Where Malpractice Insurers May Fall Short

Brian S. Kern, JD


March 27, 2013


Although many physicians are insured with financially sound medical malpractice insurance companies, in recent years a significant percentage have placed cost ahead of quality when choosing coverage. Potential problems of choosing liability insurance without proper due diligence may not be apparent at the time, but some examples are beginning to surface.

In October 2012, a risk retention group (RRG) insuring obstetricians in a handful of states entered into "run-off," a strategy for winding down insurance operations. When an insurer enters into run-off, it ceases to collect new premiums, and thus is forced to use only the money it has remaining to pay all outstanding and future claims it is responsible to cover. Because RRGs are not backed by state guaranty funds, physicians become personally liable for claims if that money runs out.

Physicians who were insured with this RRG and have open claims are now in a difficult position. Even if the case is frivolous, a physician might want to rush to resolve it -- in any way possible -- to avoid having to pay legal expenses out of pocket. Despite a physician's wishes, though, the carrier may simply refuse to offer an early settlement for fear that its remaining assets will unnecessarily be depleted too quickly.

Physicians stuck in this situation may seek legal assistance to try to force a settlement. Unfortunately, the separate legal action can take as much time to resolve as the original negligence claim and further drain the RRG's resources.

A recent New Jersey medical malpractice case should also raise concern for physicians. In this case, the defendant, an orthopedic surgeon, received a jury verdict against him for about $3.8 million, with the total award being $5.59 million. What's unusual about this case is that the surgeon, who only had $1 million of coverage, apparently wanted to settle long before the trial, but the carrier did not do so.