Understanding malpractice insurance

Question: You are about to retire, and it was one of those hectic and unbelievable final days. Your clinic assistant broke a hypodermic needle, which lodged in the patient’s deltoid. Another patient tripped and fell in your waiting room and sustained a fracture. And, in a heated and angry meeting, you voted with others on the peer-review committee of your hospital to suspend a "rotten apple" doctor. All three victims file suit against you 6 months into your retirement. Which of the following best describes the likely outcome?

A. Your professional malpractice insurance will indemnify you against all liabilities.

B. Only the first incident will be covered, because it’s the only one that involves malpractice.

C. Even the first incident is excluded, because your policy protects you but not your employees.

D. You face financial ruin, because you are now retired and no longer insured.

E. It all depends on your insurance policy.

Answer: E. Most professional liability policies should cover negligence on the part of the doctor and employees, as well as peer-review risks, although the hospital may also provide this latter coverage.

However, some policies are less expansive, so it behooves the doctor to carefully review the scope of coverage to include the above eventualities and others, such as premise liability (for example, tripping on the carpet or falling off a chair in the waiting-room) or educational liability (as when supervising a resident). Note that coverage is usually excluded for intentional torts, for example, assault and battery; or criminal activities, for example, Medicare fraud. Punitive damages are also typically excluded from coverage.

Virtually all policies nowadays are "claims made," which means coverage ends once you are no longer insured with the company, irrespective of when the alleged negligent act occurred. In order to maintain indemnification, you will have to buy "tail coverage" to protect you from a lawsuit arising from a past event but filed after your policy has lapsed, for example, in retirement or following relocation. The lag period between the expiration of the insurance policy and the bringing of suit is termed the "tail."

The term "nose coverage" is used instead to describe prior-acts coverage when a doctor applies to another insurer for a new policy. By definition, claims-made policies cover claims that are filed for incidents that both occur and are reported while the insurance policy is in force. In contrast, an "occurrence" policy is one in which the doctor is covered for all malpractice allegations, irrespective of when the lawsuit is brought. In a group practice, contractual terms regarding professional liability should specifically mention tail coverage.

Malpractice premiums vary greatly from state to state, and even among locales within a given state. Premiums are specialty-dependant, with the highest in risky specialties such as obstetrics and neurosurgery.

Primary care physicians are considered a relatively low-risk group. For example, the Medical Insurance Exchange of California, commonly known as MIEC, classifies family practitioners and general internists as class 4 physicians (out of 14 classes – the highest number signifying the riskiest). Discounts are generally available to the doctor who is new in practice, as well as for part-timers who practice less than 20 hours a week. On the average, internists in metropolitan areas pay an annual premium of $12,000 for a $1 million/$3 million claims-made policy – although an average figure is largely meaningless, because premiums are heavily influenced by the practice locality.

Insurance rates vary widely, and figures tend to be skewed to the high side whenever metropolitan data are used to define the state average. In addition, the numbers do not always represent annual premiums for a $1 million/$3 million claims-made policy. In some states, the limits may be lower, for example, $200,000/$600,000, and doctors pay a surcharge for excess coverage. Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina, and Wisconsin are examples of such states.

In 2012, the highest annual premiums for internists were in Florida ($47,000), Illinois ($40,000), Michigan ($35,000), Connecticut ($35,000), and New York ($34,000). The lowest rates were seen in Nebraska, Minnesota, South Dakota, Wisconsin, and California (all less than $4,000 per year). States with effective tort reforms, such as California, generally have lower rates.

Happily, premiums have been falling in the last 5 years, according to Medical Liability Monitor, a trade periodical. The Doctors Company and other carriers have reported that claims have halved over the past decade. The severity of claims, however, has continued to climb, with the occasional multimillion-dollar loss.

Overall, some 42% of surveyed physicians in 2007-2008 have had a malpractice claim filed against them, although most claims are dropped or decided in the doctor’s favor. Claims were reported by about 35% of family practitioners and general internists, while surgeons and obstetricians-gynecologists have higher rates, at 70%. Pediatricians and psychiatrist score the lowest, at around 20%.

Doctors typically purchase their insurance from a commercial carrier that specializes in malpractice liability, or subscribe to a physician mutual, also called "bedpan" mutual, which is a "risk-retention" group authorized under federal law in 1986 to underwrite malpractice liability. Not all risk-retention groups are successful. For example, the Tennessee-based Doctor’s Insurance Reciprocal went into bankruptcy in 2003, leaving some 3,000 doctors scrambling for coverage.

