We have been asked by our dental malpractice insurance clients to explain the difference between defense costs inside the limit and defense costs outside the limit of liability on a dental malpractice insurance policy. This is an often overlooked difference in policy forms that can have a profound impact if a dentist is sued for malpractice.
Defense costs are the costs to defend a dentist in the event he or she is sued for medical malpractice. The costs are handled by the dental malpractice insurance company. Specifically, we are talking about the amount of money a dental malpractice insurance company pays for lawyers and trial fees and court fees when a case is taken to court. Even if the dental malpractice case is settled out of court, there may be substantial attorney fees. When we mention the limit of liability, we mean the limit of liability that is noted on the declarations page of the dental malpractice insurance policy. So, if a dentist in Florida has limits of $1,000,000/$3,000,000, that means that, for one claim the dental malpractice insurance company is going to pay a maximum of $1 million. In one year, the total amount the dental malpractice insurance company will pay for all dental malpractice claims is $3,000,000.
In this case, it is obviously very important to determine whether the defense costs are paid inside or outside the limit of liability. If they are paid inside the limit, and the costs of defending the dentist are $100,000, that dentist now has only $900,000 available to pay a judgment. If the defense costs are paid outside the limit of liability on the dental malpractice insurance policy, the full $1,000,000 is available to pay a judgment and the $100,000 defense cost is paid in addition to the judgment.
Sometimes, in an effort to save money on dental malpractice insurance policy, a dentist might choose a policy with defense costs inside the limit of liability without realizing it. He or she will pay dearly in the event of a large claim. Be sure to check with a knowledgeable agent about exactly how your dental malpractice insurance policy is set up so you are well protected in the event of a claim.
John Gracey Backer, CPA
John Gracey Backer, CPA, is the Treasurer of Gracey-Backer, Inc., an Insurance Agency in Delray Beach, Florida specializing in All Lines of Malpractice, Professional and Personal Insurance for the Healthcare Provider. He can be contacted at 800-272-6055 ext 128, or at firstname.lastname@example.org.