Medical liability policies exist so that physicians do not have to pay out of pocket to defend against a malpractice claim. Defense costs are lofty and indemnification costs (damage payouts) can be substantially greater. If a healthcare provider is uninsured, they will either have to pay out of pocket for these expenses or may not have a way to pay at all. In these cases, the plaintiff's attorney may choose to go after the uninsured healthcare provider's assets.
The existence of liability coverage drastically increases an injured patient's ability to recover damages, because even plaintiff attorneys recognize the extreme difficulty associated with going after an uninsured provider's assets. At times, plaintiff lawyers have rejected cases because the doctor's policy limit is too low and collection of damages would not be feasible should they exceed the limit of that policy.
Is Medical Liability Insurance Required?
Some states outright require medical professionals to keep malpractice insurance in order to practice medicine. These states are Colorado, Connecticut, Kansas, Massachusetts, New Jersey, Rhode Island and Wisconsin, with the minimum coverage limit varying greatly state to state. Insurance companies make a distinction between coverage limits for a single claim and the collective coverage limit if and when multiple claims are filed, and the state sets limits for both.
The coverage limit for a single claim may be $1,000,000. If four individual claims are filed in a year, they do not each have a respective $1,000,000 limit, rather they are subject to an all-encompassing collective limit, such as $2,500,000 million, meaning the company will not cover defense costs and damage payouts for all four claims if these figures collectively exceed $2,500,000.) Therefore, the minimum coverage limits mandated by each state set the minimum single claim limit and the minimum collective claim limit. These could range, with one state imposing a $100,000 single claim limit and a $300,000 collective claim limit and another state imposing a $1,000,000 single claim limit and a $3,000,000 collective claim limit.
The reason for this variation is simple. Some states see physicians sued for much greater damages; lawyers could be considerably more expensive in one state than another, hence the much higher coverage limits in a handful of the states that mandate their physicians carry insurance.
Medical Liability Insurance Incentives
The states of Indiana, Louisiana, Nebraska, New Mexico, New York, Pennsylvania and Wyoming use an incentive program of sorts. If physicians purchase malpractice insurance, they become eligible for certain state-funded programs designed to help physicians faced with a claim. They may give a physician who loses a malpractice suit access to a patient compensation fund. Such funds are established by the state for the explicit purpose of providing compensation to patients injured as the result of preventable medical errors. The state would set a minimum coverage limit for physicians to be eligible for access. If a physician is insured up to a $1,000,000, for example, and loses a malpractice suit in which they owe $50,000 in lawyer fees and $2,000,000, the fund will cover the residual expenses after insurance pays the first $1,000,000. In essence, these states provide supplemental insurance as an incentive for physicians to purchase insurance at all. An individual hospital may adopt certain insurance requirements for their staff if their state does not mandate it.
The Consequences of Providers Going Uninsured
If it is not a state or employer-imposed requirement, the physician may opt to go without liability insurance. In legal and insurance parlance, this is sometimes known as “going bare.” This can be a bane to plaintiff attorneys who work based on contingency fees - meaning they are only paid if and when they win their client's case. They advance the costs of litigation themselves and will only get that money back when the suit is resolved and damages are awarded. If they sue a defendant and there is no insurance company to pay the damages to their plaintiff, they stand to walk away from the case empty handed.
The Difficulties of Going After Well-Protected Assets
Collecting from an uninsured defendant can be exceptionally difficult if not impossible. For this reason, the plaintiff attorney may begin reviewing ways to go after the defendant's assets. This is also very difficult because healthcare providers may be well-coached in asset protection and have found ways to protect their various assets from collection.
In theory, a losing defendant-physician must pay the amount specified in the verdict, provided the verdict is not reversed or successfully appealed. For uninsured physicians, this could lead a lengthy bankruptcy proceeding which could potentially delay payout for years. To go after an uninsured provider's assets, the plaintiff attorney must investigate how well protected these assets are. Wealth management firms advise medical personnel on how to protect their assets, such as homes, retirement accounts, etc. In one Florida lawsuit involving a gallbladder surgery, the Supreme Court of Florida ruled that the losing defendant's annuities were protected under Florida law. Despite being awarded $4 million in damages and the defendant having over $3.8million in assets, the plaintiff received nothing.
In Florida in particular, physicians faced with outstandingly expensive premiums are opting to go uninsured. A liability premium may jump from $11,000 to $40,000 (or similar figures) from one year to the next, a price jump so disenchanting that physicians would rather “take their chances” with the possibility that they will be sued for malpractice.
Even in cases that a damage award exceeds a provider's policy limits, it is rare that they opt to use their assets to resolve the case. Some physicians' assets may be entirely beyond the reach injured patients, depending on the debtor protection laws of the state in which they are sued.