Navigating Insurance Coverage Issues in Med Mal Litigation

Suppose hackers successfully breach a hospital's or medical practice's computer system. They may use such information to carry out identity theft, to disclose confidential information or to blackmail the entities possessing the data. Patients could sue doctors or hospitals for negligence, and for failure to institute reasonable measures to safeguard data. Would the medical malpractice insurance policy cover such claims? Would the damages alleged constitute “bodily injury” or property damage?

Don't Bet on It!

Cyber threats merit consideration by doctors, hospitals and other health care entities to make sure that they take steps to mitigate same. Such steps may be loss-control services, outsourcing the function to qualified vendors or buying cyber-liability insurance, or some combination of all of these tactics. The point is that physicians who assume that they are fully covered by insurance policies may get a painful education that pales in comparison to the rigors of medical school and residency.

No physician embroiled in a medical malpractice claim wants to fight a two-front war, one with the plaintiff/patient and the other with his or her own insurance company. Surviving a malpractice claim is stressful enough without that additional dynamic and overlay. While the preceding are some of the biggest insurance coverage land mines facing doctors and medical malpractice claims, here are some others to bear in mind.

Some Additional Medical Malpractice Coverage Battlegrounds

There are several other allegations against a physician or hospital that could cloud insurance coverage, prompting an insurance company to reserve coverage rights or deny coverage. Some of them are:

Intentional acts. Scenario: A patient or former patient sues a doctor, alleging battery, misrepresentation, fraud or intentional infliction of emotional distress.

Sexual misconduct. Scenario: A patient or former patient alleges sexual relations with a doctor.

Business enterprise issues. Scenario: A plaintiff names a medical practice as a defendant solely as an administrator or supervisor, in the absence of any direct contact with the plaintiff/patient.

Product liability claims, typically arising from use of medical devices or drugs. Scenario: An OB/GYN oncologist uses power morcellators to treat patients. (The device has received scrutiny for safety reasons because it can spread cancer cells beyond the immediate growth area.) The patient sues the device manufacturer on product liability grounds and adds the physician for good measure. The claim might include allegations of breach of warranty.

Violation of consumer protection laws such as the Deceptive Trade Practice Act. Scenario: A patient alleges a doctor performed unnecessary procedures to maximize insurance payments and revenues for her medical practice. The patient claims that this business practice ' which reaped huge profits for the doctor ' violated the state Consumer Protection Act. (Such acts often allow treble damages and recovery of the plaintiff's legal fees.)

Hearings for peer review, licensing or grievances. Scenario: A health insurer conducts a quality assurance review on a doctor, identifies patient care issues, and drops that physician from eligibility under its plan as an approved provider. The doctor appeals the ruling, but needs a lawyer to represent him or her at the review hearing.

A physician faces a lawsuit from another healthcare provider, including claims of antitrust, defamation, etc' Scenario: Doctor A tells nurses, patients and other physicians that Doctor B “is knife-happy and doesn't know what he's doing.” Doctor B learns this and sues Doctor A for defamation.

Employment-related claims alleging discrimination, harassment, or other employment practices. Scenario: A medical office worker claims she has suffered from a hostile work environment from a physician/boss whose conduct has been abrasive, abusive and overbearing.

Taking Action

Having seen some chief hidden insurance landmines that can detonate during a medical malpractice claim, let us turn our attention to strategies to mitigate these risks.

Read the Policy!

Yes, reading an insurance policy is up there on the excitement scale with scanning meeting minutes of the Federal Reserve Board. Nevertheless, the large print giveth and the small print taketh away. Best to find out before a claim arrives: What is covered and what is not?

Request Independent Counsel

If the insurance company flags potential coverage exclusions or reasons to contest coverage, immediately request that the insurance company provide you with independent counsel. Often, an insurance company's decision to reserve coverage rights reflects a conflict of interest. A reservation-of-rights letter does not deny a claim. Instead it flags a coverage issue, which could eventually lead to the insurance company disclaiming coverage. It buys time for the insurance company to investigate the claim without being accused of having accepted the claim by undertaking an investigation. It's a way for the insurance company to tell the policyholder, “We are investigating the claim, but don't assume from that activity that you are fully covered for the loss.”

