as our preferred provider. American Professional Agency will provide APA members with significant premium discounts based on their APA membership, including a minimum discount of 20 percent every year, when you purchase a policy of any size through American Professional Agency. Some members may be able to save up to 35 percent on already competitive rates. Existing American Professional Agency policyholders will be able to obtain this APA member benefit on renewal of their policy with American Professional Agency.

Why did APA develop this new partnership?

American Professional Agency is the new preferred provider of insurance products for APA members. The agreement with our former partner, The Trust, was set to expire this year, so APA and The Trust initiated discussions over a period of months in 2017 to consider terms for renewal. When renewal terms were not reached, APA opened a request for proposal process to three other high-quality insurance providers as bidders. (The Trust was then given an opportunity to match the terms in the American Professional Agency agreement and declined to do so.) American Professional Agency’s proposal provided greater value for our members than any of the other bidders.

Does American Professional Agency coverage include RxP?

Yes. American Professional Agency will have coverage for RXP for psychologists in the states that allow RXP authority for psychologists. American Professional Agency, Inc. also underwrites the American Psychiatric Association program, so it was easy for them to extend this coverage to APA member psychologists.

I just renewed my coverage with The Trust. What should I do?

If you would like a reminder to get a quote closer to your policy renewal date, American Professional offers a quick and easy solution. Just fill out a quick form and a representative will contact you at the appropriate time.

Do I need to buy a tail if I switch my coverage?

Most members will not need to purchase tail coverage from their current insurance provider and American Professional Agency offers free tail coverage for policyholders after their fifth year of coverage with the firm.

Members who are considering switching and are within five years of retirement should consider the length of coverage requirement when weighing their options. A representative from American Professional Agency can help you understand your options and obligations related to retirement coverage.

Does American Professional Agency offer free risk management consultations? Does it share information? Are there ethical consults available?

Yes. American Professional Agency offers free risk management consultations with claims experts and, upon request, a lawyer, with no appointments required and no time limits on the conversation. American Professional Agency’s team does not keep records of consultation calls, and does not share information discussed with Allied World, the insurance company that underwrites the professional liability program.

While American Professional Agency does not currently offer ethics consultations with psychologists, APA does provide that service to its members and is considering expansion of that program. Details about the APA ethics consultation service are available here.

Can I get coverage (and a discount) for my group practice?

Yes. American Professional Agency covers groups. As long as the lead purchaser for the group is an APA member, the entire group will be granted the 20 percent APA member discount.

How does this change affect state psychological associations?

This change in APA’s sole authorized and preferred liability insurance provider does not affect state psychological associations. Those associations are free to continue to seek sponsorships or other revenue from The Trust and from other sources.

By Stuart Benas, CIC and Bruce E. Bennett, Ph.D.
May 1, 2010

You have decided that you are going to start a private practice and are ready to take a major step into running a business. One component of that business will be to make sure you have adequate professional liability insurance. Very few psychologists, especially those just getting started, have the financial resources to defend a malpractice claim. Legal costs alone can run into tens of thousands of dollars. Damages or settlements can be hundreds of thousands of dollars.

The purpose of this article is to acquaint early career psychologists and those who may be confused about insurance with an important issue to consider when shopping for professional liability coverage: What type of insurance should you buy?

There are two basic types of professional liability insurance policies — “occurrence” and “claims-made” coverage. Purchasing insurance is a business decision and it is important to know what type of policy best fits your business needs.

An occurrence policy provides coverage for alleged incidents (injuries) that happened during the policy year regardless of when the claim is reported to the carrier. The occurrence policy provides a separate coverage limit for each year the policy is in force. It does not matter if the policy is active when the claim is reported. It only matters that the policy was active when the alleged incident occurred. If the coverage limits are $1 million/$3 million, the insured would have up to $1 million to cover an incident that occurred during the policy year and a total of $3 million to cover all claims that result from incidents during the year.

A claims-made policy covers the insured for an incident that occurred during the policy period and was reported as a claim while the policy remained in force. When you start a claims-made policy, the original inception date, known as the retroactive date, becomes a permanent part of the claims-made policy.

The retroactive date remains the same each year the policy is renewed. The renewed claims-made policy covers claims that come in during the policy year for incidents that occurred on or after the retroactive date. This is how past years are covered under the current policy. As long as you renew a claims-made policy, you will be continually protected for incidents that happen between the retroactive date and the expiration date.

An incident that occurred prior to the retroactive date would not be covered. Therefore, it is important for the insured to renew the claims-made policy to maintain continuous coverage. If the insured retires or is no longer practicing but wants to retain protection for the years insured under the claims-made policy, the insured can cancel the policy and buy the “extended reporting period” (commonly known as the tail). Generally you can purchase the tail for a specified number of years. An unlimited tail, allowing claims to be reported anytime in the future, normally costs 175 percent of your last year’s premium.

