Extracting the 'Consent to Settle': A Game Plan for Insurers and Defense Counsel

In an earlier two-part article (Medical Malpractice Law & Strategy' August and September 2015, available at http://bit.ly/1PMdoma and http://bit.ly/1PMdytH, respectively), I discussed coverage issues that can arise when pondering settlement-versus-defense strategy in medical malpractice cases. While some common ground exists, in the article herein, we take a slightly different approach. The discussion here zeros in not only on factors for defendant physicians to weigh, but presents “talking points” that defense attorneys and insurers can use when persuading recalcitrant physicians to consent to settle. It recognizes situations where physician-policyholders are loath to agree to settlement when resolution is a superior option to trial.

Reasons for Consent-to-Settle Clauses

Various reasons drive the consent-to-settle feature in medical malpractice policies. These policies deal with professional reputations. A doctor's reputation is key to his or her ability to successfully practice medicine. Settling a malpractice claim can stigmatize a physician, implying fault, despite boilerplate release language stating that payment does not equal an admission of liability.

Another reason for consent settlement provisions is that they represent an extra source of revenue for insurance carriers. Insurance companies charge more for medical malpractice policies that require an insured's consent to settle. Policies without this feature generally are less expensive. Thus, physicians pay extra for this right, and insurers charge more for the provision, representing a revenue source.

Yet another reason for consent-to-settle provisions is the classic criticism of insurance companies that they are too eager to settle dubious claims for “business reasons.” Some policyholders feel that they are thrown under the proverbial bus, that their interests in vindication are sacrificed for the expediency of an insurer closing its books with regard to a claim or liability. (As a counter rationale, insurance companies point to the concept of pragmatism and the fact that it makes no logical sense to spend two dollars to try to save one.) To thwart the perceived tendency by insurance companies to settle dubious claims ' thereby potentially encouraging more dubious claims in the future ' physicians often clamor for consent-to-settle clauses in their policies so as to exercise veto power over such ill-considered decisions.

Further, doctors carry the record of settlement throughout their careers. Insurers report malpractice settlements to the National Practitioner Data Base. In many states, insurers also report settlements to local medical licensing boards. When physicians seek hospital privileges, they disclose their claims history, including prior litigation and settlements. These may be “red flags” preventing a physician from gaining such privileges. This crimps a physician's earning power.

Consent-to-Settle Scenarios

Four different scenarios can arise regarding to consent-to-settle issues:

1. Both the insurance company and the physician agree that the case should be settled.
2. Both the insurance company and the physician agree that the case should be defended.
3. The insurance company advocates settlement, the physician objects and withholds consent.
4. The insurance company advocates defense but the physician grants consent or demands settlement.

Scenarios #1 and #2 pose no insurmountable problems. The focus of this article is on scenario #3 and, to a lesser extent, scenario #4.

Physicians and Settlement

Often, physicians in malpractice cases feel strongly about defending their standard of care and reputation, harboring a reflexive antipathy toward settlement. Sometimes, these feelings are justified. However, occasionally a physician's emotional investment in the case, bullishness about successful defense, resentment over being sued and desire for courtroom vindication override red-light warnings supporting settlement as a prudent option.

While most patients like their own doctors, such feelings may not transfer to jury-room deliberations, or carry over when laypeople judge the care rendered by a physician they have never met. Several factors can lead jurors to award large sums to injured patients. By the time a case is tried, a heartrending narrative often spotlights a plaintiff who suffered serious medical complications. Sympathy for the underdog can drive disproportionate jury awards.

Sometimes, lay jurors have difficulty understanding medicine and are baffled by well-credentialed experts on both sides. Some criticize the doctor's care of the patient. Others support the practitioner's decisions. Forgive jurors for thinking, “If medical experts can't reach consensus, how can we?” What they do know is that, if they rule for the physician, that pitiful patient/claimant/plaintiff will leave the courthouse without monetary recovery. In other cases, a physician may have deviated from the standard of care but refuses to recognize the fact. In yet other instances, physician hubris or perceived arrogance in front of the jury may yield a plaintiff's award.