On the one hand, the insurance company has a financial interest in not paying the claim by denying coverage. On the other hand, the physician/policyholder has an interest in having the insurance company provide the most vigorous defense possible. The initial attorney hired by the insurance company cannot fulfill both roles in defending the physician and assessing the coverage issues. These need to be split.

Challenge Any Reservation-of-Rights Letter

Have legal counsel review any reservation-of-rights letter sent by an insurance company. If the reasons in the letter do not make sense or lack a factual basis, send a reply challenging the reservation of rights and requesting that the insurer remove its reservation. If you disagree with the reservation of rights, promptly tell the insurer your reasons. This paper trail will help if the case goes to court. Maybe the insurer has misinterpreted a law, or perhaps its interpretation of “occurrence” is unduly narrow in light of policy language. Explain your rationale, send it to the claims rep through certified mail/return receipt requested, and set a deadline for a response. This turns up the heat on the insurer to reassess its position.

Press for Specifics

Some insurers have the philosophy that reservation-of-rights letters should be vague: “Throw it up against the wall and see what sticks ' .” This gives an insurer more options to cherry-pick among reasons to deny coverage. Some states restrict an insurer's coverage defenses to those stated in its initial reservation of rights letter, so the insurer adds the proverbial kitchen sink when citing every conceivable policy defense.

Challenge Vague Reservation-of-Rights Letters

Do not tolerate letters that fail to specifically refer to policy language and policy provisions, chapter and verse, or quote policy language that does not relate to the claim you are facing. A vague reservation-of-rights letter may be a sign that you have an inexperienced or incompetent adjuster handling your claim. In either event, do not passively accept the coverage reservation.

Start the Stopwatch

Once an insurer reserves rights, it should eventually declare whether it is covering a claim or not. In other words, reservation-of-rights letters have limited shelf-lives. An insurer must eventually “get off the fence.” In practice, however, it is not unusual for harried adjusters ' struggling with high caseloads and high turnover ' to ease off after sending a reservation-of-rights letter and not clearly communicate to the insured whether it disclaims coverage or not.

Generally, an insured deserves a prompt determination by the insurer as to whether or not it will deny or grant coverage, even if the insurer defends under a reservation of rights. Insurers that reserve rights and then defend a claim for months ' or years ' may face a court that says the insurer took too long and is stuck covering the claim. (Of course, this is the very problem that the reservation-of-rights letter is designed to avoid.)

Utilize the Insurance Broker 'To the Max'

This piece of advice is important at the pre-purchase stage, when you are comparing different insurance policies and proposals. Have the broker analyze different insurance company policies and recommend two or three candidates that provide the broadest coverage at the lowest cost. There may be trade-offs, as the broadest coverage may not be the cheapest. In such cases, don't be “penny-wise and pound-foolish.” It is pointless trying to save a few hundred ' or even thousand ' dollars in insurance costs if the “savings” leave you uncovered for hundreds of thousands of dollars or with an insurer in dire financial straits. In medical malpractice insurance, as in other purchases, sometimes things are cheaper for a reason. Insurance brokers are steeped in insurance policy analysis and interpretation. Leverage their expertise to help you analyze and to plug any coverage gaps, to maximize your financial insulation from liability.

Conclusion

Remember ' insurance is not a cure-all ' no more than is medicine. Insurance cushions and mitigates the financial consequences of loss. However, it may not totally insulate a doctor or health care defendant from monetary pain. Knowing the soft spots in the safety net can help physicians, health care defendants and their attorneys to navigate the rocks and shoals that might otherwise hamper effective malpractice defense. Consider these practice tips in your toolbox of strategies to address common insurance coverage maladies.

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

In last month's newsletter, we saw that insurance problems may lurk in the shadows, even for those medical professionals and entities that think they are fully covered. We continue the discussion of “insurance traps” here.

