Not all claims covered by med/mal policies
Don’t be blindsided by policy exclusions
Executive Summary
Physicians should be aware of types of claims excluded by their medical professional liability policies, including intentional wrongful acts, fraudulent activity, or sexual misconduct.
- Some policies provide defense costs for some excluded claims.
- What constitutes an intentional tort varies by jurisdiction.
- Physicians might need to dispute the basis for the insurer's reservation of rights to deny a claim.
Most medical professional liability policies contain exclusions for intentional wrongful acts, fraudulent activity, or sexual misconduct, but physicians often are unaware these claims aren’t covered, says Jeffrey P. Lisenby, JD, senior vice president, general counsel and secretary at ProAssurance Corp. in Birmingham, AL.
"If physicians are sued for something that’s not covered, they may end up paying out of their own pocket for the lawyer to defend the case, even if the allegations are completely frivolous," says Lisenby. He advises confirming whether a malpractice policy provides defense costs for excluded claims, even if the carrier will not indemnify losses for those cases.
"ProAssurance’s policy excludes coverage for fraudulent, criminal, malicious, or intentionally wrongful acts, but it also provides that up to $100,000 in defense costs will be paid for such claims," says Lisenby. (See related story, p. 32, on policy limits.)
Physicians need to understand that a professional liability policy does not cover everything that happens in the physician’s office, emphasizes Lisenby. Generally, the professional liability policy insures liability for the physician’s acts or omissions that occur while rendering actual medical treatment to a patient.
"Other sorts of liability, such as employment discrimination claims, worker’s compensation claims, liability for damaged or lost property, or accidents such as visitors slipping and falling in the office, simply do not fall within the insuring agreement of a professional liability policy," he says.
Medical malpractice insurance is specifically intended to cover liability for professional services, and physicians therefore might need general or business liability insurance to cover other types of legal risks, says Mike Merlo, JD, managing director of casualty legal and claims at Chicago-based Aon Risk Solutions.
"You want to make sure those two coverages fit together snugly and nothing falls through the cracks," Merlo advises.
A physician’s liability for breach of confidentiality is not likely to be covered by medical professional liability insurance, for example, but should be covered by general liability insurance.1 Here are two things physicians should consider regarding non-coverage of claims:
• Be aware of how the policy defines excluded "intentional acts."
The law on what constitutes "intentional" with regard to an intentional acts exclusion in an insurance policy varies by jurisdiction, says Merlo. In some jurisdictions, the insured has to merely intend to commit the acts in order for the claim to be excluded. In other jurisdictions, the insured has to intend to cause the resulting damage.
"I have seen some policies that included the word reckless’ in intentional acts exclusions. I would say that is a red flag," says Merlo. "If you come across that in a policy, you would want to get it taken out if possible."
Both types might be included
Occasionally, allegations in malpractice suits include covered and non-covered claims. For example, a lawsuit could allege that the physician was negligent in the way a patient was restrained, and it also could allege battery.
"In this scenario, the insurer might be obligated to cover, or at least defend against, all of the allegations, if they are inextricably intertwined," he says.
Generally, the insurer’s duty to defend is broader than the duty to indemnify. "So if a lawsuit contains just one covered claim along with one or more claims that are not covered, the carrier will often be obligated to defend the entire case," says Lisenby.
• Understand implications of "reservation of rights" letters.
Reservation of rights letters vary depending on the insurance carrier involved and the facts and circumstance of the claim, but typically include a clear statement that the insurer is reserving its rights to contest coverage in the future when it learns more about the facts of the claim and depending on how the claim develops. "Clients often think this means they are not going to have coverage, but this isn’t necessarily the case," says Merlo.
It’s fairly common for insureds to receive such letters after giving notice of a claim, he says. Reservation of rights letters are typically just an indication that the insurer is reviewing any issues that could result in denial of coverage and reserving its rights in connection with the same.
"If the insurer actually denies a claim, or issues a strong’ reservation of rights letter with an adversarial tone indicating it’s likely the claim will be denied, the physician might need to dispute the basis for the insurer’s denial or reservation of rights," Merlo cautions.
Reference
1. Delaware Ins. Guaranty Assoc. v. David R. Birch, CA. No. 02C-05-026-RFS (Superior Ct. of DE, Sussex 2004).
What are the dangers of too-low policy limits?
Lower premium cost often shortsighted
The only way to eliminate the possibility of personal liability for a jury verdict is to settle a plaintiff's claim within the insurance coverage limit prior to trial, says Jeffrey P. Lisenby, JD, senior vice president, general counsel, and secretary at ProAssurance Corp. in Birmingham, AL.
"Unfortunately, settlements can carry their own unpleasant consequences," Lisenby says. These include the required reporting of the payment to the National Practitioner Data Bank, the possibility of required reports to state medical or insurance authorities, and the effect of the payment on the physician's future insurance premiums or insurability.
"Clearly, the risk of a loss in excess of the insurance coverage limit can be reduced by purchasing a higher limit of coverage," says Lisenby. In many states, a $1 million indemnity limit is considered standard and is sufficient to protect against most claims, he adds.
"Some states require carriers to offer lower limits, and many physicians buy those lower limits because the premium cost is less," Lisenby says.
In any lawsuit involving a hospitalized patient, however, the medical costs alone that the patient might claim as damages will often exceed a $250,000 coverage limit. "That does not leave room for payment of other potential damages, like lost wages or pain and suffering," says Lisenby.
It is possible that higher coverage limits could increase a plaintiff's targeted settlement amount, he acknowledges. However, some states don't permit the plaintiff to discover the amount of the physician's coverage limits.
"Moreover, any physician with significant personal assets is a 'deep pocket,' in the sense that those assets can be seized to satisfy a judgment," says Lisenby. When considering how much insurance coverage to purchase, he says, "The question is, would you prefer that a potential judgment be paid out of your own deep pocket or the insurance company's?"
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