Bulletproofing Your Medical Practice:
Risk Management Techniques For Physicians That Work

by Kevin M. Quinley, CPCU, ARM, AIC, AIM, ARe
Ó2000               
               
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•   Health care providers should report to their medical malpractice insurers all potential claims as soon as possible.

•   Physicians and their staffs must be trained as to what a potential claim is. 

•   To avoid having an insurance premium charged with excessive frequency, it is wise to meet with the medical malpractice insurer to see if it will accept nonchargeable notice only losses.

•   Physicians should be aware of the pressures on malpractice insurers.  These include demands for innovation, competition for their target market, and the risks presented by directors and officers liability and capitation policies.

•   Coverage gaps may include trigger problems, punitive damages, delayed claims reporting, forgotten lawsuits, do-it-yourself adjusting, and underinsuring one’s malpractice exposure.

•   Failing to report losses, over-reliance on contractual risk transfer, and admitting liability are common insurance mistakes.

3.1 Introduction

Many pressures affect the business environment of insurance companies who underwrite medical malpractice.  These include the following

• Managed care requires that medical malpractice insurers innovate in order to retain customer loyalty.

• The rise of physician practice management companies dilutes and erodes the target market of many doctor-owned insurance companies, the so-called bedpan mutuals.

• Consolidation among hospital chains and management companies often leaves small rural hospitals as the target market for many medical malpractice insurers.

            As if this was not challenging enough, new risks face insurers writing medical malpractice coverage.  These include managed care liability, directors and officers liability, and capitation policies.[1]

                One insurance option that some physicians consider is joining an insurance pool.  State-sponsored excess insurance pools may cap physician liability.  Some believe that any insurance mechanism to provide coverage for medical practitioners should conform to the requirements of the state’s excess coverage pool if there is one.  In several states, doctors can cap their liability exposures if they belong to a state fund.  To belong, a practitioner must have specific coverages and cannot be self-insured for the primary layer.  The first step should always be to check the pools with the local department of insurance.

                Having medical malpractice insurance is prudent, but even insurance has gaps, loopholes, and pitfalls.  Therefore, it’s necessary to avoid medical malpractice coverage gaps.

3.2 Spotting and Avoiding Medical Malpractice Coverage Gaps

A major clothing retailer’s advertisements feature the tag line, “For every generation, there is a Gap.”  In a medical malpractice risk management context, one could counter, “For every well-managed insurance program, there is no gap!” 

Whether one discusses a generation gap, a credibility gap, or a missile gap, in general, gaps are unwelcome.  In medical malpractice risk management, gaps—particularly insurance coverage gaps—are abhorrent.

                Physicians may feel secure when they have the financial protection afforded by professional liability insurance.  This can become a false sense of security, however, if practitioners overlook potential pitfalls, coverage gaps, and key insurance policy provisions.  Because medical malpractice insurance policies are nonstandard, there is often substantial variation in policies from one insurance company to the next.  This also makes it more difficult for health care practitioners to make “apples to apples” comparisons in the course of shopping for coverage.

Let’s examine the most common predicaments that can jeopardize physicians’ insurance coverage or imperil their assets.

3.3 Pulling the Wrong Trigger

No professional liability insurance policy contains the words trigger or coverage trigger.  These terms and phrases have become common parlance, however, among insurance people working with coverage issues.  Every physician buying medical malpractice insurance must appreciate the trigger concept, however, and its significance. 

                In short, a trigger is the event activating coverage.  Expressed differently, a trigger is the event that obligates an insurer to cover a claim, or to at least defend it.  While this may seem straightforward, imprecise wording in medical malpractice insurance policies makes this a difficult area, one spawning litigation between insurers and physician-insureds. 

                Medical malpractice insurance liability policies often provide the following description of an occurrence in the Definitions section: “ . . . an accident including continuous or repeated exposure to substantially the same general harmful conditions.”  This nebulous definition, if left intact, can generate coverage headaches for physician-policyholders.  Consider a hypothetical example. 

                Assume that Dr. Smith is skilled in procedures involving an implantable device, such as a hip joint.  Assume that Dr. Smith surgically implanted the joint in patient John Doe in 1992.  Patient Doe first notices problems in 1996.  A subsequent doctor performs explant surgery in 1998.  Thereafter, Mr. Doe sues Dr. Smith for damages from alleged medical malpractice.  These events may span three or more insurance policies written by different carriers who squabble among themselves as to whether they owe Dr. Smith any coverage and, if so, how much the other will pay. 

