Whether you're going under a surgeon's knife or hiring anattorney to take a business contract dispute to court, there arerisks of unintended outcomes, but until recently you couldn't buyinsurance to cover them.

Two program managers–a former executive of a medical malpracticeinsurance company and a plaintiffs' attorney–have separatelylaunched what they believe to be groundbreaking specialty insuranceprograms designed to address complications that can arise from suchprofessional services arrangements.

Andrew Kagan, chief executiveofficer of Surgical Risk Solutions–the Jacksonville, Fla.-basedprogram manager for Complication Insurance–explained that thepatent-pending coverage provides financial resources to patients inthe event of adverse outcomes following any one of 80 coveredelective surgical procedures.

Mr. Kagan, who was formerly vice president of strategic planningfor Florida Doctors Insurance Company, a Jacksonville-based medicalmalpractice insurance company, explained that the new policyprovides economic relief to patients' families–a lump-sum paymentof $200,000, $250,000 or $300,000 depending on the amount ofcoverage purchased for as little as $80 in premium–even when asurgeon is not at fault for the injury.

"Basically, it's a standard AD&D [accidental death anddismemberment]-type policy," he said, explaining that a claimspayout would be triggered by death, paralysis, loss of a limb orloss of use of a limb, loss of sight, or loss of hearing. If thecovered surgical patient suffers one of these major debilitatinginjuries and if the injury can be traced back to the surgery, thenit would be covered event, he said.

Like Complication Insurance, Plaintiff Contract LitigationInsurance (PCLI) is intended to ease a potential financial burdento a party that engages a professional for expert services–theprofessional being a plaintiffs' lawyer to litigate a contractdispute, according one of the creators.

Kevin. Martin, CEO of Sonoma Risk Agency–the Los Angeles-basedprogram manager for PCLI and a former partner at the law firmBingham McCutchen–said that he and another attorney founded theprogram after years of representing clients who faced the risk ofpaying their adversary's attorney fees. He explained that manycontracts contain "prevailing-party" or "fee-shifting" provisions,entitling the winners of contract suits to recover their attorneys'fees from the losers.

"Just based on our experience, we identified the need for thiscoverage," he said, believing that if clients had the ability toinsure that risk "they could litigate with greater peace of mindand really just concentrate on prosecuting their cases."

The PCLI policy is triggered when a policyholder plaintiff losesat trial or summary judgment, and a court orders the plaintiff topay the defendant's attorney fees. The policy pays the fees or thepolicy limit, whichever is less.

Separately recalling the experience that prompted him to designComplication Insurance, Mr. Kagan said he started thinking about itafter witnessing the trial of a surgeon who had performed totalknee replacement surgery on a 60-year-old man.

The surgeon was a partner of Mr. Kagan's father, who is anorthopedic surgeon in Fort Myers, and although the knee surgery wassuccessful, the patient died when he developed deep veinthrombosis–a blood clot in his leg that traveled to his heartseveral weeks after surgery during rehabilitation.

"You had this catastrophicoutcome, and basically no other recourse for the family other thanto sue. If the jury finds that a doctor fell within the standard ofcare, then no money is awarded," Mr. Kagan said, revealing thatthis was precisely what happened in this particular instance.

"There just seemed to be a better idea–to provide people anopportunity to cover themselves in this situation," he said.

Both Mr. Martin and Mr. Kagan found experienced program carrierpartners support their ideas–Schaumburg, Ill.-based Zurich NorthAmerica for Sonoma, and New York-based QBE the Americas forSurgical Risk Solutions.

"We're used to the issues that lawyers and their clients facefrom malpractice cases," said Damiano Servidio, vice president ofprofessional services for Zurich's Programs unit, noting that hisdivision is a longtime writer of lawyers professional liabilityinsurance.

The concept Sonoma presented "made perfect sense." The PCLIprogram "supports Zurich's commitment overall to the legalcommunity," Mr. Servidio said.

