Could Your DSO Malpractice Insurance Disappear? What Dentists Can Learn From Steward Health Care
Most employed dentists probably spend more time negotiating compensation, production percentages and vacation days than investigating the financial structure behind their malpractice insurance. If the employment agreement says professional liability insurance is provided, the issue feels settled.
Two spectacular failures in American health care suggest it may deserve another look.
When Steward Health Care collapsed, hundreds of former physicians, nurses and other clinicians discovered that the malpractice protection they believed they had might not be there when they needed it. Steward had used a captive insurance company called TRACO to cover malpractice liabilities. According to reporting by The Boston Globe, Steward removed substantial money from TRACO and replaced it with obligations from related companies. By mid 2024, TRACO reportedly had only about $3.5 million in cash while facing more than 500 malpractice claims.
The consequences have moved far beyond corporate bankruptcy. Former clinicians who believed Steward would defend them are facing legal bills, settlements and possible judgments personally. In some cases, physicians have been ordered to pay settlements that TRACO had previously negotiated but failed to fund. More than 300 former Steward clinicians have organized seeking government intervention.
Prospect Medical Holdings offers a second warning. Prospect largely self insured its malpractice exposure, promising to pay defense costs, settlements and judgments up to substantial amounts before commercial excess coverage would begin. ProPublica reported that Prospect failed to adequately reserve money for those obligations. After the company filed for bankruptcy in January 2025, physicians discovered that the employer that had promised to protect them could no longer reliably fund their defense.
In Connecticut and Rhode Island, Prospect reportedly retained as much as $7.5 million per claim before excess insurance would respond. The problem was simple and devastating. If Prospect could not pay the first layer because it was bankrupt, the excess insurer could argue that its obligation had never been triggered. That is the issue dentists should understand.
Malpractice insurance is not always a single insurance company standing behind every dollar of a claim. Large health care organizations can build insurance programs in layers. The employer may retain the first portion of losses itself. A captive insurance company owned by the organization may cover another layer. Commercial excess insurance or reinsurance may sit above that. Each layer depends on contractual conditions being satisfied before the next one responds.
When everything is properly capitalized and managed, this can be a legitimate and sophisticated way to finance risk. When the lower layers cannot pay, however, the entire structure can become much less protective than clinicians assumed.
Dentistry has not experienced a documented collapse on the scale of Steward or Prospect, at least not that I could find. No dentist, pediatric dentist or oral surgeon has been publicly identified as a TRACO victim. Historical insurance directories show dentists and oral surgeons affiliated with the Steward network, but that does not prove they were Steward employees, insured by TRACO or exposed to its failure.
Likewise, there is currently no credible evidence that a major DSO is approaching a Steward style malpractice collapse. It would be irresponsible to imply otherwise. But the financial structures involved are not foreign to dentistry.
Large DSOs increasingly resemble other sophisticated health care organizations in scale and complexity. They can include management companies, professional corporations, holding companies and multiple insurance arrangements across many states. Some organizations may retain portions of malpractice risk themselves. Others may use captives, large deductibles, risk retention groups or layered commercial insurance.
A 2026 Benesch Dental and DSO Industry Newsletter specifically discussed captive insurance as a risk financing strategy for larger dental organizations. The article noted that professional liability becomes increasingly important as DSOs expand into oral surgery, sedation dentistry and pediatric specialties. Those services can produce relatively rare but severe claims, exactly the kind of exposure that makes insurance structure matter.
A captive itself is not a warning sign. A properly funded captive can be financially strong, actuarially reserved, professionally administered and backed by commercial excess insurance or reinsurance. The lesson from Steward is not that captives are bad. It is that an insurance promise is only as strong as the assets, governance and contracts behind it.
The same caution applies to Risk Retention Groups, or RRGs, which are widely used in professional liability insurance. Dental malpractice insurers including COPIC RRG and BOLD Risk Retention Group operate under this structure.
An RRG is a real insurance company, primarily regulated by the state where it is domiciled. RRGs can be financially strong and have operated successfully for decades. But federal law requires an important disclosure. RRG policyholders are not protected by state insurance guaranty funds if the RRG becomes insolvent.
That does not make an RRG unsafe. It means dentists should understand what they are buying rather than treating every policy with identical limits as economically identical protection.
Two policies can each say $1 million per claim and $3 million aggregate while being backed by very different organizations, regulatory structures, balance sheets and reinsurance programs.
There is another distinction dentists frequently misunderstand, tail coverage. Tail insurance addresses a timing problem with claims made policies. If treatment occurred while a claims made policy was active but the lawsuit arrives after the policy ends, tail coverage allows that later claim to be reported.
Tail coverage does not protect against insurer insolvency. A dentist could have an excellent tail provision and still face trouble if the company responsible for paying the claim later cannot meet its obligations. Likewise, occurrence coverage eliminates the need for a traditional tail, but the insurer still must remain financially capable of paying a claim that may arrive years later.
Indemnification can create the same false sense of security. An employment contract may state that a DSO will defend and indemnify the dentist. That language is important, but it remains a contractual promise from a corporation. If that corporation becomes insolvent, the dentist may discover that an indemnification clause is little more than a claim against a bankrupt company.
The American Dental Association already advises dentists to look deeper. Its employment and DSO guidance recommends determining exactly what malpractice insurance an employer provides, whether the limits are adequate, whether coverage is occurrence or claims made and who is responsible for tail coverage when employment ends. The ADA also recommends obtaining copies of the actual policy and verifying that coverage remains in force.
Steward and Prospect add another layer of due diligence. An employed dentist should know the legal name of the company actually assuming the malpractice risk. Is it a traditional admitted insurance carrier, a Risk Retention Group, a captive insurer or the employer itself through self insurance? Is there a deductible or self insured retention? Who must pay that amount before excess coverage begins? Are defense expenses inside or outside the policy limits? Who controls settlement? Who pays for tail coverage? What happens if the practice is sold? What happens if the DSO restructures? Most importantly, what happens if the employer itself becomes insolvent?
For most general dentists, a catastrophic malpractice loss remains a low probability event. Dental claims are generally smaller than the largest hospital obstetric, neurosurgical and catastrophic injury cases. A recent JADA study examining more than 25,000 paid dental malpractice claims from 2004 through 2021 found median payments of roughly $28,000 for nondiagnostic claims and about $54,000 for diagnostic error claims.
But averages can hide the tail of the distribution. Sedation injuries, anesthesia complications, oral surgery, major implant complications and pediatric emergencies can produce much larger losses. As organizations grow from ten dentists to hundreds or thousands, rare events become less rare at the enterprise level.
That is why the practical lesson is due diligence, not fear. A DSO using a captive is not evidence of danger. Private equity ownership is not evidence of inadequate malpractice insurance. A corporate debt restructuring is not evidence that dentists are uninsured. RRG status does not mean an insurer is financially weak. Those are structures and circumstances, not diagnoses.
The red flags would be more specific. An employer refusing to provide the actual policy. A large self insured retention with unclear funding. Repeated late payments to defense counsel. Unpaid settlements. Regulatory warnings. Deteriorating financial ratings. A captive heavily dependent on money owed by its financially troubled parent. Excess coverage that requires the employer to fund millions of dollars before the insurer becomes responsible.
Those are questions worth asking before the problem arrives. Dentists routinely study CBCT scans, periodontal measurements and medical histories before committing to treatment. The same discipline should apply to something capable of protecting a lifetime of accumulated assets.
“Malpractice insurance provided” should no longer end the conversation. If your employer failed financially tomorrow, who would actually defend you for the dentistry you performed today?
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