What is the occurrence date?  (One cannot count on the courts for much help, because judicial opinions point in different directions, offering little assistance.)  In insurance jargon, this is a trigger problem.  The vagueness or specificity of policy wording may determine whether the so-called trigger points in favor of the insurer or the insured.

                The problem transcends the orthopedic implant realm.  It can be a concern for any physician performing procedures that could conceivably produce latent or long-term claims, including, but not limited to: breast implants, urological implants, indwelling catheter placements, and long-term exposure to certain substances.

                Therefore, one must be aware of and beware of coverage ambiguities on the issue of the coverage trigger and the definition of occurrence.  It is imperative to clarify them with an insurer before placing coverage.  It is best to negotiate a manuscript endorsement defining occurrence in specific terms, such as date of implantation, date of manifestation of problem, or date of explant. 

One specialty insurer who learned the hard way eventually composed the following definition of occurrence endorsement that accompanied every liability insurance policy.

Definition of Occurrence

With respect to implantable medical products only, “occurrence” shall mean the explant of such medical products.  The term “explant” shall mean the removal or replacement of an implantable medical product.  The date of occurrence shall be deemed to be the date of explant of such medical product.  In the event no explant shall occur, the date of occurrence shall be deemed to be the earlier of the date: 

(a)     a claim is made or a suit is brought alleging injury or damage resulting from such a medical product;

(b)     a professional opinion is rendered which provides a basis for a claim under the coverage provided;

(c)     medical expenses are incurred as a result of the alleged injury or damage; or

(d)     death occurs allegedly as a result of a defective medical product.  If an explant occurs after such date, it shall not change the date of occurrence already established.

With respect to non-implantable medical products, the date of occurrence shall be deemed to be the earlier of the date: 

(a)     a claim is made or suit is brought alleging injury or damage resulting from such a medical product;

(b)     a professional opinion is rendered which provides a basis for a claim under the coverage provided;

(c)     medical expenses are incurred as a result of the alleged injury or damage; or

(d)     death occurs allegedly as a result of a defective medical product.[2]

                Despite the awkward wording, this approach may be better than leaving intact a policy’s usual definition of occurrence.  The latter’s ambiguity often leaves physician-insureds holding the proverbial bag, watching insurance carriers squabble among themselves as to who is on the risk and for how much or at what percentage, who should control the defense, pick the defense attorney, etc. 

                Earlier insurers on the timeline often embrace a manifestation trigger theory because this transfers coverage to later policies.  A manifestation theory says that whatever carrier is on the risk at the time the injury becomes manifest is the one financially responsible.  Manifest usually means symptomatic, apparent to the patient, and a condition causing the patient to seek medical treatment.

                More recent and current insurers on the time continuum gravitate toward an exposure trigger theory, hoping to confine coverage to earlier insurance policies.  An exposure theory says that whichever insurer (or insurers) was on the risk when the patient was originally exposed to a procedure or treatment is the one financially responsible.

                A recurring scenario develops.  Typically, earlier malpractice carriers claim that manifestation of medical problems is the controlling standard.  Later insurers may claim that the key date was when an implant or device was placed in situ, or when the plaintiff first became exposed to an allegedly negligent medical procedure.  Physicians often have few options other than a coverage lawsuit (or threatening one) in order to unravel this Gordian knot.  Understandably, they seek a better way to resolve the definition-of-occurrence mystery.

                Courts often embrace a multiple trigger or continuous trigger theory, sweeping into the net all insurers on the risk from the point of the first medical procedure until an injury or illness becomes manifest or was diagnosed by a physician. 

                Recent headlines provide an illustration of the trigger conundrum.  Take, for example, the recent spate of medical liability lawsuits filed by women against breast implant manufacturers.  When did the occurrence take place: the date a physician implanted the prosthesis/prostheses into the patient?  The date that any injury was diagnosed by a physician?  The date an injury took place, whether or not diagnosed at that time?  The date that a leaking or degraded prosthesis was surgically explanted?  Breast implant manufacturer Dow Corning sued over 100 of its insurers that had written policies over a two-decade period, claiming that they failed to live up to their coverage obligations.

