Frequently Asked Questions about the
AAO-Endorsed Professional Liability Insurance Program (PLIP)

Why must I purchase stock in the AAOIC?
Please remember that this is a small, temporary investment. For the first 5 years of the policy we ask that you purchase a minimal amount of stock so you become a stockholder in "your" insurance company. This ownership legally allows you to share in the profits of the company when a dividend is issued. Eventually, when you cancel the policy for whatever reason, AAOIC buys back the stock at its current value.

What is "Tail" coverage?
"Tail" is a slang term for an Extended Reporting Period (ERP) endorsement on your policy. When you cancel your malpractice coverage for whatever reason, a tail endorsement provides coverage for the rest of your lifetime should someone sue you after the policy terminates. For example, you treat a 15-year old from 1997 through 1999. You retire in 2004 and cancel your malpractice insurance. Then, that patient sues you in 2006. The tail coverage provides coverage and the company must defend that claim.

How do I avoid purchasing expensive "tail" (extended reporting period) coverage if I want to enroll in the AAO Professional Liability Plan?
If your current policy is an occurrence policy, you automatically receive the tail coverage at no charge when you cancel, so there’s no need to purchase anything. You can easily switch to the AAO Plan and purchase either a claims-made or occurrence policy without any concern.

If your current coverage is a claims-made policy, you may apply for the AAOIC claims-made policy without purchasing tail coverage. If approved, our claims- made policy will extend coverage retroactively to the date you started your claims-made coverage with the previous company (retroactive date), thereby alleviating that company of any liability for the period of time you were insured with them. Then, if you stay with the AAOIC plan for 4 years and reach the age of 50, the AAOIC plan automatically gives you lifetime tail coverage at no charge back to that original retroactive date.

What’s the difference between “occurrence” and “claims-made” policy forms?
Please do not try to equate the word itself with the definition. These are simply insurance terms that have become mainstream over the years. An occurrence policy automatically includes lifetime tail coverage at no charge. The premium is higher than a claims-made policy because you are essentially paying for this lifetime tail coverage a little bit each year.

A claims-made policy does not include that tail coverage, therefore the premium is always less than an occurrence policy. However, the tail coverage is usually offered at time of cancellation for an additional premium, or the policy may provide it free of charge if certain criterion is met.

The other primary difference is the limits of liability for which you are covered when a claim occurs. Under an occurrence policy, you are covered for the limit of liability in force when the actual incident occurred. Under a claims-made policy, you are covered for the limit of liability in force when the claim is reported.

For example, in 1995 you have a malpractice policy with a $500,000 limit of liability. In 1998, you increase your limit to $1,000,000. You are sued in 1999 for something you did in 1995. Under the occurrence policy, your limit of protection would be $500,000 (the amount in force when the incident occurred), and under the claims-made policy your limit of protection would be $1,000,000 (the amount in force when the claim was reported).

These are the essential differences between the two types of policies. AAO offers you the choice to apply for either policy form.

When will my AAOIC coverage become effective?
You may indicate on your application when you want your coverage to begin. Ideally, your effective date should be the day you start practicing, or the day your current policy is terminated.

Your effective date is predicated on approval by the underwriting company (AAOIC). A review of your application can only begin after the underwriter receives a completed application (and other required forms) and a check for at least 25% of the total annual premium.

Do I need separate limits of coverage for my corporation or partnership?
Remember your corporation or partnership is legally a separate entity from you personally. If you are sued there is a good chance that your corporation will be added to that lawsuit as a separate party.

Under the AAOIC Plan, your corporation and partnership are automatically covered under a shared limit of liability. If you are insured for $1,000,000 / $3,000,000, you as an individual professional share that $1,000,000 per claim limit with the other entity (P.C.).

Separate limits are available in which you as the individual will be covered for $1,000,000 and your P.C. or partnership will be covered under a separate limit of $1,000,000. This separate limit benefit option costs an additional 10% of your annual premium.

What does a $1,000,000 / $3,000,000 limit of liability mean?
The first figure ($1,000,000 per claim) is the amount of coverage you have for each individual claim filed against you. The second figure ($3,000,000 aggregate) is the amount the company will pay for multiple claims settled against you in one calendar year.

The AAOIC Plan offers a variety of limit options with the maximum limit of liability being $5,000,000 / $5,000,000.

Who pays for my defense should I be sued?
The AAOIC Plan pays for all defense costs “outside” the limits of liability. This means that the $1,000,000 per claim limit in your policy remains intact available to pay for any compensatory judgment or settlement against you. Plus, defense costs are paid at 100% separately from the $1,000,000 with no maximum limit.