Could a malpractice mega-verdict wipe you out?

In theory, yes. But in reality, doctors rarely lose their personal assets.

By Berkeley Rice
Senior Editor

Whenever a multimillion dollar malpractice verdict makes headlines, doctors tremble. It's their worst nightmare: a runaway jury finding them liable for a sum far greater than their insurance coverage, and the sheriff seizing their home, cars, and bank accounts, leaving their family out on the street.

But in reality, this just doesn't happen. The vast majority of malpractice claims are dropped by the plaintiff, dismissed by the court for lack of merit, or settled before trial for an amount within the defendant's policy limits. Of those cases that do go to trial, most end in victories for the defense.

When doctors do lose, the judgments are usually for amounts covered by their policy. Even when the verdicts are higher than their coverage, the awards are often reduced by the trial judge, limited by state caps on noneconomic damages, or settled after trial for amounts close to the policy limits.

"The threat of an excess verdict wiping out a doctor's personal assets is a big myth," says James Lewis Griffith Sr., a veteran malpractice lawyer in Philadelphia. "I've rarely seen a physician dig into his own pocket to satisfy a judgment."

Consider the case of the teenager who died after she was mistakenly given 10 times the normal dose of sedatives following her surgery at a Dallas hospital. Her parents sued the hospital and treating physicians. When the case went to trial in 2000, the jury awarded the family a staggering $269 million, assigning 25 percent of the fault to the doctors. That would have amounted to $67 million, far more than their combined coverage.

What the jurors didn't know because they weren't informed was that the doctors had already settled the case before trial for $3 million, which was covered by their policies. The court then assigned the entire judgment to the hospital on the grounds that the doctors were its legal "agents." The hospital later settled the case for a confidential sum.

Why both sides usually settle for less

Why do plaintiffs settle for less when they have just won or might have won so much more? Because until they settle, they won't get a penny for their current medical expenses. And their lawyer won't get his contingency fee, or the $25,000 to $50,000 in expenses he may have already spent on the case.

To encourage post-trial settlements, defense attorneys often threaten to appeal a big verdict, which could delay payment for several years and add to the plaintiffs' attorney's out-of-pocket expenses. Worse, the appellate court might reduce the award or even reverse the verdict, in which case the plaintiffs could end up with nothing.

"That's why most plaintiffs won't fight for the full amount of a big judgment," says David Karp, a malpractice insurance consultant in Cloverdale, CA. "If the policy limits are within the ballpark of the jury's award, the case will usually be settled a few days after the verdict."

Despite their threats of a lengthy appeal, malpractice carriers are often just as eager as the plaintiffs to settle a big judgment quickly. First of all, it's the carrier not the doctor who typically ends up paying the bulk of any excess judgment. And if the company appeals and loses, it will be assessed a sizable sum in interest on top of the original award. With the interest rate typically running nearly 10 percent a year, a $10 million judgment could have another $2 million added to the final bill if the appeal drags on for two years and fails.

To avoid that risk, some carriers will even chip in extra money to settle a case when the jury has awarded an amount well above the doctor's coverage. Steve Stimel, VP for claims at Medical Insurance Exchange of California, says, "We've never had a case in which a doctor had to pay his own money for an excess judgment. If we feel the doctor isn't liable, and the case is defensible, we'll do what's right."

Why plaintiffs' lawyers don't go after doctors' assets

In general, there seems to be an unwritten rule among plaintiffs' attorneys to leave a doctor's personal assets alone. "If there's an excess judgment, and the doctor has maximum or even adequate coverage, they probably won't go after him," says New York City defense lawyer Luke Pittoni. "Suppose they do, and the doctor loses his house and his retirement fund. If that became public, it could cause a backlash against 'those greedy plaintiffs' lawyers,' and serve as a powerful argument for tort reform, which they're already worried about."

Instead of going after a doctor's personal assets, most plaintiffs' attorneys would rather try to get the money out of deeper pockets. "In 50 years of litigating medical malpractice cases, I've never attempted to satisfy an excess verdict by going after a doctor's assets," says Philip H. Corboy, a renowned Chicago plaintiffs' lawyer who has won a number of huge verdicts against doctors. "I'd rather go after the hospital or the doctor's insurance carrier."

Even if a plaintiffs' lawyer did try to seize a physician's personal property, it might not be easy. Many doctors have big mortgages on their homes, and outstanding loans on their cars. In some states, the house may be protected by a form of joint ownership with their spouses. If they practice in a professional corporation with other shareholders, however, their personal stake in the enterprise might be accessible to a legal claim. (See "Protect your assets before you're sued," Feb. 21, 2003.)

