To Settle or Defend

6. Caliber of opposing counsel. Does the defendant doctor face an attorney who specializes in medical malpractice? Does opposing counsel dabble in a wide range of personal injury law, only part of which is medical malpractice? Do you face an attorney who has been a “bell ringer” in the past, winning large awards against health care providers? Does the lawyer tend to settle, or is opposing counsel aggressive about taking cases to trial? These are factors for the defendant physician, defense attorney and insurance claims representative to weigh in deciding whether to go to trial or to consent to settle.

7. Judge tendencies. The judge assigned to the case is a key element in weighing whether or not to go to trial. Some judges lean towards plaintiffs. Others are more defense-oriented. Some judges liberally “let everything in.” Others are strict gatekeepers regarding admissible evidence. Ask defense counsel what he or she knows about the judge, the judge's leanings, predispositions, and tendency to keep a tight rein on a trial.

Note, many of the preceding factors may have nothing to do with legal liability, i.e. , whether or not the physician actually breached or conformed to the standard of care. These are business decision factors, extraneous to liability, that can help shape the decision to defend or settle. Physicians, defense attorneys and insurance carriers may decide to settle cases of little or no liability for extraneous but valid reasons external to the merits of the standard of care delivered.

8. Fallout from an adverse jury award. Defendant doctors are often concerned about the precedent factor of a settlement. If they approve paying a “gray area” case, won't that encourage other claims to emerge from the woodwork? The flip side is that, if a physician loses at trial, that will garner more headlines than any settlement, especially when most settlement resolutions (unlike jury verdicts) are subject to confidentiality orders.

The Domino Theory against settlements often presumes victory at trial. While doctors win most medical malpractice cases that are tried, victory is not assured. Physicians must weigh the risk of setting a bad precedent by settling the case with the risk of an adverse courtroom outcome.

In the latter case, there may be a greater danger of copycat litigation against a physician. In addition to copycat suits, physicians must also weigh adverse publicity, especially since whopping medical malpractice awards tend to hit the news media. By contrast, large settlements are often products of discrete negotiation with no publicity or disclosure. This is not to say that physicians should settle every case and avoid trial. However, doctors should be clear-headed in objectively weighing the relative risks of settlement versus trial.

Four Quadrants for Case Evaluation

Doctors, lawyers and insurers can stratify medical malpractice claims into four quadrants. Each quadrant merits different strategies and risks. Here are four ways to view medical malpractice claims:

A. Liability defenses weak/damages low. Settle these cases! Example: A physician made an obvious error, causing a minor injury. In such cases, a quick settlement is in the physician's best interest and no agonizing decision is needed.

B. Liability defenses strong/damages low. Defend these cases. Scenario: The physician adhered to the standard of care and there was minor injury or adverse outcome to the patient. Again, these cases do not engender extensive deliberation in selecting a strategy.

C. Liability defenses weak/damages strong. These cases are prime settlement candidates. Where the physician made an obvious mistake, e.g. , operating on the wrong leg and amputating a healthy limb, such cases beg for settlement before going before a jury.

D. Liability defense strong/damages high. These cases create agonizing decisions. The physician may strongly believe that he or she followed the standard of care. Perhaps experts hired by the insurer or defense lawyer support the doctor. However, the patient's injuries are severe and likely to evoke jury sympathy. Consider a case involving delivery of a baby where the OB/GYN acted appropriately, but a hypoxic event caused brain damage and the need for lifetime care.

Excess Exposure Risk: Levers to Drive Settlement

Scenario: A physician has a $1 million insurance policy and a defensible claim against a patient/plaintiff who has catastrophic injuries and astronomical damages. The plaintiff has demanded $1 million, equal to the policy limits. The insurance company may believe the plaintiff's demand is excessive and that a $1 million demand is twice the claim's value. Moreover, the insurance company may feel that it has a 90% chance of winning a defense verdict trial.

Policyholder physicians may understand the insurance company's math, but take little comfort. They did not buy insurance to run a 10% risk that they would lose their home and savings, and need to start over in life at the age of 45 or 50. While the insurance company “owns” the first $100,000 or $500,000 or $1 million of risk (depending upon the amount of insurance purchased), the physician “owns” the remaining balance. This can have a sobering impact on decisions to defend or settle.

If the penalty for guessing wrong is a multimillion-dollar award, this presents a physician with excess exposure and liability above the insurance limits, imperiling the physician's personal assets. The insurance company and the defendant physician may agree that the plaintiff has only, say, a one-in-10 chance of winning. However, these are subjective and unscientific risk assessments. If the patient prevails in those one-in-10 odds, the downside to the physician could be a multimillion-dollar jury award and personal financial ruin.

While most medical malpractice insurance policies give the insured physician veto power over settlement, virtually none empower a policyholder to force an insurer to settle. While doctors can block insurer attempts to settle cases which the doctor feels are not meritorious, physicians cannot cite insurance policy language to compel insurers to resolve cases. But even though such language is lacking in the insurance policy, This does not mean that an insured physician is powerless to apply pressure on an insurer that fails to see the potential risk to the policyholder of an adverse courtroom outcome.