Malpractice insurance policies typically pay for all legal fees, including attorney and expert fees, as well as discovery and court costs. They pay damages up to the limit of the policy; a $1 million/$3 million claims-made policy means the limit for each claim is $1 million, and the limit for all claims in a given policy year is $3 million. If the judgment exceeds the policy limits, the doctor is personally liable for the remainder.

This has caused fear among some doctors, because their personal assets may then be at risk. A reassuring article in "Medical Economics" put it this way: "In theory, yes. But in reality, doctors rarely lose their personal assets."

Reasons why both sides usually settle for the policy limit or less, notwithstanding a higher amount decided by the jury, include:

• Until and unless there is a post-trial agreement between the parties, the plaintiff may experience undue payment delay, receiving nothing for any and all expenses in the meantime.

• The plaintiff lawyer’s contingency fee is likewise held up.

• The defense may appeal the decision to a higher court, especially where damages are large – and this can delay payment by years, or even wipe out the judgment entirely if there is a reversal of the verdict.

• Fear of backlash against the trial lawyers in the community for publicity surrounding any attack on a doctor’s personal assets.

• Usually, there are other deep pockets, for example, the hospital, to go after in the same case to jointly reach or approach the award amount.

Although most policies allow the doctor to make the final decision regarding whether to settle and for how much, it is the insurer that recommends and hires the defense counsel, who then directs any settlement negotiations and/or trial strategy.

However, the defense lawyer’s primary duty is to the doctor, not to the insurer who pays his/her fees, and this can raise a conflict of interest. Doctors have been known to sue an insurer and its retained attorney for bad faith and negligent representation, as evidenced in a recent Florida stroke case over a $217 million jury award.

Thus, it’s important to look for the language in the "consent to settle" clause of the policy. In a recent case, the Rhode Island Supreme Court ruled that the insurer was within its right to settle – against the doctor’s wishes – in the middle of a trial. The policy contract had stipulated that the company could settle any claim or suit "as it deems expedient," a phrase the court interpreted as giving the insurer full authority and discretion.

Occasionally, a doctor refuses to settle for an amount within the insurance limits, preferring instead to proceed to trial. Should the doctor lose at trial, and the judgment is in excess of the earlier settlement amount, he or she may be personally liable for the difference, even if the amount is still within the policy limit. Some policies protect the insurer against this situation by containing such a provision, popularly termed "the hammer," as a way of persuading the physician to settle.

On the other hand, courts have held insurers financially responsible for trial awards that exceed policy limits if they had rejected an earlier settlement amount that was within those limits.

References

• AMA Policy Research Perspectives, "Medical Liability Claim Frequency: A 2007-2008 Snapshot of Physicians," August 2010.

• Rice, B. "Could a malpractice mega-verdict wipe you out?" (Med. Econ. 2003;80:89-91).

• Mohan Papudesu v. Medical Malpractice Joint Underwriting Assn. of Rhode Island, 18 A.3d 495 (R.I. 2011).

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at siang@hawaii.edu.

Question: You are about to retire, and it was one of those hectic and unbelievable final days. Your clinic assistant broke a hypodermic needle, which lodged in the patient’s deltoid. Another patient tripped and fell in your waiting room and sustained a fracture. And, in a heated and angry meeting, you voted with others on the peer-review committee of your hospital to suspend a "rotten apple" doctor. All three victims file suit against you 6 months into your retirement. Which of the following best describes the likely outcome?

A. Your professional malpractice insurance will indemnify you against all liabilities.

B. Only the first incident will be covered, because it’s the only one that involves malpractice.

C. Even the first incident is excluded, because your policy protects you but not your employees.

D. You face financial ruin, because you are now retired and no longer insured.

E. It all depends on your insurance policy.

Answer: E. Most professional liability policies should cover negligence on the part of the doctor and employees, as well as peer-review risks, although the hospital may also provide this latter coverage.

However, some policies are less expansive, so it behooves the doctor to carefully review the scope of coverage to include the above eventualities and others, such as premise liability (for example, tripping on the carpet or falling off a chair in the waiting-room) or educational liability (as when supervising a resident). Note that coverage is usually excluded for intentional torts, for example, assault and battery; or criminal activities, for example, Medicare fraud. Punitive damages are also typically excluded from coverage.

Virtually all policies nowadays are "claims made," which means coverage ends once you are no longer insured with the company, irrespective of when the alleged negligent act occurred. In order to maintain indemnification, you will have to buy "tail coverage" to protect you from a lawsuit arising from a past event but filed after your policy has lapsed, for example, in retirement or following relocation. The lag period between the expiration of the insurance policy and the bringing of suit is termed the "tail."