As a result, insurers and defense attorneys defending high-stakes malpractice claims can find themselves coaxing reluctant physicians into agreeing to settle. This is a challenging role. The insurer and/or defense counsel may feel that discretion is the better part of valor and believe the physician should consent to settle. Often, such consent must be in writing. Without consent, the insurer and defense attorney may have to march toward the abyss, knowing the odds of losing the case but compelled to defend nonetheless, due to a recalcitrant physician who vetoes settlement.

Convincing the Doctor

Like it or not, attorneys and adjusters need sales skills to make a compelling case to reluctant physicians as to why they should settle. Here are factors which insurance carriers and attorneys representing physicians can spotlight to make the case for settlement:

• Opinion(s) of in-house medical consultants that the defendant physician deviated from the applicable standard of care;
• Expert opinions from outside physicians ' opinions that criticize the defendant's decisions or standard of care;
• The “batting average” and track record of plaintiff's counsel, if successful and specializing in medical malpractice cases;
• Venue-specific factors ' e.g., certain regions infamously produce high jury awards, such as Texas' Rio Grande Valley, South Florida, and other so-called “Tort Hellholes”;
• The jury-appeal of the respective parties: Some plaintiffs make sympathetic appearances while some physicians, despite coaching, have a “God Complex” and may come across as aloof, defensive or arrogant;
• The “circular firing squad” phenomenon: Finger-pointing among multiple defendants can hamper the odds of trial victory. Codefendants might be hospitals, nurses, physician assistants, or medical device/pharmaceutical manufacturers. Many medical malpractice claims blend professional and product liability counts, where adverse patient outcomes flow from medical device or drug side-effects. If defendants blame each other, this elevates the odds of a plaintiff verdict;
• The time-suck and stress on the physician. Continued defense of a likely “loser” case drains the doctor of time and emotional resources. A protracted trial preparation period and the trial itself will require more time out of the office, negatively impacting a physician's earnings;
• Reporting requirements at both the state and federal levels in the event of an adverse jury award should be a concern for physicians;
• A negotiated settlement usually affords confidentiality, whereas a jury award or judgment is a matter of public record and receives wider publicity;
• The physician is likely to gain more peace of mind through closure and putting the matter behind him or her, instead of having to relive the case again and again in the litigation process, during deposition, trial, etc.

Steps to Seeking Physician Consent

If an insured physician refuses to consent to settle, the medical malpractice carrier can draft a letter to the doctor covering certain aspects of the case, including:

• Reaffirming that the insurer will only pay the policy limit in the event of an excess verdict;
• Suggesting or reiterating that the physician might wish to retain personal counsel at his/her own expense;
• Reviewing the plaintiff's allegations against the physician;
• Reminding the doctor of the trial date and the time commitment that the case will entail;
• Referencing expert opinions that are behind the carrier's settlement recommendation;
• Citing defense counsel's recommendations and the percentage odds of winning at trial;
• Recapping in detail prior discussions with the physician concerning consent or lack thereof;
• Reviewing the doctor's policy limits and the plaintiff's damages, especially if potential damages exceed the defendant's insurance coverage (e.g., a $2 million value and a $1 million medical malpractice policy);
• Reciting prior and current demands made against the physician, if any, and the time limits imposed on any such demand.

When assessing the chances of trial victory or the range of possible damages, physicians are often adrift. Defense counsel and the carrier claims representative should assess the venue's law and take a clear-eyed look at a case's strengths and weaknesses, as well as the skill of opposing counsel. This type of analysis will afford the physician/client an objective means of assessing the odds of success.

This is not the physician's forte. Doctors often are not reliable prognosticators of case defensibility or trial success, especially when the latter is clouded by the physician's own subjective feelings. Emotional and intellectual investment in one's clinical decisions, immersion in medical minutiae, and physician self-confidence can blind practitioners to their case's weaknesses, the strengths of the plaintiff's evidence and the odds of trial victory.

Changes of Heart

Occasionally, an insurer encounters a physician who was initially bullish on defending the case, but later gets cold feet. Due to that change of heart, the defendant physician pivots, wants to settle, or demands that the insurer settle. This can present an agonizing situation. In lockstep with its policyholder, the carrier has invested much in building a defense for the physician. In fact, the insurer's marketing thrust may spotlight that it aggressively defends policyholders ' a message that resonates with physicians.