For example, the policyholder can retain independent counsel, not chosen by the insurance company, to represent his or her own interests. (The cost of this independent counsel may come out of the physician's own pocket. Still, it may prove to be a prudent investment.)

Further, the insured physician can ' preferably in writing ' send a letter to the insurance company's claim representative, demanding that the insurer take all steps to settle the claim within policy limits. This helps the doctor if the insurance company ignores the advice, gambles at trial, and the trial yields an award above the doctor's insurance policy limit. In such cases, the physician then may be able to pursue a bad-faith claim against the insurer for its negligent failure to settle the claim within policy limits when it could have and should have done so.

To be sure, success in such bad faith claims is not guaranteed, but the potential represents a potent lever that can often cause insurance adjusters to pause, reflect and revisit settlement options. Bottom line: Even though malpractice policies do not give the physician the right to compel an insurer to settle, savvy physicians can exert leverage on the insurance company to weigh that option or else face significant financial consequences of its own. While juries are often sympathetic toward physicians, they are most decidedly not sympathetic toward insurance companies!

Conclusion

When doctors facing malpractice claims and lawsuits ponder the fork in the road ' “Should I settle or should I defend?” ' they will find that there is no “app” for that. In lieu of consulting Siri, consider the factors enumerated in Parts One and Two of this article to reach a fully informed and reasoned decision.

Kevin M. Quinley, CPCU, ARM , is the Principal of Quinley Risk Associates LLC, a risk management consulting firm, and a member of this newsletter's Board of Editors. His book, Bulletproofing Your Medical Practice, is available from SEAK, Inc. Reach him at mailto:kevin@kevin%20quinley.com or at 804-796-1939.

Editor's Note: When trying to make a reasoned decision about whether to settle or defend a medical malpractice claim, there are a number of things that should be taken into account. In this regard, author Kevin Quinley offers eight factors to consider, four of which were addressed in last month's newsletter: the defensibility of the physician's adherence to the standard of care; the scope of damages; the potential for uncovered damages; and the plaintiff sympathy factors. He concludes his discussion herein.

5. Court venue. Medical malpractice litigation is like real estate. Location matters. Is the case in state court or federal court? A defense bar perception is that the caliber of judges is higher in federal court than in state court. Many state court judges are elected. Often, the risks for defendants are considered higher in state courts. Moreover, not all jurisdictions are created equal in terms of jury trends and demographics.

There are certain areas that defense lawyers consider “tort hellholes.” (Some legal groups publish annual “Top Ten” lists of areas most prone to high civil damage awards.) Examples: South Texas, East St. Louis and South Florida. The physician should ask defense counsel what he or she knows about the court venue and its jury tendencies. Moreover, as trial becomes likely, ask the insurance company to conduct jury verdict research to assess trends in comparable cases. If it looks like the case will likely go to trial, suggest that it convene focus groups to beta-test defense themes as an evaluation tool.

6. Caliber of opposing counsel. Does the defendant doctor face an attorney who specializes in medical malpractice? Does opposing counsel dabble in a wide range of personal injury law, only part of which is medical malpractice? Do you face an attorney who has been a “bell ringer” in the past, winning large awards against health care providers? Does the lawyer tend to settle, or is opposing counsel aggressive about taking cases to trial? These are factors for the defendant physician, defense attorney and insurance claims representative to weigh in deciding whether to go to trial or to consent to settle.

7. Judge tendencies. The judge assigned to the case is a key element in weighing whether or not to go to trial. Some judges lean towards plaintiffs. Others are more defense-oriented. Some judges liberally “let everything in.” Others are strict gatekeepers regarding admissible evidence. Ask defense counsel what he or she knows about the judge, the judge's leanings, predispositions, and tendency to keep a tight rein on a trial.

Note, many of the preceding factors may have nothing to do with legal liability, i.e. , whether or not the physician actually breached or conformed to the standard of care. These are business decision factors, extraneous to liability, that can help shape the decision to defend or settle. Physicians, defense attorneys and insurance carriers may decide to settle cases of little or no liability for extraneous but valid reasons external to the merits of the standard of care delivered.

8. Fallout from an adverse jury award. Defendant doctors are often concerned about the precedent factor of a settlement. If they approve paying a “gray area” case, won't that encourage other claims to emerge from the woodwork? The flip side is that, if a physician loses at trial, that will garner more headlines than any settlement, especially when most settlement resolutions (unlike jury verdicts) are subject to confidentiality orders.

The Domino Theory against settlements often presumes victory at trial. While doctors win most medical malpractice cases that are tried, victory is not assured. Physicians must weigh the risk of setting a bad precedent by settling the case with the risk of an adverse courtroom outcome.

