Malpractice with tail in contracts

[Gmvdoc]

---

Members don't see this ad.

Hello all,
I'm a long time lurker (over a decade) and first time poster. I tried to put this in the physician forum but for some reason I was not able to post.
I have been offered a contract when I finish my FM residency in June 2019. It's pretty lucrative but they have will only pay malpractice tail if I stay for 5 years, if not, its prorated.
Here is the exact wording.

1. This Agreement is terminated by [company name taken out] pursuant to Section 4.3 (other than Section 4.3(j) or (k)) or Section 4.4, or by Physician pursuant to Section 4.2 (other than a termination described in Section 3.5(b)(i)(C)), Physician shall pay to [company] immediately following termination an amount equal to two times the annual professional liability insurance premium for the current year prorated based on 5 years (5/5 year 1, 4/5 year 2, 3/5 year 3, 2/5 year 4 and 1/5 year 5).
   

During the interview, they said that it would be about 35k. At the time, I thought I understood it as per year if I leave early if less than 5 years. Which is kind of a gamble I'm not sure I want to take (although this job has me at making about 50k per year more than most with a similar setting).
From what I've read though, tail coverage is a one time fee.
So my question is from that wording in the contract, is it per year I will pay 35k (or whatever) if I stay less than 5 years?
Ex. If I stay 3 years, I'm out 70k.
Also, if I pay the one time fee, does the tail last forever? I'm seeing mixed stuff online.
Thank you in advance!!!
I will be contacting the company tomorrow to discuss it with them but I cant sleep and thought I would see if anyone knew🙂

 

[Vandalia]

The tail is a one time fee. I suppose there could be different models out there, but I am not aware of them.

$35K sounds like a reasonable amount for 2x the annual malpractice premium, perhaps a bit on the high side but it would depend on the exact job and the location. The way I read it, that is reduced for each year in the contract; i.e., in year 3 it would be 2/5, or 40%, so the check you would have to write would be $14K. That should be a one time payment.

I would strongly advise that you have a lawyer look it over. You do not hire a lawyer to negotiate, you hire one so that you know what you are signing. There are some questions that I would have based on that one paragraph and a 5 year contract would raise a number of other concerns.

 

[Gmvdoc]

You, sir, are amazing! My husband and I have been sitting here for what feels like an eternity trying to make sense of it. Thank you very much! After we read your response and then reread the contract clause, that makes more sense!
And will absolutely take the advice to get a lawyer. Thank you!

 

[Vandalia]

One more thing, as a "claims made" policy, the annual rate will increase because there is more of a risk of a claim being made in a given year the longer you practice. So for example, if you start in 2019, it is incredibly unlikely that someone would sue you in 2019. On the other hand, in 2021 there are three year's worth of patients that could possibly sue you. So your actual malpractice insurance premium that the tail is based on will increase through the five years (in addition to normal inflation.) If you obtain what that increase is each year, you would have a better estimate as to what the cost actually would be.

One final thing, you do not necessarily have to purchase "tail coverage" from this employer. It is also possible to purchase "prior acts" coverage from your next job. Usually.

 

[deleted87716]

One final thing, you do not necessarily have to purchase "tail coverage" from this employer. It is also possible to purchase "prior acts" coverage from your next job. Usually.

AKA "nose coverage." They basically cover the same thing, so if you have the ability to compare prices between the two, go with the cheaper option. I'd be wary of leaving a job without tail coverage before you verify that you can get prior acts coverage from your new employer.

 

[VA Hopeful Dr]

AKA "nose coverage." They basically cover the same thing, so if you have the ability to compare prices between the two, go with the cheaper option. I'd be wary of leaving a job without tail coverage before you verify that you can get prior acts coverage from your new employer.

I would be vary wary of signing for a job that didn't include tail coverage. In all the jobs I've had, only 1 didn't have it and I was desperate so couldn't be choosy that one time.

 

[Gmvdoc]

One more thing, as a "claims made" policy, the annual rate will increase because there is more of a risk of a claim being made in a given year the longer you practice. So for example, if you start in 2019, it is incredibly unlikely that someone would sue you in 2019. On the other hand, in 2021 there are three year's worth of patients that could possibly sue you. So your actual malpractice insurance premium that the tail is based on will increase through the five years (in addition to normal inflation.) If you obtain what that increase is each year, you would have a better estimate as to what the cost actually would be.

One final thing, you do not necessarily have to purchase "tail coverage" from this employer. It is also possible to purchase "prior acts" coverage from your next job. Usually.

Thank you, I will bring this up with the contract lawyer and recruiter to see if we can include noise coverage as another option.

 

[Gmvdoc]

AKA "nose coverage." They basically cover the same thing, so if you have the ability to compare prices between the two, go with the cheaper option. I'd be wary of leaving a job without tail coverage before you verify that you can get prior acts coverage from your new employer.

Thank.you! Any help is appreciated🙂

 

[Gmvdoc]

I would be vary wary of signing for a job that didn't include tail coverage. In all the jobs I've had, only 1 didn't have it and I was desperate so couldn't be choosy that one time.

I think a boat load of people share that sentiment. I definitely do too. But they will cover it, as long as you stay at least 5 years.
And it's kinda a dream job for me.

 

[Gmvdoc]

Another question I have is how much can one expect to get after taxes from a 50k signing bonus. I've seen a range online from 25% -50% taken out. Which is more accurate. Thank you!

 

[VA Hopeful Dr]

I think a boat load of people share that sentiment. I definitely do too. But they will cover it, as long as you stay at least 5 years.
And it's kinda a dream job for me.

Mine would have been covered had I stayed 2 years. I stayed 5 months.

Are you still in residency, if not how long have you been out? I ask because that's been shown to correlate very strongly with how long you're liking to stay in a job. Of my class of 10 that finished in 2013, only 3 of us are in the same jobs now that we were immediately after graduation. Another 4 have changed jobs more than twice since then.

Another question I have is how much can one expect to get after taxes from a 50k signing bonus. I've seen a range online from 25% -50% taken out. Which is more accurate. Thank you!

Assume 50%. Its state dependent of course, but assume that and if its less then you get surprised with extra money.

 

[Gmvdoc]

Mine would have been covered had I stayed 2 years. I stayed 5 months.

Are you still in residency, if not how long have you been out? I ask because that's been shown to correlate very strongly with how long you're liking to stay in a job. Of my class of 10 that finished in 2013, only 3 of us are in the same jobs now that we were immediately after graduation. Another 4 have changed jobs more than twice since then.


Assume 50%. Its state dependent of course, but assume that and if its less then you get surprised with extra money.

Thank you for your reply! I am still in residency, finishing up in June.
I agree, the percentages of how many new docs switch jobs right out of residency is high.
I appreciate the advice and will discuss further with the company to try to get the tail part of the contract worked out.