Many physicians are outraged and scaredabout what's going on in the medicalmalpractice insurance market these days.They're outraged by the fact that malpracticeinsurance premiums are going through theroof and scared because many of their physician colleaguesare being dropped altogether by their malpracticeinsurance carriers.
In spite of the fact that premiums are on the rise,many physicians are upping their malpractice coveragefrom the standard $1 million/$3 million policy to eithera $2 million/$4 million or $3 million/$5 million policy.They're doing this because they fear losing personalassets from a multimillion-dollar verdict that is in excessof their old policy's limit. But you can avoid the bull'seye on your back by knowing the facts. Most personalinjury (PI) attorneys aren't interested in taking a medicalmalpractice case if the circumstances aren't right.
For example, PI attorneys usually aren't interested ina case in which the physician has no medical malpracticecoverage or has low limits. While there is a schoolof thought that says PI attorneys are trying to run theinsurance companies broke, it's actually the opposite. Ifthere were no insurance companies to cut checks, PIattorneys would need to find another line of work. Thefact is, it's too much work and too costly to go after aphysician's personal assets. While a PI attorney willoccasionally chase down a physician's personal assets,for the most part, they settle for policy limits.
In addition, PI attorneys usually aren't interestedin a case in which liability is tough to prove. No matterthe damages, if the attorney is convinced that theycan't prove there's a connection between the patient'sinjury and the physician (ie, proximate cause), thecase will have no merit. Thus, there will notbe a settlement or a positive verdict shouldthe case go to trial. A PI attorney is morelikely to take a case if liability can beproven easily. In this circumstance, the PIattorney is assured that they will makesome money from the case.
There is an exception tothese standard PI attorneypractices. For example, ifa PI attorney has a casethat involves significantdamages but poses a liabilitychallenge, they're more likely toroll the dice if the physician hasabnormally high malpractice insurancelimits. If the PI attorneycan get through a summary motion and havethe case dismissed for failure to prove liability,chances are, the insurance company will settle thecase anyway for fear of a verdict in excess of theinsurance policy's limits.
Consider the following example. Dr. Smith operateson a patient, who ends up becoming a quadriplegic.Dr. Smith says he did nothing wrong and doesnot want to settle the case. Afraid of losing his personalassets in a lawsuit, Dr. Smith increases his malpracticecoverage. The PI attorney decides that hedoesn't want to take the case, but changes his mindwhen he finds out from a colleague that Dr. Smithrecently upped his malpractice coverage. So, the PIattorney takes the case and rolls the liability dice.
The local judge assigned to the case is a former PIattorney and decides not to dismiss the case after hearinga motion to dismiss due to lack of liability. The casegoes to trial and the patient demands $5 million. Theinsurance company, St. Paully, just happened to be gettingout of the business and settling all outstanding suitsto clear their books. Without Dr. Smith's approval, St.Paully settles the case for $2 million. The good news isthat total asset protection and lower policy limits couldhave prevented this outcome.
Nuts and Bolts
If a physician properly protects their personalassets and has relatively low malpractice limits, thelikelihood of a PI attorney being interested in suingthem drops dramatically. In fact, word will get aroundthe plaintiff community to stay away from a doctorwho has low insurance coverage and proper asset protection.A PI attorney won't invest the tens of thousandsit takes to litigate a malpractice claim if theyknow the defendant is not collectible and their malpracticelimit is low—it's not worth the gamble.
There is very little, if anything, a PI attorney can dofor their clients to collect against a physician who hastheir assets housed in a limited liability company (LLC)or off shore. In addition, if a PI attorney learns that aphysician has no malpractice coverage or a lowlimit (eg, $500,000 or less per claim), thechances of that attorney taking a caseagainst that physician are verylow. That's because there isvery little upside for theattorney, but a significantdownside (ie, the high costof litigation and health insurancelien that must be paidback before the attorney makesany money from the case).
Keep in mind that there are realworld answers to questions abouthow a PI attorney goes about makingdecisions to file a medical malpracticecase, and then there are the technical optionsa PI attorney has at their disposal. It's technicallyaccurate to say that a PI attorney could sue anyphysician for just about anything, no matter how thephysician has their assets protected or what kind of malpracticeinsurance they carry.
Let's examine when a physician's personal assetsare at risk. When a medical malpractice claim is filedand a trial ensues with a judgment in excess of themalpractice insurance policy's limits, a physician'spersonal assets are at risk. Since approximately 70%of all PI cases end with settlements, on average, thereis just a 30% chance that the case will go to trial. Attrial, physicians win approximately 80% of the time.Thus, there is technically only a 6% chance that thejudgment could be in excess of the policy's limits. Thelikelihood of a judgment coming back in excess of thepolicy's limits in my opinion is less than 2%.
So, why are physicians worried about protectingtheir personal assets? It comes from the few horrorstories that happen in and around local medical communitiesevery year. All a physician needs to do is hearone horror story about how another physician lost allof their personal assets or how a medical office lostsome of its accounts receivable and that physiciancan't sleep at night. If you properlyprotect your assets prior to a malpractice suit andcarry low-to-medium malpractice liability coverage,you will protect yourself and your personal assetsfrom medical malpractice suits.
Roccy DeFrancesco is an attorney and author of
"The Doctor's Wealth Preservation Guide." He
has run a medical practice and lectured for many
state and national medical associations. For a free
asset protection, income, and estate tax reduction
CD, or for questions, call 269-469-0537 or e-mail