Because of continuing initiatives to change the statutes regarding the requirements of medical malpractice insurance policies under Chapter 655, Wis. Stat., and because such statutory changes may result in further amendments to the language of medical malpractice insurance policies, the deadline for insurers to submit their forms to comply with our Bulletin of October 30, 1995, is extended. See a copy of the Bulletin below.
The Bulletin itself remains in effect but each insurer will now have until July 1, 1997, to obtain approval for policy language that complies with the explanation in the Bulletin and/or any statutory changes that may occur.
Any questions on the above may be directed to Phil Kress at (608) 266-0430.
Date: October 30, 1995
To: Medical Malpractice Insurers for Health Care Providers Subject to Chapter 655, Wisconsin Statutes
From: Josephine W. Musser, Commissioner of Insurance
Subject: Statutory Limits of Liability
This bulletin is to remind those insurers writing medical malpractice insurance for health care providers subject to the Wisconsin Patients Compensation Fund that the
limits of liability required by s. 655.23 (4), Wis. Stat., in occurrence or claims-made policies must be available each policy year to pay for claims that occur in each policy year. Even though coverage limits are determined by the year in which a covered accident occurred, a claims-made policy may restrict coverage to losses that are reported during a specific period of time.
Insurers are submitting forms that do not describe the limits required by the statute. You are reminded that policy language is enforceable against an insurer
as if it conformed to the statutes or rules, in accordance with s. 631.15 (3m), Wis. Stat.
To implement the changes that many insurers will need to make to claims-made policies, extended reporting period endorsements, and prior acts endorsements, each insurer will have until July 1, 1996, to obtain approval for policy language that complies with the explanation in this Bulletin. Until that time, OCI will only approve minor technical changes made to forms that had been approved in the past. Forms that contain more than a minor technical change must comply with the positions explained here. On or after July 1, 1996, new and renewal policies must contain approved language that satisfies the requirements explained in this Bulletin.
STATUTES AND CODES
Section 655.23 (4), Wis. Stat., states:
Health care liability insurance, self-insurance or a cash or surety bond under sub. (3) (d) shall be in amounts of at least $200,000 for each occurrence and $600,000 per year for all occurrences in any one policy year for occurrences before July 1, 1987, $300,000 for each occurrence and $900,000 for all occurrences in any one policy year for occurrences on or after July 1, 1987 and before July 1, 1988, and $400,000 for each occurrence and $1,000,000 for all occurrences in any one policy year for occurrences on or after July 1, 1988.
Section Ins 17.35 (2b), Wis. Adm. Code, interprets s. 655.23 (4), Wis. Stat., by describing how the insurer will determine the limits required by the statute and states:
An insurer shall allocate the amount paid on each claim to the policy year of the occurrence giving rise to the claim and not to the year in which the claim was reported. The per occurrence limit and the total amount of annual aggregate limit specified in s. 655.23 (4), Stats., as it applied on the date of the occurrence, shall be available each policy year.
A claims-made policy itself, any prior acts endorsement, or any extended reporting period endorsement must provide the required limits of liability in s. 655.23 (4), Wis. Stat., for each covered policy year.
RESERVING FOR CLAIMS-MADE REPORTING POLICIES AND OCCURRENCE-BASED LIMITS
Occurrence-based limits do not bar claims-made policies. When a claim is reported during the policy period or an extended reporting period, the insurer must look back to the policy period in which the incident occurred to determine the limits available for the claim. The reserving advantages of a claims-made policy are retained. No incurred-but-not-reported (IBNR) risk would come from looking to the year in which the incident occurred to set the per occurrence limit and the aggregate limit. The claims-made insurer can still use the claims-made section of Schedule P for reporting reserves for these policies.
LIMITS FOR PRIOR ACTS ENDORSEMENTS
If a prior acts endorsement is issued on a policy, the statutory required limits must be available
each covered policy year. Since the previous insurer(s) also provided the required limits, you may, if the policy language so provides, reduce your aggregate limits by all
claim amounts paid prior to the effective date of the policy by previous insurer(s). Your limit of liability will be the difference between the claim amounts paid prior to the effective date of your policy and the limits stated in s. 655.23 (4), Wis. Stat. At the time of a claim payment under the prior acts coverage, you are required to prove those claims that were paid prior to the effective date of your policy which then qualify for reducing any policy period's aggregate limit, otherwise the full aggregate is available.
EXTENDED REPORTING ENDORSEMENTS
When an extended reporting period endorsement is issued on a policy, it will be merely to extend the time for reporting. As an example, an extended reporting period endorsement that provides a one-time reinstated limit is not in compliance.
You are reminded that per s. 655.27 (5) (b), Wis. Stat., you must notify the Patients Compensation Fund of any claims filed that may potentially affect the Fund. An insurer shall act in good faith and in a fiduciary relationship with respect to any claim affecting the Fund. No settlement exceeding an amount which could require payment by the fund may be agreed to unless approved by the board of governors.
Even though the statutes do not object to claims-made policies under Chapter 655, the policy limits requirements of s. 655.23 (4), Wis. Stat., and s. Ins 17.35 (2b), Wis. Adm. Code, must be met.
Any questions on the above may be directed to Phil Kress (608) 266-0430.
Thank you for your cooperation.