Could a Malpractice Insurer Drop You When You Need It Most?

Ann W. Latner, JD

August 21, 2023

You've practiced medicine for years without issues, but now you are facing a medical malpractice case. No worries — you've had professional liability insurance all this time, so surely there's nothing to be concerned about. Undoubtedly, your medical malpractice insurer will cover the costs of defending you. Or will they…? One case casts questions on just this issue.

Professional Liability Insurance

According to the American Medical Association, almost 1 in 3 physicians (31%) have had a medical malpractice lawsuit filed against them at some point in their careers. These numbers only increase the longer a physician practices; almost half of doctors 55 and over have been sued, compared with less than 10% of physicians under 40.

And while the majority of cases are dropped or dismissed, and the small minority of cases that do go to trial are mostly won by the defense, the cost of defending these cases can be extremely high. Physicians have medical malpractice insurance to defray these costs.

Malpractice insurance generally covers the costs of attorney fees, court costs, arbitration, compensatory damages, and settlements related to patient injury or death. Insurance sometimes, but not always, pays for the costs of malpractice lawsuits arising out of HIPAA violations.

But it is what the policies don't pay for that should be of most interest to practitioners.

Exclusions to Medical Malpractice Insurance

All professional liability insurance policies contain exclusions, and it is essential that you know what they are. While the exclusions may vary by policy, most malpractice insurance policies exclude claims stemming from:

  • Reckless or intentional acts

  • Illegal/criminal activities, including theft

  • Misrepresentation, including dishonesty, fraudulent activity, falsification, and misrepresentation on forms

  • Practicing under the influence of alcohol or drugs

  • Altering patient or hospital records

  • Sexual misconduct

  • Cybersecurity issues, which typically require a separate cyber liability policy to protect against cyberattacks and data breaches affecting patient medical records

It's essential to know what your specific policy's exclusions are, or you may be surprised to find that your malpractice liability insurance doesn't cover you when you expected that it would. Such was the situation in a recently decided case.

Also essential is knowing what type of coverage your policy provides — claims-made or occurrence-based. Occurrence policies offer lifetime coverage for incidents that occurred during the policy period, no matter when the claim is made. Claims-made policies only cover incidents that occur and are reported within the policy's time period (unless a "tail" policy is purchased to extend the reporting period).

The Case

Dr P was a neurologist specializing in pain management. He had a professional liability insurance policy with an insurance company. In 2012, Dr P's insurance agent saw a television news story about the physician being accused by the state medical board for overprescribing opioids, resulting in the deaths of 17 patients. The next day, the agent obtained copies of documents from the state medical board, including a summary suspension order and a notice of contemplated action.

The notice of contemplated action specified that Dr P had deviated from the standard of care through injudicious prescribing, leading to approximately 17 patient deaths due to drug toxicity. Because the agent realized that lawsuits could be filed against Dr P for the deaths, she sent the insurance company the paperwork from the medical board so the insurer would be aware of the potential claims.

However, when the insurer received the information, it did not investigate or seek more information as it was required to do. The insurer failed to get medical records, or specific patient names, and none of the 17 deaths were recorded in the insurance company's claims system (a failure to follow company procedure). Instead, the insurance company decided to cancel Dr P's policy effective the following month.

The company sent Dr P a cancellation letter advising him that his policy was being terminated due to "license suspension, nature of allegations, and practice profile," and offered him a tail policy to purchase.

The insurance company did not advise Dr P that he should ensure all potential claims were reported, including the 17 deaths, before his policy expired. The company also did not advise him that he had a claims-made policy and what that meant regarding future lawsuits that might be filed after his policy period expired.

A year later, Dr P was sued in two wrongful death lawsuits by the families of two of the 17 opioid-related deaths. When he was served with the papers, he promptly notified the insurance company. The insurance company issued a denial letter, incorrectly asserting that the 17 drug-toxicity deaths that they were aware of did not qualify as claims under Dr P's policy.

After his insurance company failed to represent him, Dr P divorced his wife of 35 years and filed for bankruptcy. The only creditors with claims were the two families who had sued him. The bankruptcy trustee filed a lawsuit against the insurance company on behalf of Dr P for the insurer's failure to defend and indemnify Dr P against the wrongful death lawsuits. In 2017, the bankruptcy trustee settled the two wrongful death cases by paying the families a certain amount of cash and assigning the insurance bad faith lawsuit to them.