                Due to the fuzzy definition of occurrence in medical malpractice insurance policies, one claim may trigger coverage on many sequential policies.  Thus, it is critical to maintain meticulous records of “old” insurance coverages and to notify all insurers that might conceivably have covered some part of a loss. 

3.4 Punitive Damages

Assume that Dr. Johnson is faced with a big medical malpractice claim that seeks punitive damages.  Dr. Johnson has just retrieved her insurance policy and scanned the fine print: it excludes coverage for punitive or exemplary damages. 

                Alternatively, Dr. Johnson has coverage for punitive damages, but the law where the claim arises prohibits insurance coverage of punitive damages on public policy grounds.  This may occur for reasons explained later.  Now Dr. Johnson has big problems.

                Any medical malpractice claim seeking punitive damages should raise red flags, meriting special handling with kid-glove care.  A well-constructed protocol should guide the response of someone like Dr. Johnson in the above hypothetical.  Here are some initial tips.

                First, one should check to see if the insurance policy addresses punitives.  Some policies exclude coverage for them.  Other insurers offer a buy back of such coverage for an additional premium.  If a policy is silent about whether it covers punitives, then the medical malpractice insurer may have to pay.

                Second, one should check to see if punitive damages can be covered by insurance in the state where the claim is filed.  Many states forbid insurance coverage of punitive damages on the public policy grounds that it is no punishment to a physician if an insurer picks up the tab.[3]

Other states distinguish between insurability of intentional versus vicarious torts.  An intentional tort might be an assault and battery that a physician commits first-hand.  Vicarious torts would be wrongful acts conducted by agents of the doctor, such as an employee.  Punitive damages flowing from the former are often not covered, but those arising from the latter often will be.  Product liability claims fall under the latter category.

                If a medical malpractice insurance policy excludes punitive damages or if the state law says an insurer cannot absorb the risk, the physician should expect to get a reservation of rights letter from the insurance company.  An insurer wishing to avoid waiver and estoppel problems must go on record reserving rights as to coverage—or noncoverage—of punitive damages.

                Insurance companies send reservation of rights letters to policyholders as a hedging gesture.  Essentially, such a communiqué says that the claim—or parts of it—may not be covered by the insurance policy.  Nevertheless, the insurer will forge ahead to investigate and defend the claim.  Doing this should not be construed as the insurer accepting coverage.  In fact, the insurer reserves its rights to later deny coverage if the facts turn out to support such a denial.  A reservation of rights letter does not mean that there is no coverage and it does not mean that a claim is denied.  It usually signals that the insurer harbors some doubts as to whether there is coverage or not.  A reservation of rights letter buys time for the insurer to investigate and make a final coverage determination.

                If a claim blends punitive with compensatory damages and other counts that the insurance policy clearly covers, then the insurer must defend the entire suit.   An old precept in insurance coverage law is that an insurer’s duty to defend is broader than its duty to pay claims. This is critical because one of the most expensive (and valuable) features of medical malpractice liability defense is the payment of legal fees incurred through litigation.  A stance of not covering punitive damages applies at most to paying jury- or court-imposed punitive damages.  Insurers must generally shoulder the legal fees to defend the entire claim. 

                What about compromise settlements with an explicit payment for punitive damages?  These are rare.  In such cases, though, a medical malpractice insurer may invite a physician-insured to participate in a proposed settlement, to contribute to the settlement “pot” for a portion of uninsured punitive damages.  Insurers only do this very selectively and after agonizing appraisal.  The reason is because such a gesture often elicits claims of bad faith from irate policyholders and their coverage attorneys.             

                In practice, the specter of punitive damages occasionally inflates the settlement value of a case.  When a medical malpractice insurer issues a claim settlement check, no one says, “Here’s X for compensatory damages and Y for punitives.”  Typically, insurers lump the damages—and payments—together. Concerned with the bad faith implications of letting a physician policyholder absorb an uninsured punitive hit, gun-shy insurers often settle when a plaintiff can make a strong punitive case. 

                Insurers tend not to quibble over what portion of the settlement figure is attributable to punitive or to compensatory damages.  Physician-insureds may thus be able to procure de facto “back door” coverage for punitive damage counts, obtaining what they often cannot gain via the “front door” of policy language or local law.  Relying on this as one’s focal risk management strategy toward punitive exposures is risky, though.