In the latter case, there may be a greater danger of copycat litigation against a physician. In addition to copycat suits, physicians must also weigh adverse publicity, especially since whopping medical malpractice awards tend to hit the news media. By contrast, large settlements are often products of discrete negotiation with no publicity or disclosure. This is not to say that physicians should settle every case and avoid trial. However, doctors should be clear-headed in objectively weighing the relative risks of settlement versus trial.

Four Quadrants for Case Evaluation

Doctors, lawyers and insurers can stratify medical malpractice claims into four quadrants. Each quadrant merits different strategies and risks. Here are four ways to view medical malpractice claims:

A. Liability defenses weak/damages low. Settle these cases! Example: A physician made an obvious error, causing a minor injury. In such cases, a quick settlement is in the physician's best interest and no agonizing decision is needed.

B. Liability defenses strong/damages low. Defend these cases. Scenario: The physician adhered to the standard of care and there was minor injury or adverse outcome to the patient. Again, these cases do not engender extensive deliberation in selecting a strategy.

C. Liability defenses weak/damages strong. These cases are prime settlement candidates. Where the physician made an obvious mistake, e.g. , operating on the wrong leg and amputating a healthy limb, such cases beg for settlement before going before a jury.

D. Liability defense strong/damages high. These cases create agonizing decisions. The physician may strongly believe that he or she followed the standard of care. Perhaps experts hired by the insurer or defense lawyer support the doctor. However, the patient's injuries are severe and likely to evoke jury sympathy. Consider a case involving delivery of a baby where the OB/GYN acted appropriately, but a hypoxic event caused brain damage and the need for lifetime care.

Excess Exposure Risk: Levers to Drive Settlement

Scenario: A physician has a $1 million insurance policy and a defensible claim against a patient/plaintiff who has catastrophic injuries and astronomical damages. The plaintiff has demanded $1 million, equal to the policy limits. The insurance company may believe the plaintiff's demand is excessive and that a $1 million demand is twice the claim's value. Moreover, the insurance company may feel that it has a 90% chance of winning a defense verdict trial.

Policyholder physicians may understand the insurance company's math, but take little comfort. They did not buy insurance to run a 10% risk that they would lose their home and savings, and need to start over in life at the age of 45 or 50. While the insurance company “owns” the first $100,000 or $500,000 or $1 million of risk (depending upon the amount of insurance purchased), the physician “owns” the remaining balance. This can have a sobering impact on decisions to defend or settle.

If the penalty for guessing wrong is a multimillion-dollar award, this presents a physician with excess exposure and liability above the insurance limits, imperiling the physician's personal assets. The insurance company and the defendant physician may agree that the plaintiff has only, say, a one-in-10 chance of winning. However, these are subjective and unscientific risk assessments. If the patient prevails in those one-in-10 odds, the downside to the physician could be a multimillion-dollar jury award and personal financial ruin.

While most medical malpractice insurance policies give the insured physician veto power over settlement, virtually none empower a policyholder to force an insurer to settle. While doctors can block insurer attempts to settle cases which the doctor feels are not meritorious, physicians cannot cite insurance policy language to compel insurers to resolve cases. But even though such language is lacking in the insurance policy, This does not mean that an insured physician is powerless to apply pressure on an insurer that fails to see the potential risk to the policyholder of an adverse courtroom outcome.

For example, the policyholder can retain independent counsel, not chosen by the insurance company, to represent his or her own interests. (The cost of this independent counsel may come out of the physician's own pocket. Still, it may prove to be a prudent investment.)

Further, the insured physician can ' preferably in writing ' send a letter to the insurance company's claim representative, demanding that the insurer take all steps to settle the claim within policy limits. This helps the doctor if the insurance company ignores the advice, gambles at trial, and the trial yields an award above the doctor's insurance policy limit. In such cases, the physician then may be able to pursue a bad-faith claim against the insurer for its negligent failure to settle the claim within policy limits when it could have and should have done so.

To be sure, success in such bad faith claims is not guaranteed, but the potential represents a potent lever that can often cause insurance adjusters to pause, reflect and revisit settlement options. Bottom line: Even though malpractice policies do not give the physician the right to compel an insurer to settle, savvy physicians can exert leverage on the insurance company to weigh that option or else face significant financial consequences of its own. While juries are often sympathetic toward physicians, they are most decidedly not sympathetic toward insurance companies!

Conclusion

When doctors facing malpractice claims and lawsuits ponder the fork in the road ' “Should I settle or should I defend?” ' they will find that there is no “app” for that. In lieu of consulting Siri, consider the factors enumerated in Parts One and Two of this article to reach a fully informed and reasoned decision.

Kevin M. Quinley, CPCU, ARM , is the Principal of Quinley Risk Associates LLC, a risk management consulting firm, and a member of this newsletter's Board of Editors. His book, Bulletproofing Your Medical Practice, is available from SEAK, Inc. Reach him at mailto:kevin@kevin%20quinley.com or at 804-796-1939.