Ed. Note: This is the final installment in a two-part series. Read Part One here.
Being served with a malpractice lawsuit is unsettling for any physician. What physicians do in the first few days can determine whether they are fully protected or left exposed.
No physician expects to receive a letter from a patient’s lawyer putting a physician on notice of an alleged medical malpractice claim. But it happens, and when it does, the steps you take immediately afterward matter more than most physicians realize. The single most important thing you can do is notify your malpractice insurance carrier right away, ideally immediately upon receiving the letter.
Notifying the carrier is not merely good practice but is a contractual obligation under virtually every professional liability insurance policy. Most policies require that you report any claim or lawsuit to your carrier within a specified window. Failure to do so can have devastating consequences: you may forfeit your insurance coverage entirely, meaning you would be personally responsible for every dollar of defense costs and any judgment entered against you.
Claims-Made Policies and Timely Reporting
The risk is particularly heightened under a “claims-made” policy, which is the most common form of medical malpractice insurance. A claims-made policy covers only those claims that are both made and reported during the active policy period. Unlike an “occurrence-based” policy, which covers any incident that occurred while the policy was in force, regardless of when the claim surfaces, a claims-made policy requires timely reporting as a required condition of coverage.
Once your carrier has been notified, it will assign and pay for defense counsel to represent you. The attorney will investigate and handle the claim and handle any litigation that might occur thereafter. You do not need to hire defense counsel on your own to investigate and defend your claim or lawsuit. That is your carrier’s responsibility. Your primary obligation is to cooperate fully with the attorney assigned to your case.
If you never receive notice of a claim and are instead surprised with a lawsuit, follow the steps above, and notify your carrier in writing of the lawsuit as soon as you are served, providing a copy of the Complaint and Summons with the written notification. In your correspondence to the carrier, indicate the date you were served with the Complaint and Summons. Date the letter so you can show when you sent it. Maintain a copy of what you send to the carrier so that you can prove you provided the Complaint and Summons and put the carrier on notice as required by your policy.
Potential Conflicts Between You and Your Carrier
One caveat to representation by counsel hired by your insurance company: The attorney assigned by your carrier owes professional duties to both you (the insured physician) and the carrier (the party paying the bills). Most of the time, your interests and the carrier’s interests are aligned: both want to win the case or resolve it efficiently. But those interests can diverge, and when they do, physicians can find themselves caught in the middle.
The most common conflict involves settlement. Suppose the plaintiff’s attorney offers to settle the case for an amount within your policy limits. From your perspective, accepting that settlement might be the smart move, as settlement eliminates the risk of a verdict that could exceed your policy limits, thereby exposing your personal assets. For example, if you have 1 million in coverage, but the jury verdict would be 2 million, then the carrier will pay 1 million and you will be on the hook for the rest. Carriers sometimes resist settling, either because they believe they can win at trial, because settling would set a precedent they dislike, or simply because the settlement amount is substantial. In those situations, the carrier’s reluctance to settle can leave you bearing a risk the carrier itself does not share. The carrier’s exposure is capped at the policy limit—yours is not.
This is precisely why physicians facing a medical malpractice lawsuit should seriously consider retaining independent personal counsel. Independent counsel’s sole loyalty is to you. Independent counsel does not replace the defense attorney assigned by your carrier nor participate in defending the case. Rather, personal counsel works in a limited role to ensure that your individual interests are being protected throughout the litigation.
What does this look like in practice? Your counsel will monitor the carrier’s handling of the case to make sure the carrier is acting in your best interest, not just its own. They can push for settlement when you believe settlement is the right move, but the carrier is dragging its feet. They can advise you on decisions when defense attorney may not be positioned to do so candidly. In essence, they can help guide the case toward the most efficient, favorable resolution for you personally.
The Role of Independent Personal Counsel
Your independent counsel can also assist you in the event you face an adverse outcome at trial due to your carrier’s failure to settle the case within policy limits. Imagine, as described above, that a jury returns a verdict that exceeds policy limits, exposing the physician’s personal assets. Prior to trial, the plaintiff’s counsel offered to settle the claim within the policy limits, but the carrier declined. Now, the case has resulted in an excess verdict. Depending on the circumstances, you may have a claim against the carrier which would require the carrier to pay the entire excess. If you are facing trial after failed settlement negotiations, your independent counsel can advise you of the steps required to increase the chances of a successful claim against the carrier in the event of an access verdict. Your independent counsel will also make recommendations on the best way to assert a claim under the circumstances.
The bottom line: if you receive a letter notifying you of a possible malpractice claim or are served with a malpractice lawsuit, notify your carrier immediately and in writing. Cooperate fully with the defense counsel the carrier assigns. But recognize that carrier-appointed counsel serves two masters, and in cases where your personal exposure is significant, having your own attorney in the room is a safeguard, not a luxury. Ward and Smith’s healthcare and personal injury practice groups are available to help you navigate the process from day one.