                Doctors must manage the risk of uninsured punitive damages proactively.  Here is a checklist on how to begin.

___  Physicians should read the fine print of their insurance policies to see whether they cover punitive damages or if the policy language excludes them.

___  If a physician has the option to buy back punitive damage coverage, he or she should do so unless it is financially prohibitive.

___  Before any claims arise, a practitioner should research whether the state in which he or she practices medicine—New Jersey, California, or Pennsylvania, for example—allows insurance coverage for punitive damages.

___  One should not be surprised if, when a claim arises, an insurer reserves rights regarding coverage for punitive damages by way of a reservation of rights letter.

___  One should not take any reservation of rights letter as gospel.  An attorney should briefly review the law and provide a legal opinion if there are any doubts as to the insurer’s position or interpretation.  If an insured feels the insurer is wrong or arbitrary, he or she should challenge the interpretation!

___  It is unwise to put oneself or one’s practice in a position where one is vulnerable to a punitive damage award.  Even the best intentions, however, will not always insulate a physician.

3.5 Tardy Claims Reporting

Some coverage headaches are caused by sloppy handling of claim reports by physicians and health care professionals.  Consider a scenario where a physician, Dr. Lorenz, did not immediately report an adverse medical outcome or a claim to her insurer.  In fact, Dr. Lorenz procrastinated before reporting it to the insurer because (choose any of the following) . . .

                __  A.  She wanted more information;

                __  B.  The claim was ridiculous and did not deserve to be dignified with an answer;

                __  C.  She thought the claim would not amount to anything and would go away;

                __  D.  She thought she could reason with the lawyer and talk him out of pursuing a lawsuit;

                __  E.  She feared that her medical malpractice insurance company would probably hike its insurance premium if it reported a loss.

                A year later, the claim becomes a lawsuit.  Reviewing the file materials, the insurer notices that Dr. Lorenz had prior knowledge of this occurrence but suppressed the reporting.  The insurer’s claims representative is upset and reserves rights to deny coverage based on late notice.  Now, Dr. Lorenz has uncertainty hanging over her and her practice.  The certainty of her financial protection for the claim is clouded.  How does a physician prevent this from happening?

                The remedy is to know and adhere to one’s reporting obligations and duties under the insurance policy.  They are not onerous.  They require that the insured report claims and accidents promptly and cooperate with the insurer in the defense and investigation of a loss.  The Conditions portion of the policy often states that policyholders must “immediately send us copies of any demands, notices, summonses or legal papers in connection with the claim or suit.”  Elsewhere in the same portion of the policy, the insurer requires that “You [the insured] must see to it that we are notified promptly in writing of an occurrence which may result in a claim.”

                Conceivably, an insurance policy might require a physician-insured to report the same loss to its insurer on three separate occasions:

• when there is an occurrence that could give rise to a claim,

• when an injured patient or an attorney makes a claim, and

• when the claim becomes a lawsuit served on a doctor or hospital.

               The moral is to take these reporting requirements seriously.  One shouldn’t think, “my insurer would never do something like that to me.” 

                In one case, a physician justified a late-reported lawsuit by stating that he had been trying to phone the plaintiff’s attorney to explain why he had no business being involved.  Did the doctor talk the lawyer out of it?  Hardly!  In the real world, few claims simply evaporate, as much as insurers and doctors would like them to.  Fewer still simply disappear because the physician telephones claimant’s counsel, a well-meaning gesture that might inadvertently give the lawyer more ammunition.

3.6 The Forgotten Lawsuit

Another problem arises when doctors or health care professionals mishandle lawsuits.  Consider a hypothetical case where lawsuit papers arrived for Dr. Moreno from the sheriff.  Unfortunately, the doctor was away for a two-week trip to a medical conference.  Once she returned, the deadline for filing an answer was overdue.  The plaintiff’s attorney can now seek a default judgment.  Unfortunately, now is not the time to send the lawsuit to the insurance company and let it save Dr. Moreno.  Why?  Because the claims adjuster is likely to quote a policy requirement that the doctor immediately notify the insurer of all lawsuits and the adjuster may talk about denying coverage.

