Physician must accept insurer's settlement in liability case
■ A column analyzing the impact of recent court decisions on physicians
Experts say physicians might want to take a look at their liability insurance policies to see if the contracts allow the insurer to settle a case -- even against the wishes of the physician.
That advice follows a Rhode Island Supreme Court decision in Mohan Papudesu, MD v. Medical Malpractice Joint Underwriting Assn. of Rhode Island. The high court ruled that an insurance carrier was within its rights when it settled, in the midst of a trial, a liability case over the objections of the physician defendant.
"Essentially, it's the doctor's reputation against the insurer's caution," said Charles Wick, attorney for obstetrician-gynecologist Mohan Papudesu, MD. "An insurance company is going to make a decision based on its own business reasons."
Dr. Papudesu was one of several defendants sued in a wrongful death case. The suit stemmed from a patient who delivered a stillborn child during her eighth month of pregnancy, according to court documents. The patient claimed that Dr. Papudesu was on call before the infant's death and had not responded adequately when called by an answering service about the woman's condition.
The lawsuit contends that the lack of response by Dr. Papudesu and other medical staff led to the baby's death. Dr. Papudesu disputed that he was on call at the time and claimed no wrongdoing.
The case went to trial in 2007. Halfway through the proceedings, Dr. Papudesu's insurer, Medical Malpractice Joint Underwriting Assn. of Rhode Island, settled the case for $500,000, despite Dr. Papudesu's objection, according to court documents. The doctor sued the insurer, alleging breach of contract, negligence and bad faith, among other claims. He was confident that he would have prevailed at trial and argued that the settlement would affect his professional reputation adversely.
A trial court dismissed the suit in favor of the insurer. Dr. Papudesu appealed to the Rhode Island Supreme Court. In its April 18 opinion, the high court focused on a central clause in the doctor's policy that stated, "The [insurance] company may make such investigation and settlement of any claim or suit as it deems expedient."
The language clearly allowed the insurer full discretion in resolving the case, the court ruled. The court declined to address Dr. Papudesu's claim that the insurer failed to exercise the "deems expedient" clause in good faith as it was required to do.
Wick said Dr. Papudesu was never aware that his insurance carrier would prevent him from having the final say in his own lawsuit's settlement negotiation. The insurer did not return calls seeking comment.
"Dr. Papudesu felt very strongly that he had no culpability in this case and that he was in no way responsible [for the child's death]," Wick said. "He thought [the insurer] should have fought for him all the way to the end."
A 1999 Rhode Island case, Asermely v. Allstate Insurance Co., established a strict rule that often prompts insurance carriers to settle rather than risk the cost of losing at trial.
In that case, the Rhode Island Supreme Court ruled that insurers who reject settlements within the insured's policy limits are financially responsible for subsequent trial awards exceeding those policy limits.
"It's a huge burden [for insurance companies]. It's staggering," said Michael Sarli, attorney for Medical Malpractice Joint Underwriting Assn. of Rhode Island. "Every state has a tweak on the standard, but our state's is pretty cut and dry."
Sarli said the settlement clause in Dr. Papudesu's contract was not a mystery and is among standard contract language used by insurance carriers.
The Supreme Court opinion in Papudesu reinforces the bind of medical liability insurance contracts and creates less ambiguity for future contract disputes, said Almor M. Afonso, vice president of claims for ProMutual Group, one of the largest medical liability insurers in Rhode Island.
"Now there is case law in support of the carrier's contract language," he said. "It's a favorable decision from a carrier's perspective."
Afonso pointed out that many insurance companies today, such as ProMutual, have a "consent to settle" policy clause preventing settlements without a physician's approval. A "deems expedient" clause gives the insurer the right to settle without a physician's consent.
"It's the obligation of the policyholder to understand what they're signing," he said. "They want that control in their hands, not the insurance companies'."
Physicians deserve the right to decide whether to settle their lawsuits, said Steven DeToy, spokesman for the Rhode Island Medical Society. The society endorses Norcal Mutual Insurance Co., an insurance carrier that allows physicians the last word on settlements, he said.
But policies come in all sizes, he added, and it's usually the smaller, unregulated insurers that offer physicians less protection. In Rhode Island, about 40% of physicians are covered by unregulated carriers, DeToy said. "It's kind of a buyer beware."
When selecting a policy, it's a good idea to consult a broker who has expertise in the insurance market and explain what the physician wants in a policy, said Phil Willman, a medical liability defense attorney with more than 25 years of experience. Willman represents ProAssurance Corp., a national medical liability carrier that also has a "consent to settle" clause for doctors.
Doctors also should read their entire policy contracts and make sure they understand the language, he said. "It's always a good idea to know what your policy offers. You get what you pay for."
To learn more about an already purchased policy, doctors should contact their insurers or speak to the agents responsible for their coverage, Willman said.
If a doctor is unhappy with contract language in relation to settlements, he or she always can ask for an amendment, Willman said. However, in many cases, the doctor would have to wait until the policy is renewed before changing the document.
Not all insurers would agree to change the policy, Afonso added. Some may decline or make the "consent to settle" clause change dependant on a physician's lawsuit history, he said.
At ProMutual Group, policyholders can request to have their "consent to settle" clause removed for a 1% premium discount. But this happens rarely, Afonso said.
The cost of control
Having more control over settlements has a price, said Tricia Karabas, vice president of Huntleigh McGehee, an insurance broker based in Missouri. Less restrictive insurance policies tend to be higher in cost.
Karabas adds that not all "consent to settle" clauses are the same. Some policies have only one sentence giving policyholders the final say in case resolutions. Other "consent to settle" clauses allow the insurer to consult a panel made up of its choosing if the company disagrees with the doctor's settlement decision, she said. The panel then would make the ultimate decision.
If physicians are confused about policy language, Karabas recommends that they show the contract to an attorney who specializes in medical liability.
The Papudesu ruling should prompt more doctors to scrutinize their policy terms and conditions, said Wick, Dr. Papudesu's attorney.
"I think every doctor should read this decision," he said. "Many states have the same policy, and this case will no doubt be cited [by courts] in the future."