The term "nose coverage" is used instead to describe prior-acts coverage when a doctor applies to another insurer for a new policy. By definition, claims-made policies cover claims that are filed for incidents that both occur and are reported while the insurance policy is in force. In contrast, an "occurrence" policy is one in which the doctor is covered for all malpractice allegations, irrespective of when the lawsuit is brought. In a group practice, contractual terms regarding professional liability should specifically mention tail coverage.

Malpractice premiums vary greatly from state to state, and even among locales within a given state. Premiums are specialty-dependant, with the highest in risky specialties such as obstetrics and neurosurgery.

Primary care physicians are considered a relatively low-risk group. For example, the Medical Insurance Exchange of California, commonly known as MIEC, classifies family practitioners and general internists as class 4 physicians (out of 14 classes – the highest number signifying the riskiest). Discounts are generally available to the doctor who is new in practice, as well as for part-timers who practice less than 20 hours a week. On the average, internists in metropolitan areas pay an annual premium of $12,000 for a $1 million/$3 million claims-made policy – although an average figure is largely meaningless, because premiums are heavily influenced by the practice locality.

Insurance rates vary widely, and figures tend to be skewed to the high side whenever metropolitan data are used to define the state average. In addition, the numbers do not always represent annual premiums for a $1 million/$3 million claims-made policy. In some states, the limits may be lower, for example, $200,000/$600,000, and doctors pay a surcharge for excess coverage. Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina, and Wisconsin are examples of such states.

In 2012, the highest annual premiums for internists were in Florida ($47,000), Illinois ($40,000), Michigan ($35,000), Connecticut ($35,000), and New York ($34,000). The lowest rates were seen in Nebraska, Minnesota, South Dakota, Wisconsin, and California (all less than $4,000 per year). States with effective tort reforms, such as California, generally have lower rates.

Happily, premiums have been falling in the last 5 years, according to Medical Liability Monitor, a trade periodical. The Doctors Company and other carriers have reported that claims have halved over the past decade. The severity of claims, however, has continued to climb, with the occasional multimillion-dollar loss.

Overall, some 42% of surveyed physicians in 2007-2008 have had a malpractice claim filed against them, although most claims are dropped or decided in the doctor’s favor. Claims were reported by about 35% of family practitioners and general internists, while surgeons and obstetricians-gynecologists have higher rates, at 70%. Pediatricians and psychiatrist score the lowest, at around 20%.

Doctors typically purchase their insurance from a commercial carrier that specializes in malpractice liability, or subscribe to a physician mutual, also called "bedpan" mutual, which is a "risk-retention" group authorized under federal law in 1986 to underwrite malpractice liability. Not all risk-retention groups are successful. For example, the Tennessee-based Doctor’s Insurance Reciprocal went into bankruptcy in 2003, leaving some 3,000 doctors scrambling for coverage.

Malpractice insurance policies typically pay for all legal fees, including attorney and expert fees, as well as discovery and court costs. They pay damages up to the limit of the policy; a $1 million/$3 million claims-made policy means the limit for each claim is $1 million, and the limit for all claims in a given policy year is $3 million. If the judgment exceeds the policy limits, the doctor is personally liable for the remainder.

This has caused fear among some doctors, because their personal assets may then be at risk. A reassuring article in "Medical Economics" put it this way: "In theory, yes. But in reality, doctors rarely lose their personal assets."

Reasons why both sides usually settle for the policy limit or less, notwithstanding a higher amount decided by the jury, include:

• Until and unless there is a post-trial agreement between the parties, the plaintiff may experience undue payment delay, receiving nothing for any and all expenses in the meantime.

• The plaintiff lawyer’s contingency fee is likewise held up.

• The defense may appeal the decision to a higher court, especially where damages are large – and this can delay payment by years, or even wipe out the judgment entirely if there is a reversal of the verdict.

• Fear of backlash against the trial lawyers in the community for publicity surrounding any attack on a doctor’s personal assets.

• Usually, there are other deep pockets, for example, the hospital, to go after in the same case to jointly reach or approach the award amount.

Although most policies allow the doctor to make the final decision regarding whether to settle and for how much, it is the insurer that recommends and hires the defense counsel, who then directs any settlement negotiations and/or trial strategy.