                The antidote is to handle suit papers like firecrackers.  One should not hold on to them for long!  Instead, it is best to handle such papers with a sense of genuine urgency.  They are important documents meriting same-day attention.  Wise physicians establish a strict standard that any lawsuit will be reported to their insurance company within twenty-four hours of their receipt.  All such letters should be sent certified, return-receipt-requested, just in case later questions arise about who did or did not receive a claim or suit report.

                Also, practitioners should put someone, such as the office manager or an administrator, in charge of handling incoming claims or suits.  When that person is vacationing or ill, there needs to be  a backup: someone to scan incoming mail and to handle lawsuits in the absence of the person who normally performs that task.  Redundancy is a sound risk management tactic.

                Someone who likes the risks of junk-bond investing, bungee jumping, walking on hot coals, or skydiving might choose to take their time in responding to a new medical malpractice lawsuit.  All of these activities will keep one’s adrenaline pumping and provide high drama.  Better, though, is the safe and sane route.  It is best to get that ticking explosive off one’s desk and into the hands of the insurer.

3.7 Do-it-Yourself Claims Adjusting

Another problem arises when physicians take matters into their own hands and try to self-handle a liability claim.  For example, consider the case where the patient seemed like a reasonable person and Dr. Browne thought he could handle the matter without bothering the insurance company.  In fact, the claimant was a little old lady who assured the doctor that, “I only want what’s coming to me.”  Based on this, Dr. Browne mailed the claimant a $5,000 check along with a release form, asking her to return the signed release. 

                But that sweet lady cashed the check and forgot to sign and return the release.  Dr. Browne didn’t mind—he figured he would probably never hear from that lady again and considered the matter closed.

                Fast-forward eleven months later.  That sweet and understanding little old lady becomes a plaintiff.  Her attorney sues Dr. Browne for the remainder of her damages.  The plaintiff’s nephew knew a man whose brother had an injury just like hers, and he supposedly collected $2 million in court.  The little old lady decided that these odds beat buying a lottery ticket and consulted an attorney.  Because Dr. Browne advanced her the $5,000, she feels this must be an admission of liability.  What about her other damages, like pain and suffering or future medical bills? 

                Once Dr. Browne hears from the lawyer, memories of the exchange with the patient start coming back.  Wasn’t that matter settled?  Not exactly, it was half-settled.  Dr. Browne did his half: he paid some money.  The patient overlooked the little detail of signing a release.  Now the doctor is out the $5,000 without having extinguished the legal right of action against him.  In truth, there is no such thing as a half-settlement, any more than there is such a thing as being “half pregnant.”  Settlement is an all-or-nothing proposition. 

                Once Browne hears from an attorney, though, it occurs to him that it’s now time to report this loss to the insurance company.  More troubling, though, the insurer says it may not cover the loss because Dr. Browne’s earlier unauthorized offer to settle hampered its ability to defend the claim.  Cold-Hearted Mutual Insurance Company is put off and quotes the following language, which is standard wording in most liability insurance contracts: “No insured shall, without our consent, make any offer or payment, except for first aid. . . .”

                Now the physician’s kindness toward the patient seems to be backfiring.  What physician would want an insurer telling him or her how to practice medicine?  Then what makes some practitioners think that they are qualified to handle or adjust claims?  It is best to let the insurer do what it is paid to do: investigate and handle claims.  Medical professionals may be no more better suited to handle a liability claim than an insurance adjuster is qualified to perform a heart bypass procedure. 

                If an insurer botches a case, a physician can hold it accountable.  If a physician mishandles a claim, that doctor and his or her practice may face painful financial consequences.  If a physician wants to “fast-track” a settlement for patient relations or goodwill purposes, fine.  One should run that by the insurer first, though.  The insurer may agree with the proposed course of action.  If not, the physician may still decide that the patient-relation benefits outweigh the coverage risks.

                While claims-handling isn’t rocket science, it is often trickier than outsiders—including physicians—recognize.  Insureds should let the insurer adjust losses, a function for which it has trained professionals.  If a physician wants to handle claims, he or she should get written approval from the insurer to do that.  At a minimum, it is prudent to call one’s insurance representative and get a consult asking for guidance in this area.  One should follow up the conversation with a confirming letter.  Otherwise, do-it-yourself claims handling is usually as successful (and as wise) as do-it-yourself heart surgery, dentistry, or lawyering.

