AAOS Now

Published 4/1/2009
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Douglas Free, JD

Know when to fold them

Legal rights and responsibilities in settling malpractice claims

Most orthopaedic surgeons face the unfortunate reality of becoming involved in one or more medical liability lawsuits during their careers. Although most medical liability claims are either successfully defended or dismissed with no payment to the plaintiff, some cases, for a variety of reasons, should be settled. The following is an overview of issues to remember about consenting to the settlement of a professional liability claim.

Absolute right of consent
A few states require that the physician give consent before the insurer can settle a professional liability claim on his or her behalf. The California Business and Professions Code, Section 801.1(j), for example, states, “Notwithstanding any other provision of law, no insurer shall enter into a settlement without the written consent of the insured. ... The requirement of written consent shall only be waived by both the insured and the insurer.”

In these states, this right of consent should be exercised very carefully. In some cases, refusal to consent to settle a claim for a certain amount may expose the physician to personal liability if the ultimate judgment is higher. In such cases, the physician may receive a letter from the insurance carrier indicating that the plaintiff has made a settlement demand that the carrier believes should be accepted. The letter may also state that if the physician refuses to allow settlement negotiations to go forward, he or she may ultimately be liable for the difference between the proposed settlement and the ultimate award.

A physician who consents to settle may later have a more difficult time renewing or replacing professional liability insurance.

State laws, however, may offer some level of protection against a nonrenewal or other adverse action under these circumstances. For example, in Texas, insurers are prohibited from making any statement with respect to the business of insurance that is “… untrue, deceptive, or misleading.” This statute has become the subject of litigation concerning statements allegedly made by agents of an insurer that asked an insured physician to consent to a settlement and then later did not renew or terminated the physician’s policy.

Settlement reporting requirements
Assuming that the physician agrees to settle a particular claim, the amount of the proposed settlement becomes very important because it may trigger state and federal settlement reporting requirements.

For example, in California, insurers are required to report medical liability settlements of $30,000 or more entered on behalf of physicians to the state medical board. Public disclosure via the medical board’s Web site is required if a physician in “high-risk specialties” such as orthopaedic surgery is party to four or more settlements of $30,000 each or more over the course of any given 10-year period. Other physicians are subject to the same public disclosure in the event of three such settlements over the course of 10 years.

In contrast, Florida requires that any settlement, no matter how small, must be reported. Federal law also requires the carrier to report any settlement, regardless of the amount, to the National Practitioner Data Bank. Because how such reports are written can be of great importance to physicians, it is often essential that physicians have an independent legal advocate to protect their best interests and legal rights before such reports are drafted and submitted to regulatory agencies.

Practical considerations
Based on these considerations, why would any surgeon ever want to consent to settle a claim? Although the decision to settle is very fact specific and must be made on a case-by-case basis, several practical and general considerations should be remembered.

First of all, physicians should always remember that the insurance carrier’s claims staff specialize in analyzing the risks associated with taking a particular claim to trial. Physicians should seek input from their insurers at various stages of the case so that the doctor has a sense of how the carrier perceives the merits of the claim. Maintaining direct communication on this key issue should greatly reduce the likelihood of surprise if and when the carrier recommends consent to settle.

Another factor is time. A trial takes up a huge amount of time. If a physician refuses to allow the carrier to settle a case, he or she will undoubtedly have to block out 2 weeks or more from practice. To demonstrate to the jury that the physician takes the case seriously, he or she should be available to be in court every day, seated next to the attorney.

Finally, physicians should not underestimate the potential importance of the possible personal exposure if the judgment exceeds the potential settlement.

Protecting your interests
Professional medical liability insurance carriers take their responsibilities to their insured physicians very seriously. They owe a legal duty of “good faith and fair dealing” to their insureds, and the penalties for breaching such duties can be monumental.

An orthopaedic surgeon who is named as a defendant to a case in active litigation will have a defense attorney appointed by his or her insurer from its panel of medical liability defense specialists. This creates a tripartite relationship between the surgeon, the surgeon’s attorney, and the surgeon’s insurance company. This relationship ordinarily functions very well, although conflicts of interest can and do arise.

An orthopaedic surgeon who perceives a potential conflict of interest—for example, with respect to a question of what the policy covers or whether the case should be settled (or for how much)—should consider consulting with independent counsel who is familiar with insurance coverage and claims-handling issues and procedures. Under certain circumstances, the orthopaedic surgeon may have the legal right to request that the carrier pay for the independent counsel.

Regardless of who bears the expense, having an experienced independent advocate at certain key events such as a mediation or settlement conference can be of great benefit. It ensures that the ortho­paedic surgeon’s individual rights and considerations are factored into the mix of any ultimate decisions affecting or governing the outcome of the case. In some cases, for example, mitigating the impact of settlement reporting requirements and other related issues may be possible. An advocate whose sole function at the relevant proceeding is to look out for and protect the orthopaedic surgeon’s best interests may be able to effectively take this position and be heard.

Be prepared
Timing is key. Many of these issues cannot be addressed after the ortho­paedic surgeon gives consent to nego­tiate a settlement. The time to speak up and be heard on these issues is before giving consent to the settlement. Defendants definitely have rights in connection with the settlement process. It is, however, incumbent upon the orthopaedic surgeon to make sure that his or her rights are properly asserted and protected.

Douglas Free, JD, is a partner in the San Francisco Firm of Kessenick Gamma & Free, which focuses its practice on the legal and business needs of physicians, medical groups, and medical specialty societies. He prepared this article at the request of the AAOS Medical Liability Committee. He can be reached at (415) 362-6414 or dfree@kpglegal.com

Editor’s note: This article is intended for general information purposes and should not be considered as legal advice. Individuals who need legal advice should contact a duly licensed professional.