Your Malpractice Advisor: Could You Do Better By 'Going Bare'?

Brian S. Kern, Esq

Disclosures

January 25, 2011

Introduction

The recent closing of St. Vincent's Hospital in New York City illustrates the major risks to physicians who get malpractice insurance through their hospitals or large medical groups.

The hospital, which had operated near New York's Greenwich Village neighborhood since 1849, closed in the summer of 2010. As reported by Crain's NY Business, physicians who were promised malpractice insurance while working at St. Vincent's were given a choice: Pay money into a fund set up to pay for future malpractice claims, or "opt out."

"Going bare" was an alternative. By opting out, physicians would either be on their own to try and find replacement coverage, or "go bare" by forgoing any coverage and taking personal responsibility for any future claims. This decision, as well as the decision to carry liability insurance in general, raises some intriguing questions about malpractice coverage and "going bare."

The main argument in favor of not carrying insurance or "going bare" is that a physician without insurance is a far less interesting target to a plaintiff's attorney seeking to file a medical malpractice lawsuit. Without insurance, plaintiffs would have to ultimately collect either from a medical practice or from the physician's personal assets. If the medical practice has no assets and the physician's assets are either nonexistent or well sheltered, it becomes far less enticing to bring a lawsuit and invest the time and expense of pursuing it.

Many Ramifications of "Going Bare"

But before physicians can even consider reducing prior or future coverage, they should first consider all the implications. Many states, hospitals, and medical facilities require physicians to carry a certain minimum amount of coverage, so the question of whether to maintain coverage may be moot. You'll need malpractice insurance if you want to practice in those states, or have privileges at those hospitals or institutions.

Some states, as an alternative, allow physicians to secure a letter of credit. For example, New Jersey permits a physician to avoid carrying the state minimum of $1,000,000 in insurance if he or she obtains a $500,000 letter of credit. But, by having a letter of credit, the risk of loss, as well as the cost of defending a case, falls totally on the physician. Instead of defending a case with insurance money, every dollar comes directly from the physician's pocket -- from legal fees and expert witness fees to a settlement or a jury award.

Because a letter of credit is almost always backed by personal assets of the physician, as well as his or her personal guarantee, it is the physician's assets that ultimately pay the cost. With at least $500,000 available to pay a claim, the disincentives to suit that result from going bare no longer exist. In fact, knowing that it is the physician's own funds on the line, a plaintiff's attorney may have more leverage over the physician to settle a case that might otherwise be defensible.

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