3.8 Underinsuring Medical Malpractice Exposure

Dr. Washington’s knowledge of medicine and technique is so vast that he did not think that he would ever have a claim, much less need medical malpractice liability insurance.  Maybe, like some doctors who “go bare,” thinking this will reduce their profile as a malpractice target, Dr. Washington bought the lowest possible limit of liability he could.  A $1 million medical malpractice liability policy looked more than adequate from this vantage point.

                Assume that Polly Plaintiff files a lawsuit in Los Angeles, claiming that Dr. Washington’s negligent management of a baby’s delivery allowed birth trauma to remain undetected, leading to catastrophic and permanent injuries to the neonate.  Ms. Plaintiff sues the doctor, the hospital, and the medical equipment company on various liability theories.  The plaintiff attorney wants $20 million and says that $5 million of it must come from Dr. Washington. 

                Now Dr. Washington gets nervous, because he does not have that much in insurance coverage.  That is not the plaintiff’s problem, though.  Indeed, she says that if the doctor lacks sufficient insurance to cover damages, she will be happy to pursue his personal assets and maybe even his personal net worth.  By the way, the plaintiff’s attorney noted what a nice BMW 700 series that Dr. Washington has parked outside.

                Pennies saved by buying the bare minimum of medical malpractice liability coverage now seem pound-foolish to Dr. Washington.  It will be no fun explaining to his spouse or partners how their financial position is materially and adversely affected by a huge liability claim. 

                What is the remedy for this scenario?  While there is no quick and easy formula to answer the question of how much medical malpractice insurance coverage is enough, one should buy as much as one can reasonably afford.  How much coverage is adequate?  The answer is akin to Abraham Lincoln’s reply to the question, “How long should a man’s legs be?”  According to legend, Honest Abe replied, “Long enough to reach the ground.” 

                Physicians need sufficient medical malpractice limits to reasonably and prudently protect them from the potential of whopping liability verdicts and settlements.  For some physicians in relatively low-risk and benign practice categories (e.g., pathology, radiology, and psychiatry), $500,000 or $1 million may be sufficient.  For a cardiovascular surgeon implanting heart valves or an OB specializing in high-risk pregnancies, though, $5 million or more may be appropriate.

                While there is no magic formula to answer the question of how much medical malpractice coverage is enough, some key factors that physicians should consider in making this calculation follow.

Historical loss patterns

One should consider loss patterns both from a frequency and severity standpoint.  A word of caution is necessary, however, because the past may not be prologue.  The fact that a physician has never had a claim, or never had a serious loss, does not mean she is exempt from a future medical malpractice liability meltdown.  It might be better to be lucky than good, but whether lucky or good, it is even better to have adequate insurance limits.

The medical specialty

Is the specialty within which one practices low risk or high profile? 

Market conditions

How much coverage is available?  Physician-buyers must factor in the complexion of the insurance market.  During hard insurance cycles, medical malpractice liability coverage may be tightly underwritten by just a few insurers.  Hard markets favor sellers.  During soft markets, medical malpractice liability coverage is plentiful, with many insurers willing to offer coverage and to compete on price.

The price and affordability of coverage

It is one thing to say that you need $10 million in medical malpractice insurance coverage, but another thing figuring out how to pay for it.

Risk tolerance

One’s personal and professional philosophy and appetite toward risk is an important factor to weigh.  Is a practitioner willing to absorb a certain level of risk?  Or, is the physician very risk-averse?  How important is a good night’s sleep to him or her?

                One risk management maxim is . . .

Don’t risk a lot to save a little.

In other words, it is unwise to skimp on medical malpractice insurance coverage to save a few dollars.  If Dr. Than leaves her practice underinsured, no one will excuse the misjudgment by saying, “Well, at least we saved money on the insurance premium!” 

Apples-to-apples comparisons

How much insurance do other physicians in the same specialty or niche carry?  A network of contacts through trade and professional organizations can test the waters here.  Also, a seasoned insurance agent or broker can often assist.  One may have to press a little bit, though.  Insurance brokers and agents are wary of creating their own “malpractice” exposure.  This is justified.  Consumers can and do pursue professional malpractice suits against insurance agents and brokers. What if an agent or broker recommends a certain amount of coverage, it turns out not to be enough, and a physician sues the broker or agent for negligent advice?  In fact, agent and broker checklists on errors and omissions (E & O) loss prevention often urge intermediaries not to tell clients how much insurance they need.  Yet, if they cannot give such advice, who can?  