Doctors may have a change of heart for many reasons, so the insurer must probe and explore the reasons why.

Sometimes, further reflection on the patient's treatment prompts a doctor to realize that he or she strayed from the standard of care. This reassessment may be at the doctor's initiative. In other cases, it may arise after learning the opinion of the plaintiff's experts. It can also result from learning about the opinions of consulting or testifying experts the insurance carrier has engaged, or from discussions with the physician's attorney, who has spotlighted the strengths and weaknesses of the doctor's defense.

Alternatively, a physician's change of heart may be due to factors unrelated to the claim's merits or defensibility. For example, a physician may decide that he or she simply does not want to bother with the inconvenience of trial. Even with insurance, defending a medical malpractice case exacts a toll, in part because of the agonizing process of having myriad individuals second-guess a doctor's decisions. Factor in substantial time spent with lawyers, meeting with insurance company representatives, reviewing materials, producing documents, answering Interrogatories, submitting to depositions, and the prospect of sitting in the witness box in court if the case goes to trial. No doctor endures the rigors of medical school, internship and residency with the intent of spending his or her professional life in non-value-added pursuits.

Beware of 'Hammer Clauses' in Consent-to-Settle Dynamics

To counter a doctor's veto power over settlement, some malpractice insurers may insert a “hammer clause” in the policy. This limits an insurer's liability to the amount for which the claim could have been settled, and caps an insurer's responsibility for legal fees incurred up to the date of the doctor's refusal to settle. For example, a hammer clause may read:

Insurer will not settle or compromise any claim without the consent of the insured. If, however, the insured refuses to consent to a settlement or compromise recommended by insurer and elects to contest such claim or continue legal proceedings in connection with such claim, the insurer's liability for the claim shall not exceed the amount for which the claim could have been so settled, plus claims expenses incurred up to the date of such refusal.

The first take-away for insured physicians: Read your policy to make sure that it contains no hammer clause. Otherwise, if a recalcitrant physician refuses to settle a claim that could have been resolved within the policy limits and a jury awards amounts above the doctor's policy limits, the insured physician may be responsible for the dollars above the point at which the insurer could have settled. Every physician wants to avoid this scenario. Let's say that the insurance company believes that a claim could and should be settled for, say, $250,000. Believing he did nothing wrong, the insured physician refuses to grant consent. The case goes to trial and a jury awards $1 million to the aggrieved patient. In this scenario with a hammer clause, the physician could be on the hook for $750,000.

Take-away number two: Before physicians purchase medical malpractice coverage, they should first scan the policy to see if it contains language enabling the insurer to “hammer” the physician if the latter withholds consent to settle. If so, try to negotiate that clause out of the policy or explore coverage with a competing insurer whose policy form omits this provision. Here, a seasoned insurance broker can be a trusted advisor to help navigate the rocks and shoals of medical malpractice policy language.

Caveat: Physician Consent Does Not Force a Settlement

Physicians must realize that insurance policies with consent-to-settle provisions view such clauses as a necessary, but not sufficient, condition for the insurer to pay. The mere fact that an insured physician consents to settle or directs the carrier to settle does not obligate the insurer to do so.

Often, insurers receiving such consent or demands will reassess the claim through “roundtables” that include not only the handling adjuster, but other seasoned claim professionals, upper management, in-house or outside physicians. In such roundtables, participants analyze the strengths and weaknesses of the malpractice claim to forge a consensus strategy from the discussions and give-and-take.

Conclusion

Navigating case defense and claim resolution amidst the presence of consent-to-settle provisions poses thorny challenges to insurance claim personnel, defense attorneys and insured physicians ' the last of whom may lack objectivity, rendering them reluctant to grant consent to settle. Ultimately, the insured physician determines whether or not he or she will grant such consent.

However, insurers and defense counsel can utilize various strategies to make the case for settlement. The other side of the proverbial coin is the fact that mere consent by a doctor does not necessarily compel an insurer to pay money when the carrier still believes that liability is fairly debatable and that a malpractice claim is defensible.

Kevin 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 his firm. Reach him at [email protected] or at 804-796-1939.