Navigating Insurance Coverage Issues in Med Mal Litigation

Potential Claim Exposure in Excess of Insurance Limits

You bought $500,000 worth of medical malpractice insurance coverage. You figured that was certainly enough. After all, you had never faced a claim or a lawsuit before, right? In fact, a $500,000 policy seemed like an excessively risk-averse purchase. However, now you face a medical malpractice lawsuit. The plaintiff alleges that the doctor's error caused permanent injuries, past and future loss of income, and past and future pain and suffering. The attorney demands $1 million. You, the doctor, have just received from the insurance company a letter that insurers term an “excess ad damnum” letter. This is Latin for, “You may not have enough insurance.” Essentially, the letter gives notice that the claim could eventually exceed your insurance limits. This makes you reach for the Excedrin, or a stiff drink.

Now what?

Scenario 1: Plaintiff Demands to Settle Within Insurance Limits

In many jurisdictions, if an insurer can settle a claim within policy limits and unreasonably fails to do so, it may be responsible for sums above those limits. In this scenario, the plaintiff successfully “uncaps” the insurance policy limit and proceeds against the defendant physician. In such cases, if the plaintiff recovers an amount exceeding the insurance, the plaintiff might take an “assignment” from the policyholder not to execute on the judgment in exchange for the right to sue the insurer for damages.

No physician or hospital wants to face possible uninsured liability above the policy limit. Your insurance company should inform you of any and all demands to settle the claim. If you face a claim, communicate in writing to the adjuster that he or she must notify you promptly of all settlement demands and offers.

Scenario 2: Lawsuit Alleges Punitive Damages

In cases alleging egregious conduct, plaintiffs may seek punitive damages against a doctor, aiming to punish the physician and deter other physicians from similar behavior. Many insurance policies exclude punitive damages, and some states, for public policy reasons, consider punitive damages uninsurable. So, if the lawsuit alleges punitive damages, the insurance company may say they are not covered by your policy.

A Lawsuit That Alleges Uncovered Acts

A suit that alleges damages for uncovered acts may expose you more than the skimpiest hospital gown. Such allegations might include assault, battery or other acts which the insurance may exclude from coverage with an “intentional acts” exclusion. For example, you may partner with three other doctors, each of whom has surgical privileges. One partner performs a heart bypass on a patient, who later suffers adverse after-effects. The Operative Report is generated using a template, and it incorrectly states that you performed the bypass. As the patient struggles with postoperative complications, he gets a lawyer who subpoenas the medical chart. Among those records is the inaccurate Operative Report. Since the informed consent did not list you as performing the procedure, the patient/plaintiff sues you for battery. The insurance adjuster scans the suit papers, compares them with the insurance policy and reserves rights or disclaims coverage based upon an exclusion for intentional acts.

A Lawsuit Alleging Treatment Falling Outside Dates of Coverage

Your treatment of patient Smith extends over a six-year period. One day, you receive a lawsuit from Mrs. Smith alleging that, over an 18-month span, you failed to diagnose her ovarian cancer. During this 18-month span, you switched medical malpractice coverage from one company to another. The timeline straddles two policy periods, each underwritten by different insurers. You try to figure out which insurance company is responsible for claim-handling and hiring a defense attorney.

Usually, the date of accident, loss or occurrence in a medical malpractice case is easily identified. This has a specific date, time and place. Other times, however, the nature of the allegation is murkier, less amenable to pinpointing the occurrence to a specific date, time and place. This poses insurance coverage challenges. The “earlier” insurance company may say the case is the subsequent carrier's responsibility. The current insurer may claim that the loss is the prior insurer's responsibility. While the insurance companies play a game of “hot potato,” the physician is caught in the middle.

In next month's newsletter, we will look at other medical malpractice insurance coverage problems that may unexpectedly arise if we are not cognizant of them and do not take precautions to avoid them, where possible.

Kevin M. Quinley, CPCU, ARM, a member of this newsletter's Board of Editors, is the Principal of Quinley Risk Associates LLC, a risk management consulting firm. His book, Bulletproofing Your Medical Practice, is available from Quinley Risk Associates. He can be reached at [email protected] or at 804-796-1939.

For a physician or other health care defendant, being sued for medical malpractice is stressful. The saving grace for many is the financial safety net of liability insurance to cushion the blow and avoid monetary ruin for a physician or hospital. However, every net ' including a safety net ' has holes. Health care defendants can learn, often too late, that they face unexpected insurance coverage headaches. Being aware of these problems before a crisis erupts can arm the practitioner to perhaps avoid facing such traps during the lifespan of a malpractice claim.