Lawyers' malpractice is just one of 70 programs in Zurich'soverall program portfolio, according to Craig Fundum, president ofPrograms & Direct Markets.

QBE, which has nearly 85 active programs overall, according toStephen Fitzpatrick, president of QBE Specialty Insurance, countsComplication Insurance among 10 that it supports in the accidentand health space, according to Tom Leonardo, senior vice presidentfor the health team.

"The risk is one we're comfortable with," Mr. Leonardo said,pointing to the limited potential payout of $200,000-to- $300,000per policy, and the fact that the coverage is for individual risksrather than catastrophic events with risk aggregations.

In addition, the program "provides a good service, [and] wedidn't see anything else in the market like it."

A BETTER IDEA?

Mr. Leonardo admits to initially approaching the Surgical RiskSolutions' program idea with the same hesitance he would any newprogram. "As an underwriter, you instantly try to poke holes andfind reasons why this is something you shouldn't do if you haven'tseen it before," he said. "Instinctively, you sit there and thinkif someone is about to undergo surgery, that is a very high-risksituation. Do I really want to give coverage here?"

But in the end, he said QBE studied incidence rates and vettedthe program with its pricing actuaries. "We felt there was enoughof a need, and yet at the same time we didn't feel there was amassive selection issue," he said.

There is "not a very rigorous underwriting process, but thereare certainly parameters" that protect QBE, he added. "We'recomfortable that it's a good risk, priced appropriately to sell,"while at the same time priced adequately to produce a return andmeet shareholder expectations.

Separately, Mr. Kagan said that while some of the riskiestcovered procedures have "horrible" mortality rates–like total hipsurgery with a 1-in-600 fatality rate–many other procedures, suchas arthroscopies, have much lower frequencies of bad outcomes."Spread of risk," he said, is the key to making the program workfrom a return standpoint.

He said that for each insured, coverage extends for aperiod of 30 days starting with the surgery date. That term wouldprotect the knee replacement recipient whose fatal outcome fueledthe idea for coverage, as well as someone who developed a nastypost-op MRSA infection, resulting in the loss of a limb or othercovered outcome.

There are three different price points for coverage, with $80buying a maximum benefit of $200,000, $100 buying a $250,000maximum benefit, and $120 for a potential $300,000 benefit.According to information on the Complication Insurance Web site,www.complicationinsurance.com,death, brain damage and paraplegia trigger the maximum payouts,while blindness and loss of one or two limbs trigger lower payouts($100,000 or $150,000 for the $80 premium price point).

"At some point in the future, we would like to get up to a $1million limit," Mr. Kagan said, while noting that insurers wouldneed a history of results before signing on for higher limits.

He said that while the price doesn't vary by type of surgery,benefit levels are lower for about 10 of the riskiest coveredsurgeries. "Someone having a total hip [replacement] might have a$100,000 benefit for $100 [premium], instead of $250,000."

While coverage is available for 80 elective surgeries, theprogram won't cover procedures like heart or brain surgery. "Thenumbers just don't work," Mr. Kagan said. "You'd have to pay $1,000[in premium] to be able to get $7,000″ in benefits.

Beyond that, he said his firm has a simple, broad underwritingprocess. Referring to a two-page, eight-question onlineapplication, he noted it does ask for preexisting conditions, butan applicant would have to have three major ones to prompt acoverage denial. Those include prior negative reactions toanesthesia, brain damage, prior heart attack or stroke, anddiabetes, for example.

"The idea is that we want to cover everyone," Mr. Kagansaid.

Mr. Leonardo said QBE has given Surgical Risk Solutions anunderwriting box in which to operate, and the carrier will work inconcert with the program manager to evaluate reasonable risks thatfall outside those parameters.

Mr. Kagan said all sales are handled online, with surgerypatients going to the Web site being able to fill out theapplication in five minutes, bind a policy online and pay for itwith a credit card.

