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Could a malpractice insurer drop you when you need it most?


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 one in three 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 Health Insurance Portability and Accountability Act (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.
  • Cyber security issues, which typically require a separate cyber liability policy to protect against cyber attacks 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 cover only 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 2 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.


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