When doctors do get hit for out-of-pocket payments

In rare cases, plaintiffs' lawyers will demand some payment from the physician himself, particularly if he's gone "bare," or is flagrantly underinsured. As Pittoni explains: "If he's let his coverage lapse, or only has $1 million when he should have $3 million, then he may have to come up with some of his own money. Those sums are usually nominal, however maybe $25,000 to $50,000. That may sting, but it certainly won't wipe the doctor out."

Then there are cases in which the doctor has lied, altered records, or shown callous disregard for the patient's welfare all of which can inflame a jury, and spur them to reach a bigger judgment than they might otherwise have. Such behavior can also cost the doctor during post-trial negotiations after a large jury verdict.

If a doctor has been unusually arrogant, an aggressive plaintiffs' lawyer may insist on a personal contribution as a condition for settlement. Or he may demand a "pound of flesh," to teach him a lesson for not agreeing to settle the case before trial particularly if the carrier was willing. While such personal payments may be only a "token" $10,000 or $20,000, they serve as a warning to defendants who face that lawyer in subsequent cases.

That's what happened last fall in a case brought by the parents of a baby who suffered brain damage during delivery against two prominent obstetricians who share a practice in Mineola, NY. Less than two years earlier, the plaintiffs' attorney, James R. Duffy, had won a similar case against the same two doctors. In that case, they'd refused to settle before trial, and the jury returned a $10.5 million judgment against them. After the verdict, the two doctors settled the case for an amount within their policy limits, but Duffy sensed that they'd felt they had "beaten" him.

This time, when the two ob/gyns refused to settle before trial, Duffy was angry because he was convinced that the case against them was indefensible. The jury apparently agreed and delivered an $80 million verdict for the plaintiffs. During post-trial negotiations, the doctors agreed to settle for an amount close to their combined coverage. But this time Duffy insisted that they contribute some of their own money. Together, they ended up paying about $60,000 out of pocket not enough to break them, but certainly enough to get their attention.

"I couldn't let them get away completely," says Duffy, "not a second time. After all, my reputation was at stake here. I didn't do this to hurt them. I just wanted to send a message that if you force a plaintiff to go through a trial in a case that's clearly indefensible, you're going to pay. Otherwise, no one would ever agree to settle before trial."

When there are settlement disputes

Some plaintiffs' lawyers will threaten to hold a physician personally responsible if they think it will persuade him to settle a case before trial, particularly if there's a prospect of a huge judgment. But if the doctor's carrier feels the case is defensible, it usually won't agree to a pretrial settlement.

Still the fear of personal exposure realistic or not prompts some doctors to demand a pretrial settlement even when their carrier feels the case is defensible. "I've seen cases where the carrier's lawyers knew they could win, with solid expert witnesses lined up, and the facts clearly on their side," says David Karp, a malpractice insurance consultant in Cloverdale, CA. "But then the doctor hires a personal attorney who may know nothing about malpractice law and he'll demand that we settle."

If the carrier ignores the doctor's desire to settle, and then loses a sizable verdict, the doctor could sue the company for bad faith, claiming it willfully exposed him to financial loss and damaged his reputation. Such conflicts put the defense lawyer in a bind, because while the doctor is his client, the doctor's carrier is paying his bills. New York City defense attorney Luke Pittoni recalls trying to convince one physician who wanted to settle that his fear of losing his personal assets was unrealistic. But the doctor wouldn't listen. As he told Pittoni, "It's my neck on the line, not yours."

Then there's the opposite problem, when the carrier feels the case is indefensible and wants to settle, but the doctor refuses. (Some policies contain a clause that prevents the carrier from settling without the doctor's consent.) In such situations, the carrier will try to persuade him to settle, citing the risk of a huge verdict if the case goes to trial. Winning that argument may not be easy, however, since some doctors won't admit negligence even when there's clear evidence in the record. Such arrogance is likely to antagonize jurors.

For that reason, some malpractice policies contain a provision known as "the hammer." If the carrier decides to seek a pre-trial settlement, and the doctor refuses, he assumes a fearsome personal risk: If he loses at trial, he becomes personally liable for any amount of the award in excess of the settlement offer he declined even if it would otherwise be covered by his policy. For example, if he rejects a $500,000 settlement, and the jury awards the plaintiff $1 million, the doctor must pay the extra $500,000 himself, even if his policy provides $1 million in coverage.

Berkeley Rice. Could a malpractice mega-verdict wipe you out?

Medical Economics

May 23, 2003;80:89.