Forming a professional corporation (PC) instead of a standard corporation solves an entity-law problem: many states require licensed professionals to use a PC (or PLLC) rather than a generic corporation. But the PC structure itself does not solve the insurance problem underneath it, and that gap is where a lot of practice owners get caught off guard – especially when they leave a group practice or switch malpractice carriers.
The PC Shield Stops Exactly Where Malpractice Starts
A PC protects its owner-professionals from the corporation’s ordinary business debts – a lease default, a vendor dispute, a slip-and-fall by a patient in the waiting room. It does not protect a professional from liability for their own malpractice or professional negligence; that liability attaches to the individual license holder personally, by law, regardless of what entity they practice through. This is the same limitation that applies to PLLCs, and it’s the reason malpractice insurance – not the entity – is the real liability shield for the professional’s own clinical or professional conduct.
Claims-Made vs. Occurrence: Why the Difference Matters More at Exit
Most malpractice policies (roughly 85% by industry estimates) are claims-made, meaning they only cover claims filed while the policy is active, not claims tied to incidents that happened during an earlier policy period. Occurrence policies, by contrast, cover any incident that happened while the policy was in force, no matter when the claim is actually filed – and they cost more upfront specifically because they don’t require the buyer to solve the “what happens when I leave” problem later.
Tail Coverage: The Bill That Shows Up When You Leave
If a professional carries claims-made coverage and then leaves a practice, retires, or switches carriers, any incident that happened before the exit but gets reported after it falls into a coverage gap – unless the professional buys “tail coverage” (an Extended Reporting Period endorsement) to close it. In higher-risk specialties like OB/GYN or neurosurgery, tail coverage can run $50,000 to $150,000 as a lump sum due at departure. Whether the departing professional or the practice pays for it is a contract term, not a default rule – and when an employment or partnership agreement is silent on the question, the cost typically falls on the person leaving.
Group Practice Cross-Liability: One Member’s Claim Doesn’t Automatically Become Everyone’s
In a multi-owner PC or PLLC, one professional’s malpractice generally does not become another owner’s personal liability – the entity shield does still separate the owners from each other’s individual negligence. But a claim against one professional does expose the entity’s own assets (equipment, cash reserves, accounts receivable), which every other owner has a stake in. This is why group practices typically require every owner-professional to carry their own malpractice policy meeting a minimum coverage floor, rather than relying on one shared policy or the entity’s general assets to absorb a claim.
What This Means Before You Sign a Partnership or Employment Agreement
Before joining or leaving a group PC, the real questions are: is the group’s policy claims-made or occurrence, who pays for tail coverage on exit, and does the partnership agreement set a minimum individual coverage requirement for every owner. These are insurance and contract questions that sit on top of the entity choice, not settled by picking a PC over an LLC.
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Related reading: PLLC vs. LLC for Licensed Professionals and Professional Liability Insurance vs. Your Entity’s Liability Shield.
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