However, the defense lawyer’s primary duty is to the doctor, not to the insurer who pays his/her fees, and this can raise a conflict of interest. Doctors have been known to sue an insurer and its retained attorney for bad faith and negligent representation, as evidenced in a recent Florida stroke case over a $217 million jury award.

Thus, it’s important to look for the language in the "consent to settle" clause of the policy. In a recent case, the Rhode Island Supreme Court ruled that the insurer was within its right to settle – against the doctor’s wishes – in the middle of a trial. The policy contract had stipulated that the company could settle any claim or suit "as it deems expedient," a phrase the court interpreted as giving the insurer full authority and discretion.

Occasionally, a doctor refuses to settle for an amount within the insurance limits, preferring instead to proceed to trial. Should the doctor lose at trial, and the judgment is in excess of the earlier settlement amount, he or she may be personally liable for the difference, even if the amount is still within the policy limit. Some policies protect the insurer against this situation by containing such a provision, popularly termed "the hammer," as a way of persuading the physician to settle.

On the other hand, courts have held insurers financially responsible for trial awards that exceed policy limits if they had rejected an earlier settlement amount that was within those limits.

References

• AMA Policy Research Perspectives, "Medical Liability Claim Frequency: A 2007-2008 Snapshot of Physicians," August 2010.

• Rice, B. "Could a malpractice mega-verdict wipe you out?" (Med. Econ. 2003;80:89-91).

• Mohan Papudesu v. Medical Malpractice Joint Underwriting Assn. of Rhode Island, 18 A.3d 495 (R.I. 2011).

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at siang@hawaii.edu.

Question: You are about to retire, and it was one of those hectic and unbelievable final days. Your clinic assistant broke a hypodermic needle, which lodged in the patient’s deltoid. Another patient tripped and fell in your waiting room and sustained a fracture. And, in a heated and angry meeting, you voted with others on the peer-review committee of your hospital to suspend a "rotten apple" doctor. All three victims file suit against you 6 months into your retirement. Which of the following best describes the likely outcome?

A. Your professional malpractice insurance will indemnify you against all liabilities.

B. Only the first incident will be covered, because it’s the only one that involves malpractice.

C. Even the first incident is excluded, because your policy protects you but not your employees.

D. You face financial ruin, because you are now retired and no longer insured.

E. It all depends on your insurance policy.

Answer: E. Most professional liability policies should cover negligence on the part of the doctor and employees, as well as peer-review risks, although the hospital may also provide this latter coverage.

However, some policies are less expansive, so it behooves the doctor to carefully review the scope of coverage to include the above eventualities and others, such as premise liability (for example, tripping on the carpet or falling off a chair in the waiting-room) or educational liability (as when supervising a resident). Note that coverage is usually excluded for intentional torts, for example, assault and battery; or criminal activities, for example, Medicare fraud. Punitive damages are also typically excluded from coverage.

Virtually all policies nowadays are "claims made," which means coverage ends once you are no longer insured with the company, irrespective of when the alleged negligent act occurred. In order to maintain indemnification, you will have to buy "tail coverage" to protect you from a lawsuit arising from a past event but filed after your policy has lapsed, for example, in retirement or following relocation. The lag period between the expiration of the insurance policy and the bringing of suit is termed the "tail."

The term "nose coverage" is used instead to describe prior-acts coverage when a doctor applies to another insurer for a new policy. By definition, claims-made policies cover claims that are filed for incidents that both occur and are reported while the insurance policy is in force. In contrast, an "occurrence" policy is one in which the doctor is covered for all malpractice allegations, irrespective of when the lawsuit is brought. In a group practice, contractual terms regarding professional liability should specifically mention tail coverage.

Malpractice premiums vary greatly from state to state, and even among locales within a given state. Premiums are specialty-dependant, with the highest in risky specialties such as obstetrics and neurosurgery.

Primary care physicians are considered a relatively low-risk group. For example, the Medical Insurance Exchange of California, commonly known as MIEC, classifies family practitioners and general internists as class 4 physicians (out of 14 classes – the highest number signifying the riskiest). Discounts are generally available to the doctor who is new in practice, as well as for part-timers who practice less than 20 hours a week. On the average, internists in metropolitan areas pay an annual premium of $12,000 for a $1 million/$3 million claims-made policy – although an average figure is largely meaningless, because premiums are heavily influenced by the practice locality.

Insurance rates vary widely, and figures tend to be skewed to the high side whenever metropolitan data are used to define the state average. In addition, the numbers do not always represent annual premiums for a $1 million/$3 million claims-made policy. In some states, the limits may be lower, for example, $200,000/$600,000, and doctors pay a surcharge for excess coverage. Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina, and Wisconsin are examples of such states.