The cost of the tail is a onetime fee. The tail permits the insured to report claims for incidences that occurred during the time the policy was active (from the retroactive date to the policy expiration date). An incident that occurred when the policy was active but was reported after the policy was terminated, in the absence of the tail, would not be covered. Importantly, the tail will not cover incidents that occur after the policy is terminated.

One of benefits of a claims-made policy is that changes to your current coverage or changes to the policy limits apply to past years as well. This is a positive benefit if the carrier expands coverage in the future.

Another feature of a claims-made policy is that the insured can move coverage from one carrier to another carrier. If you have an active claims-made policy you can apply to another insurance company that offers prior acts coverage for claims-made policies. Under this scenario, the new company takes the retroactive date from the old policy and endorses it onto the new policy. The new policy with the retroactive date from the previous policy now covers the same period of time as the old policy.

It is important to compare policy features prior to changing insurance companies be-cause the policy issued by the new company may have specific exclusions that significantly alter coverage once a switch is made.

From a pricing viewpoint, occurrence policies are more expensive than claims-made policies because they provide coverage for incidents that occurred during the policy year regardless of when the claim is reported. The occurrence policy provides a separate limit for each year protection is purchased.

Claims-made policies are initially significantly less expensive than occurrence policies. The premium for a claims-made policy is lowest during the first year because the policy only covers incidents that occurred in the first year and are reported as claims in that year. The premium increases during the second year because the policy now covers incidents that occurred during the first and second year as long as the claim is reported during the second year.

The claims-made premium continues to increase as the policy matures for five to seven years when the premium usually stabilizes. The reason it takes a long time for the claims-made rates to mature is that several years can elapse from when the incident occurred to when it becomes a claim.

If you have a claims-made policy for several years and buy the tail when the policy is terminated, the total cost begins to approach the rate of a comparable occurrence policy. Many claims-made policies offer free tail coverage for death, disability or permanent retirement, a feature that can result in considerable cost savings if you qualify.

You might ask “Which policy is better?” As noted above each policy has its benefits. With a claims-made policy you can increase your policy limits or add coverages as the need arises or as new coverages become available. The claims-made policy is more flexible and provides considerable cost savings during the early years. This could be important when you are starting a practice.

If you are worried that your current insurance company may go into receivership (the insurance equivalent of bankruptcy) you can move your claims-made coverage to a financially stronger insurance company. If the carrier for an occurrence policy goes into receivership, switching to a new financially stronger carrier will not remedy the problem with the former carrier.

The occurrence policy has the advantage of permanency. You do not have to renew the policy to maintain coverage for a year you were insured. You have separate limits each year you were insured so past claims will not erode the limits of future years of coverage.

What is important is that you understand how the policies work and make an informed business decision. It is extremely important that you take the time to read the policy and call your agent or broker if you have questions about what is and what is not covered.

Stuart Benas, CIC (certified insurance counselor), is supervisor of field underwriting for the APA Insurance Trust. He may be reached at stuart.benas@apait.org.

Bruce E. Bennett, Ph.D., is CEO of the APA Insurance Trust. He may be reached by e-mail at: bruce.bennett@apait.org.

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Professional Liability Insurance For Psychologists

What does The Trust Professional Liability Policy cover?
The Trust Sponsored Professional Liability Insurance Policy covers psychologists in the legitimate practice of psychology for bodily injury, personal injury, advertising injury, and limited property damage. The policy also includes supplemental protection for employment practices liability, defense reimbursement for licensing board complaints, and no-fault medical.

Does The Trust Sponsored Professional Liability Policy cover anything else?
Yes: there are a number of additional coverages. Here are the three most important:

  • Licensing Board Defense (LBD): The policy will reimburse you for the cost of your defense if you are the subject of an investigation by a state licensing board. Some policies require that a client file a complaint against you before they take affect. The Trust policy reimburses for defense of any investigation by a state licensing board. The policy provides you with $5,000 protection automatically, and you can increase your protection to $25,000 for just $35 or $50,000 for just $45.
  • Employment Protection Liability Insurance (EPLI): The policy will reimburse you up to $5,000 for the cost of your defense if an employee sues you for any employment related issue (such as wrongful termination, not hiring or promoting, harassment, discrimination, libel, slander or any practice which violates a state or federal employment discrimination statute).
  • No Fault Medical Payment:The policy will pay up to $2,500 for each person who is injured in an accident as a result of your practice regardless of fault up to $75,000 annual maximum. This coverage is commonly referred to as goodwill coverage. It is there to pay for minor medical claims from clients. By paying for a minor accident without regard to fault and encouraging people to seek immediate medical help, we all hope to avoid a more costly claim. This does not diminish your coverage for slip-and-fall. If an injured party is unwilling to take this payment or demands more money, you would still have the full limits of the policy.