Cyber Liability

Most headlines involve data breaches and hacker intrusion into financial institutions, such as insurance companies and retailers (e.g., Target). However, health care institutions are wellsprings of sensitive personal data.

Suppose hackers successfully breach a hospital's or medical practice's computer system. They may use such information to carry out identity theft, to disclose confidential information or to blackmail the entities possessing the data. Patients could sue doctors or hospitals for negligence, and for failure to institute reasonable measures to safeguard data. Would the medical malpractice insurance policy cover such claims? Would the damages alleged constitute “bodily injury” or property damage?

Don't Bet on It!

Cyber threats merit consideration by doctors, hospitals and other health care entities to make sure that they take steps to mitigate same. Such steps may be loss-control services, outsourcing the function to qualified vendors or buying cyber-liability insurance, or some combination of all of these tactics. The point is that physicians who assume that they are fully covered by insurance policies may get a painful education that pales in comparison to the rigors of medical school and residency.

No physician embroiled in a medical malpractice claim wants to fight a two-front war, one with the plaintiff/patient and the other with his or her own insurance company. Surviving a malpractice claim is stressful enough without that additional dynamic and overlay. While the preceding are some of the biggest insurance coverage land mines facing doctors and medical malpractice claims, here are some others to bear in mind.

Some Additional Medical Malpractice Coverage Battlegrounds

There are several other allegations against a physician or hospital that could cloud insurance coverage, prompting an insurance company to reserve coverage rights or deny coverage. Some of them are:

Intentional acts. Scenario: A patient or former patient sues a doctor, alleging battery, misrepresentation, fraud or intentional infliction of emotional distress.

Sexual misconduct. Scenario: A patient or former patient alleges sexual relations with a doctor.

Business enterprise issues. Scenario: A plaintiff names a medical practice as a defendant solely as an administrator or supervisor, in the absence of any direct contact with the plaintiff/patient.

Product liability claims, typically arising from use of medical devices or drugs. Scenario: An OB/GYN oncologist uses power morcellators to treat patients. (The device has received scrutiny for safety reasons because it can spread cancer cells beyond the immediate growth area.) The patient sues the device manufacturer on product liability grounds and adds the physician for good measure. The claim might include allegations of breach of warranty.

Violation of consumer protection laws such as the Deceptive Trade Practice Act. Scenario: A patient alleges a doctor performed unnecessary procedures to maximize insurance payments and revenues for her medical practice. The patient claims that this business practice ' which reaped huge profits for the doctor ' violated the state Consumer Protection Act. (Such acts often allow treble damages and recovery of the plaintiff's legal fees.)

Hearings for peer review, licensing or grievances. Scenario: A health insurer conducts a quality assurance review on a doctor, identifies patient care issues, and drops that physician from eligibility under its plan as an approved provider. The doctor appeals the ruling, but needs a lawyer to represent him or her at the review hearing.

A physician faces a lawsuit from another healthcare provider, including claims of antitrust, defamation, etc' Scenario: Doctor A tells nurses, patients and other physicians that Doctor B “is knife-happy and doesn't know what he's doing.” Doctor B learns this and sues Doctor A for defamation.

Employment-related claims alleging discrimination, harassment, or other employment practices. Scenario: A medical office worker claims she has suffered from a hostile work environment from a physician/boss whose conduct has been abrasive, abusive and overbearing.

Taking Action

Having seen some chief hidden insurance landmines that can detonate during a medical malpractice claim, let us turn our attention to strategies to mitigate these risks.

Read the Policy!

Yes, reading an insurance policy is up there on the excitement scale with scanning meeting minutes of the Federal Reserve Board. Nevertheless, the large print giveth and the small print taketh away. Best to find out before a claim arrives: What is covered and what is not?