In 2012, the highest annual premiums for internists were in Florida ($47,000), Illinois ($40,000), Michigan ($35,000), Connecticut ($35,000), and New York ($34,000). The lowest rates were seen in Nebraska, Minnesota, South Dakota, Wisconsin, and California (all less than $4,000 per year). States with effective tort reforms, such as California, generally have lower rates.

Happily, premiums have been falling in the last 5 years, according to Medical Liability Monitor, a trade periodical. The Doctors Company and other carriers have reported that claims have halved over the past decade. The severity of claims, however, has continued to climb, with the occasional multimillion-dollar loss.

Overall, some 42% of surveyed physicians in 2007-2008 have had a malpractice claim filed against them, although most claims are dropped or decided in the doctor’s favor. Claims were reported by about 35% of family practitioners and general internists, while surgeons and obstetricians-gynecologists have higher rates, at 70%. Pediatricians and psychiatrist score the lowest, at around 20%.

Doctors typically purchase their insurance from a commercial carrier that specializes in malpractice liability, or subscribe to a physician mutual, also called "bedpan" mutual, which is a "risk-retention" group authorized under federal law in 1986 to underwrite malpractice liability. Not all risk-retention groups are successful. For example, the Tennessee-based Doctor’s Insurance Reciprocal went into bankruptcy in 2003, leaving some 3,000 doctors scrambling for coverage.

Malpractice insurance policies typically pay for all legal fees, including attorney and expert fees, as well as discovery and court costs. They pay damages up to the limit of the policy; a $1 million/$3 million claims-made policy means the limit for each claim is $1 million, and the limit for all claims in a given policy year is $3 million. If the judgment exceeds the policy limits, the doctor is personally liable for the remainder.

This has caused fear among some doctors, because their personal assets may then be at risk. A reassuring article in "Medical Economics" put it this way: "In theory, yes. But in reality, doctors rarely lose their personal assets."

Reasons why both sides usually settle for the policy limit or less, notwithstanding a higher amount decided by the jury, include:

• Until and unless there is a post-trial agreement between the parties, the plaintiff may experience undue payment delay, receiving nothing for any and all expenses in the meantime.

• The plaintiff lawyer’s contingency fee is likewise held up.

• The defense may appeal the decision to a higher court, especially where damages are large – and this can delay payment by years, or even wipe out the judgment entirely if there is a reversal of the verdict.

• Fear of backlash against the trial lawyers in the community for publicity surrounding any attack on a doctor’s personal assets.

• Usually, there are other deep pockets, for example, the hospital, to go after in the same case to jointly reach or approach the award amount.

Although most policies allow the doctor to make the final decision regarding whether to settle and for how much, it is the insurer that recommends and hires the defense counsel, who then directs any settlement negotiations and/or trial strategy.

However, the defense lawyer’s primary duty is to the doctor, not to the insurer who pays his/her fees, and this can raise a conflict of interest. Doctors have been known to sue an insurer and its retained attorney for bad faith and negligent representation, as evidenced in a recent Florida stroke case over a $217 million jury award.

Thus, it’s important to look for the language in the "consent to settle" clause of the policy. In a recent case, the Rhode Island Supreme Court ruled that the insurer was within its right to settle – against the doctor’s wishes – in the middle of a trial. The policy contract had stipulated that the company could settle any claim or suit "as it deems expedient," a phrase the court interpreted as giving the insurer full authority and discretion.

Occasionally, a doctor refuses to settle for an amount within the insurance limits, preferring instead to proceed to trial. Should the doctor lose at trial, and the judgment is in excess of the earlier settlement amount, he or she may be personally liable for the difference, even if the amount is still within the policy limit. Some policies protect the insurer against this situation by containing such a provision, popularly termed "the hammer," as a way of persuading the physician to settle.

On the other hand, courts have held insurers financially responsible for trial awards that exceed policy limits if they had rejected an earlier settlement amount that was within those limits.

References

• AMA Policy Research Perspectives, "Medical Liability Claim Frequency: A 2007-2008 Snapshot of Physicians," August 2010.

• Rice, B. "Could a malpractice mega-verdict wipe you out?" (Med. Econ. 2003;80:89-91).

• Mohan Papudesu v. Medical Malpractice Joint Underwriting Assn. of Rhode Island, 18 A.3d 495 (R.I. 2011).

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at siang@hawaii.edu.