When doctors are forced to accept malpractice case settlements

Suppose your malpractice insurance company wants to settle a medical malpractice case against you – even though the case has no merit.

In many cases, insurance policy language may allow the insurance company to do just that.

In the 2011 case of Mohan Papudesu, MD v. Medical Malpractice Joint Underwriting Assn. of Rhode Island, the Rhode Island Supreme Court allowed an insurer to settle a case on behalf of the defendant physician based upon language in the insurance policy that stated, “The [insurance] company may make such investigation and settlement of any claim or suit as it deems expedient.”

American Medical News reports on the case. Note that the policy language allows the insurer to settle claims based on expediency, not based upon merit or upon what is in the best interests of the physician. In fact, the definition of “expedient” is an action characterized by what is opportune at the moment and which is governed by self-interest. Insurance policy language gives insurance companies the ability to act in their own interests and not the interests of the person being insured? Doesn’t seem right.

According to Michael Sarli, an attorney for Medical Malpractice Joint Underwriting Association of Rhode Island who was quoted in the AMA article, one of the other problems insurers in Rhode Island face is the holding in Asermely v. Allstate Insurance where the Rhode Island Supreme Court reportedly held that “insurers who reject settlements within the insured’s policy limits are financially responsible for subsequent trial awards exceeding those policy limits.”  However, neither the article nor Mr. Sarli presented the entire holding in the Asermely case.

The end of the Asermely holding states:

If … a judgment is sustained on appeal or is unappealed, the insurer is liable for the amount that exceeds the policy limits, unless it can show that the insured was unwilling to accept the offer of settlement. The insurer’s duty is a fiduciary obligation to act in the best interests of the insured.

In other words, a physician in Rhode Island could refuse an offer of settlement by a plaintiff attorney in a malpractice case and the insurer would then not be liable for paying the amount in excess of policy limits and there would not be an added financial risk.

Big difference between this holding and a blanket liability for refusing a settlement offer.

Another important point in the Asermely case is that insurers have a fiduciary duty to their insureds. A fiduciary duty means that the insurer must avoid situations in which the potential benefit to the insurance company is in conflict with what is best for the doctor being insured. If such a situation arises, the insurer must act only with the interests of the doctors, not with their own financial interests. It is obviously not in a doctor’s best interests to be listed in the National Practitioner Data Bank if a malpractice settlement is made on behalf of the physician, so in a defensible case, an insurer should have the duty to take all possible steps to keep such a settlement from occurring.

Attorneys also have a fiduciary duty to their clients, but there is also a potential for conflict between defense attorneys and the physicians they represent. Defense attorneys represent doctors, but they are paid by insurance companies. If the attorney goes against the wishes of the insurer, the insurer may not refer further cases to the attorney, the attorney has a potential financial conflict of interest between doing what is in the client’s best interests and risking no further referrals if the attorney does not do what the insurer wants in order to be “expedient.”

A failure of either the insurer or the attorney to act in the client’s best interests could give rise to a claim for a breach of fiduciary duty and all the damages that go along with such a claim.

Physicians should be aware of the all the underlying factors in their malpractice case and should maintain involvement in the decisions of defense counsel. Physicians should be especially concerned when depositions haven’t been taken, experts haven’t been retained, or motions to dismiss in frivolous cases have not been made. These signs may mean that the carrier has already made the decision to settle, or that the defense attorney has not given the physician’s defense the time and attention it deserves.

If a physician believes that his or her interests are not being properly represented, the physician should consider hiring an independent personal attorney to oversee the process and to provide an unbiased second opinion. The independent attorney may suggest additional discovery, more aggressive motion practice (for example, seeking to limit the issues before a jury), or a different defense attorney who does not have a potential conflict of interest with other defendants.

To make sure that their malpractice case receives the best possible defense, physicians need to understand the potential for conflicts of interest between physicians, insurance companies, and defense counsel appointed by insurance companies.

Knowing whether or not a malpractice insurance policy contains language allowing an insurer to settle a non-meritorious case against the physician’s wishes for the sake of “expediency” would also be a good idea.

William Sullivan is an emergency physician and an attorney and who blogs at Dr. William Sullivan’s Med Law Chronicles.

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