They find out about the coverage through Internet searches orrack cards distributed in physicians' offices, he said. "Our maingoal is to get our rack cards into the surgery schedulers' hands,"so they can include them in the packets of information they give topatients.

The program will be filed in all 50 states and is currentlyadmitted in 10 states. He said his firm is still working ondistribution when asked about buyer reaction. "Doctors are prettyexcited about it because it's a good risk management tool," headded.

Asked if doctors might be hesitant to talk about the risk ofadverse outcomes–a necessary subject to fuel sales of theinsurance–he noted that every doctor is required to have thesepatients read and sign informed consents. "In these consents, theytell you about the risk of death, paralysis, brain damage. Patientsknow the risk is there," Mr. Kagan said.

"In today's economic times, fewer people carry life insurance,"he added. "This is a way to buy insurance coverage during a riskymoment in their lives."

He also highlighted the value of the product as an alternativeto filing med mal claims against physicians. "Being anon-fault-based product, if injury occurs, then people get paidrelatively quickly," he said, noting that med mal recoveries take ayear at a minimum. "Usually it takes six months for people to evengo see an attorney," he said, adding that in Florida, malpracticeinsurers have 210 days to tender policy limits.

PROSECUTION RESTS EASIER

Like Surgical Risk Solutions, Sonoma Risk is depending onservice providers to spread the word about the PCLI programlaunched in March.

"Zurich shares our belief that it will become a best practicefor attorneys–representing clients who face the prospect of payingtheir adversaries' attorneys' fees–to discuss the program withtheir clients," Mr. Martin said. "As part of a lawyer's ethicalduties to clients, they have to disclose the risks when they'reprosecuting their cases. That's already happening." He suggestedthe ability to add an insurance solution to the discussion is beingwelcomed by attorneys.

Speaking to the need for coverage, Mr. Martin said thatprevailing party provisions are very common. "It's standard in manytypes of contracts," including partnership agreements, leases,promissory notes, franchise and licensing agreements, he said,noting that there are roughly four million contract cases filedannually year and that plaintiffs lose one out of three contracttrials.

As for the insurance underwriting process, Mr. Martin said itinvolves reviews of the complaint, the underlying contract at issueand the insured's litigation history.

"If we see that the complaint is frivolous, we won't write it,"he said. "Similarly, if we see that the plaintiff is a careerplaintiff"–with a history of filing meritless suits or of beingsanctioned by the court–"that's not a risk we're going totake."

Mr. Servidio said Zurich has a broad appetite, identifying casesfiled in arbitration or mediation and class actions as the onlytypes for which coverage is not available.

The only notable policy exclusion, he said, involves feesincurred by the defendant in opposing a plantiff'sabuse-of-litigation tactics. If, for example, a policyholderplaintiff was sanctioned for filing a frivolous motion and adefendant incurred attorneys' fees for opposing that motion, Zurichwill not reimburse those fees, he said.

The two men said there is a wide range of limits available,declining to provide a range of possible premium costs.

Initially, plaintiffs have a 60-day window from the date of theinitial lawsuit filing in which to apply for coverage, they noted."We're not requiring a plaintiff to buy this insurance prior tofiling a lawsuit, because we recognize that a plaintiff has manyissues to consider," Mr. Servidio said.

Decisions involve expense factors that may come up in thecontext of litigation, and Sonoma and Zurich want to provide aplaintiff with the necessary time to weigh those, he said. "We alsorecognize that this insurance is the first of its kind, and it'sgoing to take the plaintiffs some time to learn about it," hesaid.

While they learn about it through their attorneys, Mr. Martinconfirmed that the lawyers get absolutely no commission for sales."The only benefit to the attorney is that they're helping theirclients reduce their financial exposure in litigation, and [thecoverage is] helping [the lawyers] maintain best practices inprotecting their clients."

See related article, "SellerResistance Puts Claims Dispute Insurance On The Shelf."