How do you define psychology?
The policy covers the named insured for the “practice of psychology.” The policy does not contain a definition of the “practice of psychology.” Insurance policies can only limit the meaning of words or phrases defined within the policy. Terms not defined in an insurance policy are defined by their standard usage. Each state has a licensing law that defines the practice of psychology for that jurisdiction. If your state’s ‘scope of practice’ laws allow you to perform a service as a psychologist or they do not restrict a particular area of practice, you are covered. Most states license psychologists and define clinical practice. Sub-groups, such as the 55 divisions of APA, define some specializations in psychology. Some forms of psychology do not require licensure. These include Industrial and Organizational Psychology, Consumer Psychology, and Consulting Psychology.

Are there specific modes or forms of psychology that the Trust Sponsored Professional Liability Policy does not cover?
No. The Trust Sponsored Professional Liability Policy covers Consultants (including those providing coaching services), Industrial & Organizational Psychologists, Media Psychologists, Forensic Practice (including custody evaluators), Parent Coordinating, Mediation, Hypnosis Therapy, Psychoanalysts, and even those researching new forms of treatment. The policy covers psychologists serving on ethics, peer review, licensing, and academic boards. The Trust does not limit psychologists from providing legitimate forms of psychological practice.

What is a Psychologist?
A psychologist has attained a doctoral degree in the field of psychology or is licensed as a psychologist. The three most common degrees are a philosophy doctorate (Ph.D.), a psychology doctorate (Psy.D.), and an education doctorate (Ed.D.). Clinical psychologists must also obtain a license from the state in which they practice. There are a few states that license psychologists at the master’s level.

Do you have to be licensed in order to apply for coverage?
Not necessarily. Some forms of psychology practice do not require licensure (for example, industrial & organizational, consumer, coaching, and other consultative practices). The Professional Liability Policy also covers postdoctoral candidates working under supervision toward licensure. All states require a license to provide certain clinical services, and the policy requires that you comply with all applicable laws and guidelines. However, many postdoctoral candidates must practice under supervision for one to two years before being eligible for licensure. The Trust offers unlicensed post-docs working toward licensure a 35% discount for their first year of coverage.

Who may apply for coverage? Psychologists, including post-docs and doctoral students working to become psychologists, may apply for coverage. Additionally, owners and employees may be added to your policy to form a group policy. Group members can be psychologists or other Allied Mental Health Professionals such as Marriage and Family Therapists, Counselors, and Social Workers.

Where am I covered?
The policy puts no limits on where you can practice (though state or local statutes may). You are covered for services you provide anywhere in the world. However, the policy will only defend you if you are sued in the United States, its territories or possessions, or Canada.

Is there any limit on where policies can be issued?
The Trust can only issue a policy to you if you have a valid address in the 50 United States, the District of Columbia , the US Virgin Islands, or an APO/FPO (AA, AE, and AP).

Do you have to be a member of the American Psychological Association (APA) to apply for this insurance? No. Association membership is not required to apply for this insurance policy.

Do you have to be an APA member to renew your insurance? No. Association membership is not required to renew the policy.

Why are there two limits of coverage on my policy? The policy has a per-incident limit and an aggregate limit. The per-incident limit is the maximum the policy will pay for one claim. The aggregate limit is the maximum the policy will pay if there are multiple suits that apply to the same policy period. Each claim is still subject to the per-incident limit.

Do I pay for my defense?
No. If you have a covered claim, the carrier defends you. There are no limits placed on how the carrier defends you. The defense cost does not diminish the limits available for damages. You are still covered up to your policy limits for settlements or damages.

What is an independent contractor?
An independent contractor is a person or entity who provides services for the policyholder, but does not directly work for the policyholder. The insured should refer to the Internal Revenue Service, which uses 20 criteria to make such a distinction.

Why do I have to pay to list independent contractors on my policy?
Experience shows that practitioners who use independent contractors are more likely to be involved in claims. The carrier requires that you notify them when you have contractors working for your practice.

Why must my independent contractors carry their own coverage?
When an independent contractor does not carry his or her own coverage, plaintiffs often look for “deep pockets” – any source that can pay for damages. The determination often has more to do with the ability to pay than the guilt of the party. When an independent contractor does not have coverage, it is far more likely that the principal will be sued for the independent contractor’s actions. The Trust helps by allowing insureds to purchase coverage under their policy for uninsured independent contractors. If there is a claim, the damages are assigned to the correct party and not you, the principal.

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