Medical malpractice insurance companies may sometimes have a conflict of interest with their physician insureds. On one hand, the companies want to appear as if they are willing to go to any lengths to defend the rights of their physicians. Doing so provides the companies with a strong social image and discourages frivolous lawsuits. If a company has a reputation for settling frivolous cases to avoid litigation costs, that reputation may encourage patients to file more cases. On the other hand, insurance companies are in the business of making money. Paying large legal bills to defend – and possibly lose – a lawsuit that could be settled may not be a sustainable business practice.
Suppose your malpractice insurance company wants to settle a medical malpractice case against you – even though the case has no merit. In many cases, insurance policy language may allow the insurance company to do just that.
“Consent to Settle” Clauses
A “consent to settle” clause prevents an insurer from settling a case without the permission of the insured party. Without a “consent to settle” clause, the insurance company may be able to settle even a meritless case over the objections of the insured. Even if a policy has a “consent to settle” clause, there is other language that may give policyholders pause. If a physician invokes a “consent to settle” clause and refuses to settle a medical malpractice claim, the policy may also contain a “hammer clause”. The “hammer clause” means that if an insurer wishes to settle a case for a given amount and the physician refuses, then the physician could be forced to pay for any judgment over the proposed settlement amount. In other words, if the insurer wants to offer $100,000 to settle a claim and the physician does not consent to the settlement, a judgment of $500,000 would cause the physician to get “hammered” by paying the other $400,000 out of his own pocket. Some hammer clauses are difficult to recognize, so it is a good idea to have an experienced attorney look over your malpractice policy to inform you of your options.
Expediency Clauses
Insurance policies may contain “expediency clauses” – meaning that an insurer can do whatever it deems “expedient” to resolve claims under the policy.
In the 2011 case of Mohan Papudesu, MD v. Medical Malpractice Joint Underwriting Assn. of Rhode Island, the Rhode Island Supreme Court allowed an insurer to settle a case on behalf of the defendant physician based upon language in the insurance policy that stated, “The [insurance] company may make such investigation and settlement of any claim or suit as it deems expedient.” The policy language allows the insurer to settle claims based on expediency, not based upon merit or upon what is in the best interests of the physician. the definition of “expedient” is an action characterized by what is opportune at the moment and which is governed by self-interest.
Similarly, in Rogers v. Chicago Insurance Company (4D06-1255 Fla. 4th DCA 2007), a physician sued his insurer for settling an allegedly frivolous claim against him. As a result of the settlement of the claim, the physician’s insurance policy was nonrenewed and he had to pay substantially more in premiums. The court dismissed the claims, noting that a “deems expedient” provision with respect to settlement meant that an insurer could settle a claim within the policy limits even where the claim was frivolous and without consideration of the insured’s interest. The court ruled that “The parties have expressly contracted with respect to the subject matter and this Court declines to rewrite the policy when the insurer merely exercises its rights under the agreement.”
A Malpractice Insurer’s Fiduciary Duty to the Physician
Insurers generally have a fiduciary duty to their insureds. A fiduciary duty means that the insurer must avoid situations in which the potential benefit to the insurance company conflicts with what is best for the doctor being insured. If such a situation arises, the insurer must act only with the interests of the doctors, not with their own financial interests. It is obviously not in a doctor’s best interests to be listed in the National Practitioner Data Bank if a malpractice settlement is made on behalf of the physician, so in a defensible case, an insurer should have the duty to take all reasonable steps to keep such a settlement from occurring.
Attorneys also have a fiduciary duty to their clients, but there may similarly be a potential for conflict between defense attorneys and the physicians they represent. Defense attorneys represent doctors, but they are paid by insurance companies. If the attorney goes against the wishes of the insurer, the insurer may not refer further cases to the attorney. The financial dependence on insurance companies may create a conflict of interest between doing what is in the client’s best interests and risking no further referrals if the attorney does not do what the insurer deems “expedient.”
A failure of either the insurer or the attorney to act in the client’s best interests could give rise to a claim for a breach of fiduciary duty and all the damages that go along with such a claim.
Physicians should be aware of the all the underlying factors in their malpractice case and should maintain involvement in the decisions of defense counsel. Physicians should be especially concerned when depositions haven’t been taken, experts haven’t been retained, or motions to dismiss in frivolous cases have not been made. These signs may mean that the carrier has failed to adequately evaluate the claim or has already made the decision to settle.
If a physician believes that his or her interests are not being properly represented, the physician should consider hiring an independent personal attorney to oversee the process and to provide an unbiased second opinion. The independent attorney may suggest additional discovery, more aggressive motion practice (for example, seeking to limit the issues before a jury), or a different defense attorney who does not have a potential conflict of interest with other defendants.
To make sure that their malpractice case receives the best possible defense, physicians need to understand the potential for conflicts of interest between physicians, insurance companies, and defense counsel appointed by insurance companies.
Knowing whether a malpractice insurance policy contains language allowing an insurer to settle a non-meritorious case against the physician’s wishes for the sake of “expediency” would also be a good idea.