This article's purpose is to spotlight potential insurance coverage tripwires that can exist in medical malpractice litigation. The aim is to empower physicians, other health care professionals and those who provide legal counsel to them to sidestep insurance coverage problems that can hamstring effective defense or be an expensive distraction during litigation. These observations flow from the author's experience as a claims professional and 30-plus years of handling medical liability claims. The views here do not constitute legal advice, but rather risk management observations and practice tips for health care defendants and those who represent them.

Let's examine some common insurance coverage pitfalls that can arise in the midst of a medical malpractice claim or lawsuit.

Potential Claim Exposure in Excess of Insurance Limits

You bought $500,000 worth of medical malpractice insurance coverage. You figured that was certainly enough. After all, you had never faced a claim or a lawsuit before, right? In fact, a $500,000 policy seemed like an excessively risk-averse purchase. However, now you face a medical malpractice lawsuit. The plaintiff alleges that the doctor's error caused permanent injuries, past and future loss of income, and past and future pain and suffering. The attorney demands $1 million. You, the doctor, have just received from the insurance company a letter that insurers term an “excess ad damnum” letter. This is Latin for, “You may not have enough insurance.” Essentially, the letter gives notice that the claim could eventually exceed your insurance limits. This makes you reach for the Excedrin, or a stiff drink.

Now what?

Scenario 1: Plaintiff Demands to Settle Within Insurance Limits

In many jurisdictions, if an insurer can settle a claim within policy limits and unreasonably fails to do so, it may be responsible for sums above those limits. In this scenario, the plaintiff successfully “uncaps” the insurance policy limit and proceeds against the defendant physician. In such cases, if the plaintiff recovers an amount exceeding the insurance, the plaintiff might take an “assignment” from the policyholder not to execute on the judgment in exchange for the right to sue the insurer for damages.

No physician or hospital wants to face possible uninsured liability above the policy limit. Your insurance company should inform you of any and all demands to settle the claim. If you face a claim, communicate in writing to the adjuster that he or she must notify you promptly of all settlement demands and offers.

Scenario 2: Lawsuit Alleges Punitive Damages

In cases alleging egregious conduct, plaintiffs may seek punitive damages against a doctor, aiming to punish the physician and deter other physicians from similar behavior. Many insurance policies exclude punitive damages, and some states, for public policy reasons, consider punitive damages uninsurable. So, if the lawsuit alleges punitive damages, the insurance company may say they are not covered by your policy.

A Lawsuit That Alleges Uncovered Acts

A suit that alleges damages for uncovered acts may expose you more than the skimpiest hospital gown. Such allegations might include assault, battery or other acts which the insurance may exclude from coverage with an “intentional acts” exclusion. For example, you may partner with three other doctors, each of whom has surgical privileges. One partner performs a heart bypass on a patient, who later suffers adverse after-effects. The Operative Report is generated using a template, and it incorrectly states that you performed the bypass. As the patient struggles with postoperative complications, he gets a lawyer who subpoenas the medical chart. Among those records is the inaccurate Operative Report. Since the informed consent did not list you as performing the procedure, the patient/plaintiff sues you for battery. The insurance adjuster scans the suit papers, compares them with the insurance policy and reserves rights or disclaims coverage based upon an exclusion for intentional acts.

A Lawsuit Alleging Treatment Falling Outside Dates of Coverage

Your treatment of patient Smith extends over a six-year period. One day, you receive a lawsuit from Mrs. Smith alleging that, over an 18-month span, you failed to diagnose her ovarian cancer. During this 18-month span, you switched medical malpractice coverage from one company to another. The timeline straddles two policy periods, each underwritten by different insurers. You try to figure out which insurance company is responsible for claim-handling and hiring a defense attorney.

Usually, the date of accident, loss or occurrence in a medical malpractice case is easily identified. This has a specific date, time and place. Other times, however, the nature of the allegation is murkier, less amenable to pinpointing the occurrence to a specific date, time and place. This poses insurance coverage challenges. The “earlier” insurance company may say the case is the subsequent carrier's responsibility. The current insurer may claim that the loss is the prior insurer's responsibility. While the insurance companies play a game of “hot potato,” the physician is caught in the middle.

In next month's newsletter, we will look at other medical malpractice insurance coverage problems that may unexpectedly arise if we are not cognizant of them and do not take precautions to avoid them, where possible.

Kevin M. Quinley, CPCU, ARM, a member of this newsletter's Board of Editors, is the Principal of Quinley Risk Associates LLC, a risk management consulting firm. His book, Bulletproofing Your Medical Practice, is available from Quinley Risk Associates. He can be reached at [email protected] or at 804-796-1939.