                It helps to be persistent, though.  One can enlist a broker’s help by having him or her step into a consultant-type role.  A physician can make a case to the insurance agent or broker and explain that this is where the insurance agent or broker can deliver value-added service.  The physician can ask the agent or broker to tackle the problem, fully understanding that no guarantees or warranties accompany any recommendation.  One shouldn’t avoid asking an insurance agent or broker for advice. One should expect them to be wary, though.  “Failure to procure sufficient insurance” is an allegation that disgruntled clients sometimes make against brokers, making the brokers gun-shy.

                One should not expect infallibility because such an assessment is, at best, a judgment call.  It is wise to take the advice with a grain of salt.  A physician may consider offering to sign a waiver agreeing that if the agent or broker gives advice that proves to be insufficient insurance coverage, the physician will not sue the agent or broker.  Alternatively, one may consider engaging a risk management consultant to give some advice in this area. 

                Any recommendation on suggested medical malpractice liability limits is a balance between protection and affordability.  While it might be nice to have $10 million in limits, financially it may be out of the question.  Ivory-tower recommendations about the amount of coverage to buy must jibe with real-world budgets and financial considerations.

3.9 “Expected or Intended” Traps

Like any other form of coverage, medical malpractice insurance covers accidents.  Accidents are fortuitous events, not intentional acts.  Losses that an insured expects or intends are not accidents per se and are thus not covered by insurance.

                Most insurance policies preclude insurance coverage for bodily injury or property damage expected or intended from the insured’s standpoint.  Coverage problems can arise when a plaintiff alleges intentional acts or misconduct which causes or contributes to a product mishap.  Examples might include alleged battery or invasion of a patient’s privacy on a physician’s part.  Alternatively, there may not be a claim that a physician intended to harm anyone, but that, given a callous disregard for safety, bodily injury, or property damage, harm could have been expected.  This often causes insurers to reserve coverage rights, based on allegations made in the plaintiff’s complaint.

                What follows is an example of how the intentional acts exclusion can operate in a medical malpractice claim.  What if a physician had a claim involving a procedure she used that is approved in Europe but that had not received proper evaluation or peer review in the United States?  While this undermines liability defenses, there is no exclusion in most medical malpractice policies voiding coverage for medical procedures not filtered through the peer review process. 

                In truth, it is difficult for a physician policyholder to keep someone from claiming that the doctor engaged in intentional or deliberate misconduct.  It echoes the question frequently asked by consumers, “Can I make a claim for . . . ?”  Anyone can make a claim for anything.  A patient, plaintiff, or creative plaintiff attorney can allege anything, including intentional acts on a doctor’s part.  Claiming it does not make it true.  It may, however, cloud the doctor’s medical malpractice insurance coverage, prompting a medical malpractice insurer to issue a reservation of rights letter.

                Preventing coverage problems in the intentional acts area is similar to the advice offered in avoiding punitive damages: adopt an approach to conduct so that it will be beyond reproach.  It would be nice if heeding such nostrums was the antidote needed to inoculate physicians from grandiose legal allegations.  Such, sadly, is not the case.  A rhetorical flourish or unsubstantiated claim embedded in a lawsuit may prompt a nervous medical malpractice insurer to reserve coverage rights.

                If an insured feels that an insurer has wrongly reserved rights on the allegation of intentional acts, the insured must act at once.  First, the insured should make his or her case to the insurer as to why there were no intentional acts.  The insured should schedule a meeting with the claims personnel.  At this meeting the insured should state his or her case and then ask that the insurer remove that particular reservation of rights.  Second, the insured should keep after the insurer to investigate and decide whether they are affording coverage.  Reservation of rights letters have limited shelf-lives.  Thus, time is of the essence.

                Once an insurer reserves coverage rights, it must declare sooner or later whether it will cover a claim.  If it fails to do so, a court may rule that the insurer waives its coverage defenses, notwithstanding the outdated reservation of rights. 

