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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  • karen3

    Gosh. So many complaints in this blog about how treating the ill and infirm is costing us too much money and we shouldn’t recklessly spend so much money and if they wont die quickly enough, we need to cut them off at the knees.  And now we have doctors complaining because their med mal insurance company wants to do the same to them.  Where is my microscopic violin?

  • DavidBehar

    ” 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.” Docs should boycott all insurance companies with such policies.

    1) The insurance defense lawyer is paid very little, and needs to go to trial to make anything. One must therefore hire a lawyer malpractice expert to terrorize the insurance defense lawyer.

    2) Settling is short sighted decisions. Even if a small settlement is offered, that is blood in the water smelled by the sharks miles away. They will all be coming around for easy money.

    3) Seek the personal destruction of all parties adverse to clinical care. Go after the plaintiff expert, especially inside the trial. If he makes a factual misstatement, demand criminal prosecution for perjury, file ethics complaints with all medical associations. Try to disqualify the plaintiff attorney and to force the judge to recuse himself. Make the enemy of clinical care suffer as much possible. Report all discovered crimes by the plaintiff to the police or local district attorney for investigation and prosecution. Because most plaintiffs are real sleazeballs, there should be no shortage of law breaking found in discovery.

    4) Demand motions for dismissal at every early part of the case. If a motion is denied by the judge, fire the defense lawyer so he does not benefit from a weak brief. Make this threat openly and early so that there is no unfair surprise. The defense lawyer is looking out for himself only. His job depends on the plaintiff bar and on the insurance company. He will refuse to hurt the sources of his income. The defense lawyer deserves no human consideration. Be pitiless.

    5) Demonize and personally attack the plaintiff side with outside campaign of vilification, in the community. Inform his church that every penny of his ill gotten gains will come from the care of other patients, not from the assets of the doctors. Encourage shunning, bullying, scapegoating, and driving the plaintiff side out of town.

    6) Why go to so much trouble? To deter.It’s an investment in the future of clinical care.  Lawyers learn from experience, even that of others. After such a campaign, a patient with a legitimate injury from mistreatment could not find a lawyer to take her meritorious case within 150 miles of a major East Coast city. Even the good cases are deterred by a vigorous counter attack.

    • karen3

      And the patient with a legitimate claim will instead decide to go to the press, the licensing authorities, the police, the abuse authorities, your church or synagogue, your children’s school and the PTA to make sure that you never think of touching another patient and will skip step one in trying to sue you. And you will end up with no license, criminal charges and a wife and children who think you are a monster. Everyone wins, right?

      • DavidBehar

         Do all that. It will make no difference. No patient is coming to see doctors because they want to, but only after they have absolutely no choice.

        With your hostility to clinical care, try to not age.

        • MuddyWaterz

          Appreciate your post. I also subscribe to the ideology of “telling it like it is.” Physicians tip-toe around the issues far too often and it is refreshing to hear the truth. We have become far too politically correct as a society nowadays to make any meaningful changes in human behavior.

          • karen3

            Behar, your comments were so over the top, at least from the perspective of a normal person, that I assumed they were tongue in cheek. My response was partially tongue in cheek as well.  I am rather disturbed that your response was sincerely intended.  In all seriousness, please get help from a mental health professional and treatment before seeing any more patients. You clearly have some anger issues that would seriously impair your ability to practice.

          • DavidBehar

            Karen: I am not the one making angry personal attacks. This is just business for the lawyer. It should also be  business for the rather privileged doctor.

            For example, a practice grossing $5 million a year gets all upset if it has 4 lawsuits going. A welding business grossing $5 million will have 400 lawsuits going every day. Walmart has 10,000 lawsuits going every day. Every year a lawyer lives he destroys $million in economic value. I am suggesting more aggressive defense, short of killing them all. Because of their self-dealt tort immunities, and their ability to file frivolous lawsuits without accountability, violence against judges, and lawyers has full justification in formal logic, morality, and policy. But this is business, so respond in kind, using currently available legal tools. The medical profession can serve as a spear point to save all US enterprises from the lawyer profession, and to end its powers over government. The lawyer profession is a highly toxic, dangerous criminal enterprise, as constituted today. It needs to be stopped.

            You misinterpreted business for anger. The lawyers reading this fully get it. You are a civilian, oblivious to the state of legal system. It is 100 times worse than any civilian has any idea. Example, there are 20 million FBI Index felonies. There 2 million prosecutions. That means, commit a major crime, there is a 90% chance of never being inconvenienced by the legal system. They are in utter failure across all law subjects.

  • http://twitter.com/Hootsbudy John Ballard

    I just left a comment at another post regarding health care costs.


    All this talk of defensive medicine and tort reform is important but the actual dollars involved as a percentage of total health care costs are not as significant as some other non-medical costs incorrectly attributed to “health care.”

    My personal opinion is that as specialty best practices are at last being formulated (only a few decades late) and those protocols are followed and documented, malpractice cases and associated insurance premiums will diminish.

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