Court and Jury Decide

In 2020, the case against the insurance company ended up in court. By 2022, the court had decided some of the issues and left some for the jury to determine.

The court found that the insurance company had breached its obligation to defend and indemnify Dr P, committed unfair insurance claims practices, and committed bad faith in failing to defend the physician. The court limited the compensation to the amount of cash that had been paid to settle the two cases, and any fees and costs that Dr P had incurred defending himself.

However, this still left the jury to decide whether the insurance company had committed bad faith in failing to indemnify (secure a person against legal liability for his/her actions) Dr P, whether it had violated the state's Unfair Insurance Practices Act, and whether punitive damages should be levied against the Insurer.

The jury trial ended in a stunning $52 million verdict against the insurance company after less than two hours of deliberation. The jury found that the insurance company had acted in bad faith and willfully violated the Unfair Insurances Practices Act.

While the jury ultimately decided against the insurance company and sent it a strong message with a large verdict, Dr P's career was still over. He had stopped practicing medicine, was bankrupt, and his personal life was in shambles. The litigation had taken about a decade. Sometimes a win isn't a victory.

Protecting Yourself

The best way to protect yourself from a situation in which your insurer will not defend you is to really know and understand your insurance policy. Is it occurrence-based or claims-made insurance? What exactly does it cover? How are claims supposed to be made? Your professional liability insurance can be extremely important if you get sued, so it is equally important to choose it carefully and to really understand what is being covered.

Other ways to protect yourself:

  • Know your agent. Your agent is key to explaining your policy as well as helping in the event that you need to make a claim. Dr P's agent saw a news story about him on television, which is why she submitted the information to the insurance company. Dr P would have been far better off calling the agent directly when he was being investigated by the state medical board to explain the situation and seek advice.

  • Be aware of exclusions to your policy. Many — such as criminal acts, reckless or intentional acts, or practicing under the influence — were mentioned earlier in this article. Some may be unexpected, so it is extremely important that you understand the specific exclusions to your particular policy.

  • Be aware of your state law, and how changes might affect you. For example, in states that have outlawed or criminalized abortion, an insurance company would probably not have to represent a policy holder who was sued for malpractice involving an abortion. On the other hand, be aware that not treating a patient who needs life-saving care because you are afraid of running afoul of the law can also get you in trouble if the patient is harmed by not being treated. (For example, the Centers for Medicare & Medicaid Services is currently investigating two hospitals that failed to provide necessary stabilizing abortion care to a patient with an emergency medication condition resulting from a miscarriage.)

  • Know how your policy defines 'intentional' acts (which are typically excluded from coverage). This is important. In some jurisdictions, the insured clinician has to merely intend to commit the acts in order for the claim to be excluded. In other jurisdictions, the insured doctor has to intend to cause the resulting damage. This can result in a very different outcome.

  • The best thing doctors can do is to really understand what the policy covers and be prepared to make some noise if the company is not covering something that it should. Don't be afraid to ask questions if you think your insurer is doing something wrong, and if the answers don't satisfy you, consult an attorney.

The Future

In the fall of 2022, at least partially in response to the Dobbs v. Jackson Women's Health Organization decision regarding abortion, one professional liability company (Physician's Insurance) launched criminal defense reimbursement coverage for physicians and hospitals to pay for defense costs incurred in responding to criminal allegations arising directly from patient care.

The add-on Criminal Defense Reimbursement Endorsement was made available in Washington State in January 2023, and will be offered in other states pending regulatory approval. It reimburses defense costs up to $250,000 when criminal actions have arisen from direct patient care.

In a press release announcing the new coverage, Physician's Insurance CEO Bill Cotter explained the company's reasoning in providing it: "The already challenging environment for physicians and hospitals has been made even more difficult as they now navigate the legal ramifications of increased criminal medical negligence claims as seen in the case of the Nashville nurse at the Vanderbilt University Medical Center, the potential for criminal state claims arising out of the US Supreme Court decision in Dobbs v. Jackson Women's Health Organization, and the subsequent state criminalization of healthcare practices that have long been the professionally accepted standard of care."

Expect to see more insurance companies offering new coverage options for physicians in the future as they recognize that physicians may be facing more than just medical malpractice lawsuits arising out of patient care.

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