“A Good Night’s Sleep”

Timothy R. Bone, President, MedMal Direct Insurance Company // July 10, 2010

“A Good Night’s Sleep” – What policy limits should a Florida physician buy?

Introduction: In the past, it was customary for physicians in Florida to buy $1,000,000/$3,000,000 policy limits from their medical malpractice insurance carrier. That is, $1,000,000 per incident with a $3,000,000 aggregate per policy year. These limits were typically sold separately to (a) the physician, (b) the physician’s corporation and © the allied healthcare personnel; thus creating a $3,000,000 “target” for a plaintiff’s attorney. Physicians would state that they got “a good night’s sleep” because they had a $1,000,000 policy limit. In 2010, this system is a definitive outlier from the norm. The “good night’s sleep” comes from having a $250,000 policy, not a $1,000,000 policy. Let’s explore this.

Article: The average medical malpractice verdict in Florida in 2009 was approximately $1,600,000, plus the attendant costs of the legal system to defend that physician: attorneys, expert witnesses and expenses of the court. And, the average time of a lawsuit from treatment of the patient to resolution of the claim is approximately 3.74 years. This latter fact shows that this system for resolution of untoward iatrogenic clinical outcomes takes a penalty not only in dollars, but in time and stress to the individual physician. With the purchase of multiple $1,000,000 insurance policies ‐‐ by physicians, their corporation and their allied healthcare personnel ‐‐ a very attractive target of $3,000,000 or more has been unknowingly created by the physicians and the system that brought that product to the physicians – insurance companies who utilize independent agents and brokers. This archaic distribution system rewards the independent brokers by paying them 10% of the written premium – thus inadvertently creating a moral hazard for the independent brokers; the brokers make more money if they can sell more premium, and higher limits always generate higher premiums. This system also requires additional premium percentages of 5% to 10% to be used by the insurance companies to manage these brokers and to provide incentives to these brokers – ranging from cash bonuses to trips in exotic locations. Higher limits attract plaintiff attorneys, thus increasing the frequency of litigation. It is a simple fact that a physician with a $1,000,000 policy will be sued more often than a physician with a $250,000 policy. This frequency is amplified when multiple $1,000,000 policy limits are available to the attorney. When a plaintiff attorney is confronted with a medical malpractice case involving multiple parties, this lawyer will make a business decision: “Do I pursue “Doctor A” who has a $1,000,000 policy, coupled with a separate policy of $1,000,000 for the corporation and a separate policy of $1,000,000 for the nurse practitioner, or do I pursue ”Doctor B” who has a $250,000 policy with that limit shared by the corporation and the nurse practitioner?” The obvious business decision is to pursue the physician whose insurance structure provides multiple high policy limits to pursue. The case is crafted and strategy implemented based on the money available to pursue, not on the objective clinical treatment rendered by the physician. Carrying a high limit insurance policy not only increases the frequency of litigation, but also increases the length of time that litigation takes for final resolution. This is a significant adverse effect experienced by the physician being sued as the tension, stress and time away from the practice go on for years as the plaintiff attorney pursues lengthy legal discovery proceedings to convince the insurance carrier to pay the full policy limits available, and the insurance company pursues the same lengthy legal discovery proceedings to convince the plaintiff’s attorney that the case is worth much less than the policy limits. Caught in the middle is the physician, who provided the best clinical care, yet is now caught in a system that does not move forward based on clinical objectivity but rather on the amount of money available to pursue.

Summary: All medical malpractice insurance policies – no matter the size of the policy limit ‐‐ provide the cost of defending a lawsuit; and that cost is unlimited and in addition to the policy limit. However, carrying a $1,000,000 medical malpractice insurance policy limit will result in higher litigation frequency as well as a longer time for resolution of that litigation. Conversely, carrying a $250,000 medical malpractice insurance policy will result in decreased frequency of litigation as well as a shorter time for resolution of that lawsuit. A “good night’s sleep” will be achieved through the purchase of a $250,000 policy, and will be done so at a much lower premium – especially in a system that does not utilize independent insurance brokers to bring the physician to the insurance company.