Request Independent Counsel

If the insurance company flags potential coverage exclusions or reasons to contest coverage, immediately request that the insurance company provide you with independent counsel. Often, an insurance company's decision to reserve coverage rights reflects a conflict of interest. A reservation-of-rights letter does not deny a claim. Instead it flags a coverage issue, which could eventually lead to the insurance company disclaiming coverage. It buys time for the insurance company to investigate the claim without being accused of having accepted the claim by undertaking an investigation. It's a way for the insurance company to tell the policyholder, “We are investigating the claim, but don't assume from that activity that you are fully covered for the loss.”

On the one hand, the insurance company has a financial interest in not paying the claim by denying coverage. On the other hand, the physician/policyholder has an interest in having the insurance company provide the most vigorous defense possible. The initial attorney hired by the insurance company cannot fulfill both roles in defending the physician and assessing the coverage issues. These need to be split.

Challenge Any Reservation-of-Rights Letter

Have legal counsel review any reservation-of-rights letter sent by an insurance company. If the reasons in the letter do not make sense or lack a factual basis, send a reply challenging the reservation of rights and requesting that the insurer remove its reservation. If you disagree with the reservation of rights, promptly tell the insurer your reasons. This paper trail will help if the case goes to court. Maybe the insurer has misinterpreted a law, or perhaps its interpretation of “occurrence” is unduly narrow in light of policy language. Explain your rationale, send it to the claims rep through certified mail/return receipt requested, and set a deadline for a response. This turns up the heat on the insurer to reassess its position.

Press for Specifics

Some insurers have the philosophy that reservation-of-rights letters should be vague: “Throw it up against the wall and see what sticks ' .” This gives an insurer more options to cherry-pick among reasons to deny coverage. Some states restrict an insurer's coverage defenses to those stated in its initial reservation of rights letter, so the insurer adds the proverbial kitchen sink when citing every conceivable policy defense.

Challenge Vague Reservation-of-Rights Letters

Do not tolerate letters that fail to specifically refer to policy language and policy provisions, chapter and verse, or quote policy language that does not relate to the claim you are facing. A vague reservation-of-rights letter may be a sign that you have an inexperienced or incompetent adjuster handling your claim. In either event, do not passively accept the coverage reservation.

Start the Stopwatch

Once an insurer reserves rights, it should eventually declare whether it is covering a claim or not. In other words, reservation-of-rights letters have limited shelf-lives. An insurer must eventually “get off the fence.” In practice, however, it is not unusual for harried adjusters ' struggling with high caseloads and high turnover ' to ease off after sending a reservation-of-rights letter and not clearly communicate to the insured whether it disclaims coverage or not.

Generally, an insured deserves a prompt determination by the insurer as to whether or not it will deny or grant coverage, even if the insurer defends under a reservation of rights. Insurers that reserve rights and then defend a claim for months ' or years ' may face a court that says the insurer took too long and is stuck covering the claim. (Of course, this is the very problem that the reservation-of-rights letter is designed to avoid.)

Utilize the Insurance Broker 'To the Max'

This piece of advice is important at the pre-purchase stage, when you are comparing different insurance policies and proposals. Have the broker analyze different insurance company policies and recommend two or three candidates that provide the broadest coverage at the lowest cost. There may be trade-offs, as the broadest coverage may not be the cheapest. In such cases, don't be “penny-wise and pound-foolish.” It is pointless trying to save a few hundred ' or even thousand ' dollars in insurance costs if the “savings” leave you uncovered for hundreds of thousands of dollars or with an insurer in dire financial straits. In medical malpractice insurance, as in other purchases, sometimes things are cheaper for a reason. Insurance brokers are steeped in insurance policy analysis and interpretation. Leverage their expertise to help you analyze and to plug any coverage gaps, to maximize your financial insulation from liability.

Conclusion

Remember ' insurance is not a cure-all ' no more than is medicine. Insurance cushions and mitigates the financial consequences of loss. However, it may not totally insulate a doctor or health care defendant from monetary pain. Knowing the soft spots in the safety net can help physicians, health care defendants and their attorneys to navigate the rocks and shoals that might otherwise hamper effective malpractice defense. Consider these practice tips in your toolbox of strategies to address common insurance coverage maladies.

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