Out-of-Court Settlements:

There are good reasons why settling a case out of court makes sense. At the same time, settling too quickly can suggest guilt where little or none exists. Whatever the cause, there can be no question that every legitimate case of malpractice should be pursued vigorously.

No one disagrees that patients who have suffered an injury must be compensated. There are few benefits, however, when even highly defensible cases, in which the alleged malpractice is clearly in question, are settled out of court just to avoid the risks of high jury awards.

When claims are settled too quickly, physicians never get their day in court and the chance to defend their actions for the record. The successful claim represents a mark against the physicians record, and a pattern of quick settlements over time may encourage ever more questionable cases.

The quick settlement scenario is on the rise and is catching some physicians by surprise. This contributes to a more adversarial relationship between the physician and their med mal insurer.

Consent To Settle:

One factor that contributes to an us vs. them relationship is the lack of a consent-to-settle provision in some med mal policies. A consent-to-settle provision essentially gives the physician the right to veto a settlement proposed by the insurer.

Without such a provision, doctors have little voice in deciding when or under what conditions a case is settled. In a case in which the doctors actions are easily defensible, its not hard to see why a physician might be tempted to ask their insurer, Whose side are you on?

Having a consent-to-settle provision in a medical malpractice policy gives a physician a greater voice in the settlement process. This translates into cost savings in a changing medical malpractice market. Any successful claim, no matter how small, may count against the physician when underwriting, pricing a policy, and even determining the insurability of the doctor.

Choice of Counsel:

After a suit has been filed, its important that the attorney and physician develop a good working relationship. If a physician is not comfortable with the attorney whos been appointed by the insurer, he or she should request a different one.

Even when changing med mal carriers, its not unusual for hospitals to negotiate the ability to retain a trusted law firm as approved counsel.

Hammer Clause:

The use of a hammer clause can also contribute considerably to tension between physicians and those insurers, which include the clause as an addendum to a consent-to-settle provision. This clause stipulates that if the physician refuses a settlement offer recommended by the insurer, the insurer's liability is limited to the amount of the recommended settlement offer.

For example, suppose an insurer recommends a settlement offer of $100,000 and the physician refuses the offer. Suppose further that the suit ultimately results in a judgment of $200,000 against the insured. The insurer will only pay $100,000, less any deductible. The physician is responsible for $100,000, plus any deductible amount. Often times, the hammer clause is invoked by the insurer when a damage amount is introduced at the proceedings.

There are also modified forms of the hammer clause, in which the insurer agrees to pay a percentage of a settlement after a physician refuses a settlement offer recommended by the insurer.

The use of the hammer clause is understandable when settlement is the only reasonable option and the physician/defendant is unable to remain objective. In the last few months, however, some insurers have begun invoking the hammer clause more frequently, even in highly defensible cases. Whatever the reason, overuse of the hammer clause can create as many problems as it solves, both for the physician and insurers.

Consider the following cases, both of which were settled when the insurance company invoked the hammer clause.

A general surgeon working out of a rural hospital on a part-time basis sustained claims of $16,000 and $35,000 in 1997 and 1999 respectively. Both cases were settled out-of-court just before trial, though the alleged actions of malpractice were highly questionable.

In 2002, he was sued a third time for an alleged failure to refer a patient for further treatment. As in the first two cases, the insurer invoked the hammer clause and the surgeon was pressured into agreeing to the settlement.

As a consequence of the three claims, the surgeon was forced to obtain coverage in the non-standard market after he lost an appeal with his insurer. The premium he would have been charged in the non-standard market was equal to his annual income, so he was forced to leave the practice of medicine.

A second case involves an ophthalmologist who was sued by a woman who, during laser eye surgery, suffered a burned cornea when the equipment, which was owned by the hospital, malfunctioned. Another specialist was brought in and it was determined the cornea could be repaired; however, the woman refused the surgery, sued, and still was awarded $250,000.

How can physicians better protect themselves? The first step is to find the right broker.

When shopping for one, look for a specialist. Medical malpractice is a complicated coverage that requires attention to detail and years of experience.

With the right broker, physicians can and should take a greater role in determining their medical malpractice coverage. Even with reforms, nothing can take the place of sound relationship between physicians and their brokers and insurers.

Renae OMalley is an account executive specializing in medical malpractice for Hub International Ltd. in Grand Rapids, Mich.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 11, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.