Getting "Hammered" by Your Insurer
Even if your malpractice policy contains a consent-to-settle clause, it may technically give you the final say about whether to settle or fight -- but there may be a catch.
"Some insurers that have a written consent-to-settle clause into their agreements also write in what's referred to as a 'hammer clause,'" McMenamin says.
A consent-to-settle clause gives doctors a say in whether their cases will be tried or settled. A hammer clause effectively silences that voice by making the risk of losing a court battle so onerous to the policyholder that few physicians, even those who believe they are innocent and seek vindication, would take the gamble.
"Under the hammer clause provision, the defendant insured physician, confronted with an opportunity to settle for X dollars, and who, on the basis of the consent-to-settle clause, insists instead that he go to trial, and then loses, say, 2X dollars, is personally liable for the difference," McMenamin says.
"The hammer clause allows the insurer to say, 'Yes, Doctor, go ahead. We'll try the case. But if we can settle it for $500,000 today, and you take it to a jury, and the jury hits you for $1.5 million, then you're personally on the hook for the difference between $500,000 and $1.5 million. That's 1 million bucks out of your personal hide," McMenamin explains. "If there's a hammer clause in the contract, the consent-to-settle clause is rendered far less valuable."
"There are other policies in which the doctor has no voice whatsoever," McMenamin continues. "The company just says, 'It's our money. We do this every day. You do it once or twice in a career. We know what we're doing. You don't. So you have to leave it to us, the experts, and we'll make the call.'"
Even if there is a consent-to-settle clause and no hammer clause, the insurer could still try to dissuade a doctor from going to court when the doctor could lose -- and lose big.
"When we feel there's liability and the facts don't favor the doctor, we don't want to put the doctor in the path of a potentially angry jury and get a runaway verdict," Anderson says. "It doesn't make sense."
"Typically there will be a pretty serious conversation before trial at least between the lawyer and the client, or sometimes between the lawyer, the insurance representative, and the client, in which they will quite carefully consider the risks and benefits, the chances of success, and the potential range of the jury verdict at least to the extent that anybody could make a reasonable estimate of that, and a calculation is made," McMenamin says. "And you either go forward or you don't."
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Cite this: Malpractice: When to Settle a Suit and When to Fight - Medscape - Sep 25, 2013.