                The moral is that after receiving a reservation of rights—based on intentional acts or any other grounds—one should keep after the insurer to either accept coverage or justify its stance.  Insurers run risks by keeping insureds in coverage limbo for long stretches of time.  Insureds, therefore, should seize the initiative.  Insureds should advise their insurers that, after a reasonable amount of time, a definitive answer is necessary.

                If an insurer reserves rights for any reason on a medical malpractice liability claim, physicians should recognize what new doors open and which options arise.  Once an insurer reserves its coverage rights, physicians may be entitled to hire a lawyer of their choice—not the insurer’s—at the insurer’s expense.  When an insurer hires a defense lawyer and reserves coverage rights under a medical malpractice liability policy, it creates a potential conflict of interest.  The insurer-appointed lawyer may uncover facts that—if disclosed to the insurer—might jeopardize insurance coverage.  Yet the physician-policyholder, not the insurer, is the lawyer’s client. 

                To avoid placing attorneys in this position and to minimize the chance of mischief to policyholders, many courts state that insureds can retain their own defense lawyer once an insurer reserves its coverage rights.  Wise physicians exercise this right to independent counsel of their choice.

                Many legal advisors recommend that doctors always retain personal counsel to watch the insurance company.  This is especially true when they receive a reservation of rights letter.  Doctors as insured policyholders may have neither the time nor the inclination to deal directly with insurers on disputed insurance coverage issues.  Health care professionals may need the muscle of an attorney who understands the legal issues involved and who can play the “bad faith” card in a way that snaps the insurers to attention.

3.10 Practitioners’ Roundup

An informal survey of insurance professionals produced the following views on common medical malpractice liability coverage problems.  Some of these underscore themes we have identified and discussed.  Let’s sample some insights on common coverage pitfalls.

Failure to report losses

Failure to report losses may be due to strong feelings that a claim is false, fraudulent, or groundless. Some physicians may not realize that they have transferred defenses and indemnity for these claims to the insurance company and do not have the luxury of denial without consequence.

Over-relying on contractual risk transfer

For example, Doctor Group B buys the practice of Doctor Group A.  Doctor Group A agrees to indemnify and defend Group B for medical malpractice liability for those procedures done on or before the sale date.  Doctor Group A disbands, relocates, or goes out of business.  Doctor Group B may be out of luck or at least require legal representation.  Contractual risk transfer is only as sound as the transferee’s ability to pay.

Ignoring “puffer’s peril”

Failure to realize that packaging, instructions, and advertising materials may be a part of the medical service.  This is known as puffer’s peril.  For instance, “This laser surgery is guaranteed to give you perfect vision, pain-free. . . .”

Intentional acts from ignoring safety factors

There may be extensive documentation indicating that safety procedures, referrals, or diagnostic tests have been ignored in order to save money.  In some jurisdictions this may be defined as an uninsurable intentional act.

Admitting liability

For example, a physician may send a letter of apology or write off a bill.  If this is done without first contacting the medical malpractice insurer, the insurer may deny coverage for subsequent suit or claim by using the argument that the doctor prejudiced its ability to mount a vigorous defense. 

3.11 Conclusion

The moral is clear: health care providers should report to their medical malpractice insurers all potential claims as soon as possible.  Physicians and their staffs must be trained as to what a potential claim is.  To avoid having an insurance premium charged with excessive frequency, it is wise to meet with the medical malpractice insurer to see if it will accept non-chargeable notice only losses.  In this case, the physician can turn in any little thing that could point to a problem.  (Of course, if the little thing does turn into a real problem, then it becomes chargeable.)

                In medical malpractice claims, the greatest risk may not be liability or damages in the single claim immediately before the health care provider, but the threat of potential liability in a string of future claims that hinges upon the outcome of the present case.  That’s why an early investigation is critical.  It’s also why discovery after a suit is filed can be so time-consuming and complex.  A poorly worded answer to an interrogatory can haunt a physician or hospital.  That is why it is so important to identify all potential defenses early in a particular claim.  

                These are some of the most anxiety-producing moments for physicians in medical malpractice liability claims.  Understanding the dangers is the first step in avoiding them.  Physicians can go far to help bulletproof themselves and their practices from such mishaps by understanding—and avoiding—these common pitfalls.