Whether you're going under a surgeon's knife or hiring an attorney to take a business contract dispute to court, there are risks of unintended outcomes, but until recently you couldn't buy insurance to cover them.

Two program managers–a former executive of a medical malpractice insurance company and a plaintiffs' attorney–have separately launched what they believe to be groundbreaking specialty insurance programs designed to address complications that can arise from such professional services arrangements.

Andrew Kagan, chief executive officer of Surgical Risk Solutions–the Jacksonville, Fla.-based program manager for Complication Insurance–explained that the patent-pending coverage provides financial resources to patients in the event of adverse outcomes following any one of 80 covered elective surgical procedures.

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

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

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

Kevin. Martin, CEO of Sonoma Risk Agency–the Los Angeles-based program manager for PCLI and a former partner at the law firm Bingham McCutchen–said that he and another attorney founded the program after years of representing clients who faced the risk of paying their adversary's attorney fees. He explained that many contracts 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 this coverage," he said, believing that if clients had the ability to insure that risk "they could litigate with greater peace of mind and really just concentrate on prosecuting their cases."

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

Separately recalling the experience that prompted him to design Complication Insurance, Mr. Kagan said he started thinking about it after witnessing the trial of a surgeon who had performed total knee replacement surgery on a 60-year-old man.

The surgeon was a partner of Mr. Kagan's father, who is an orthopedic surgeon in Fort Myers, and although the knee surgery was successful, the patient died when he developed deep vein thrombosis–a blood clot in his leg that traveled to his heart several weeks after surgery during rehabilitation.

"You had this catastrophic outcome, and basically no other recourse for the family other than to sue. If the jury finds that a doctor fell within the standard of care, then no money is awarded," Mr. Kagan said, revealing that this was precisely what happened in this particular instance.

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

Both Mr. Martin and Mr. Kagan found experienced program carrier partners support their ideas–Schaumburg, Ill.-based Zurich North America for Sonoma, and New York-based QBE the Americas for Surgical Risk Solutions.

"We're used to the issues that lawyers and their clients face from malpractice cases," said Damiano Servidio, vice president of professional services for Zurich's Programs unit, noting that his division is a longtime writer of lawyers professional liability insurance.

The concept Sonoma presented "made perfect sense." The PCLI program "supports Zurich's commitment overall to the legal community," Mr. Servidio said.

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

QBE, which has nearly 85 active programs overall, according to Stephen Fitzpatrick, president of QBE Specialty Insurance, counts Complication Insurance among 10 that it supports in the accident and health space, according to Tom Leonardo, senior vice president for the health team.

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

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

A BETTER IDEA?

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

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

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

Separately, Mr. Kagan said that while some of the riskiest covered procedures have "horrible" mortality rates–like total hip surgery with a 1-in-600 fatality rate–many other procedures, such as arthroscopies, have much lower frequencies of bad outcomes. "Spread of risk," he said, is the key to making the program work from a return standpoint.

He said that for each insured, coverage extends for a period of 30 days starting with the surgery date. That term would protect the knee replacement recipient whose fatal outcome fueled the idea for coverage, as well as someone who developed a nasty post-op MRSA infection, resulting in the loss of a limb or other covered outcome.

There are three different price points for coverage, with $80 buying a maximum benefit of $200,000, $100 buying a $250,000 maximum 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 $1 million limit," Mr. Kagan said, while noting that insurers would need 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 covered surgeries. "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, the program won't cover procedures like heart or brain surgery. "The numbers 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 underwriting process. Referring to a two-page, eight-question online application, he noted it does ask for preexisting conditions, but an applicant would have to have three major ones to prompt a coverage denial. Those include prior negative reactions to anesthesia, brain damage, prior heart attack or stroke, and diabetes, for example.

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

Mr. Leonardo said QBE has given Surgical Risk Solutions an underwriting box in which to operate, and the carrier will work in concert with the program manager to evaluate reasonable risks that fall outside those parameters.

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

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

The program will be filed in all 50 states and is currently admitted in 10 states. He said his firm is still working on distribution when asked about buyer reaction. "Doctors are pretty excited about it because it's a good risk management tool," he added.

Asked if doctors might be hesitant to talk about the risk of adverse outcomes–a necessary subject to fuel sales of the insurance–he noted that every doctor is required to have these patients read and sign informed consents. "In these consents, they tell you about the risk of death, paralysis, brain damage. Patients know 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 risky moment in their lives."

He also highlighted the value of the product as an alternative to filing med mal claims against physicians. "Being a non-fault-based product, if injury occurs, then people get paid relatively quickly," he said, noting that med mal recoveries take a year at a minimum. "Usually it takes six months for people to even go see an attorney," he said, adding that in Florida, malpractice insurers have 210 days to tender policy limits.

PROSECUTION RESTS EASIER

Like Surgical Risk Solutions, Sonoma Risk is depending on service providers to spread the word about the PCLI program launched in March.

"Zurich shares our belief that it will become a best practice for attorneys–representing clients who face the prospect of paying their adversaries' attorneys' fees–to discuss the program with their clients," Mr. Martin said. "As part of a lawyer's ethical duties to clients, they have to disclose the risks when they're prosecuting their cases. That's already happening." He suggested the ability to add an insurance solution to the discussion is being welcomed by attorneys.

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

As for the insurance underwriting process, Mr. Martin said it involves reviews of the complaint, the underlying contract at issue and 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 career plaintiff"–with a history of filing meritless suits or of being sanctioned by the court–"that's not a risk we're going to take."

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

The only notable policy exclusion, he said, involves fees incurred by the defendant in opposing a plantiff's abuse-of-litigation tactics. If, for example, a policyholder plaintiff was sanctioned for filing a frivolous motion and a defendant incurred attorneys' fees for opposing that motion, Zurich will 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 the initial lawsuit filing in which to apply for coverage, they noted. "We're not requiring a plaintiff to buy this insurance prior to filing a lawsuit, because we recognize that a plaintiff has many issues to consider," Mr. Servidio said.

Decisions involve expense factors that may come up in the context of litigation, and Sonoma and Zurich want to provide a plaintiff with the necessary time to weigh those, he said. "We also recognize that this insurance is the first of its kind, and it's going to take the plaintiffs some time to learn about it," he said.

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

Special Reports /

Unique Programs Launched To Address Complications Of Surgery, Legal Battles

Related Stories

Recommended For You