CHAPTER 14: Liability Coverage for Physicians

Liability coverage is intended to cover the legal and financial responsibility owed to the patient when by an act of negligence or misguided intent a physician harms that patient and when that act, whether by omission or commission, is at variance with the accepted standard of practice in the community. In other words, the concept of medical liability for malpractice implies that harm was done and that the physician should have known better.

Cases in which an otherwise indicated treatment had a poor outcome or a complication that could not reasonably have been prevented or in which a reasonable diagnostic workup failed to correctly identify the problem are not malpractice, just bad luck. Cases in which malpractice by the physician made no difference in the eventual outcome and caused no harm would, in theory, be subject to reprimand by disciplinary boards but not to awards for injury in a lawsuit. In recent years, however, juries in the United States have been making substantial awards for both of these situations and have given awards in increasing amounts in malpractice cases actually causing harm, often far in excess of the demonstrable cost of medical care for the injury, in order to compensate for subjective "injury" such as psychological suffering and disruption in family relationships. To these trends has been added a sense of confusion in the courtroom as juries are presented with conflicting evidence from expert witnesses, who often testify regularly for handsome fees, and increasingly sophisticated arguments by lawyers who specialize in torts, the area of law pertaining to injury and compensation.

Medical malpractice cases are particularly lucrative among personal injury cases. The jury is usually inclined to give the patient the benefit of the doubt and the case is usually easy to win because discrepancies in record-keeping or test results are common and can easily be construed to look worse to a jury than they usually are in fact. The awards are high and the defendants' insurance company is highly motivated to settle out of court regardless of the merits of the case or the wishes of the physician being sued.

Typically, in the United States, the lawyer will take the case on contingency, so that no fee is charged for legal services as they are performed. The lawyer takes a fraction (often one-third) of the settlement or final award. This gives a strong incentive to the plaintiff to proceed with the lawsuit even if the merits of the case are weak, since it does not cost the plaintiff anything except time. The lawyer assumes a certain risk and absorbs the expenses of preparing the case, which can be considerable, but stands a good chance eventually, of gaining far more even in an out-of-court settlement. Defenders of the system point out that it allows persons who could never afford to pay legal fees to obtain justice when they have been injured. Detractors answer that the system gives an incentive to file lawsuits on the flimsiest pretexts and virtually blackmails insurance companies to pay out of court to avoid hefty legal fees and steep awards, regardless of the merits of the case. In Canada, contingency fees are not allowed in many provinces and the pattern of judgments has not been as extreme as in the U.S. Even so, premiums are rising out of concern that the same trend may be followed.

Whichever point of view is correct, the result has been a rapid increase in insurance premiums, amounting to tends of thousands of dollars in the very highest risk categories. Even in Canada, insurance premiums have undergone a steep rise in anticipation of more litigation. Occupational medicine is usually not as exposed to high a risk as other specialties, such as anesthesia, orthopedics, and obstetrics. Even so, the cost of liability coverage can be a substantial expense and a major consideration in determining what procedures one might practice in the clinical setting. Strictly administrative positions in industry or government are largely protected from the rising cost of premiums but even occupational physicians who do not practice or provide direct care need coverage because of the risk of litigation involving the physician in disputes over harm caused by policies of the organization and the increasing propensity of plaintiff's lawyers to sue all identifiable parties in an action whatever their actual participation, including supervisors, students, attendings, and administrators. In the event of an out-of-court settlement by one party, the plaintiffs' attorney can still proceed against those who did not settle and if an award is made there are more options for dividing the judgment according to whom has the "deepest pockets".

While it is easy to critize the system from the physicians' point of view, the fact remains that whatever their other motivations the legal community is correct in asserting that many claims do have merit and that some physicians do indeed practice at a substandard level. Personal injury lawyers are quick to identify and to exploit differences in opinion on medical management, which medicine itself perceives as a healthy scientific attitude of skepticism, and to enlist the services of individual physicians with differing opinions as expert witnesses. There is nothing unethical about being an expert witness, of course, but there are a small number of "professional" physician expert witnesses whose opinions seem to be conveniently adaptable.

Medicine is not without some responsibility of its own for burgeoning malpractice litigation. Physicians also often alienate the patient by insensitive treatment, poor communication, and time pressures that allow no opportunity for the patient to express feelings or to tell the whole story. A patient who feels hostile toward a physician perceived as uncaring is much more likely to sue than who feels grateful toward a responsive care-given. To make matters worse, busy clinicians often record skimpy notes or get details wrong in the records, with devastating results in court. When an untoward event does occur, or when a patient seems likely to sue, the physician should communicate the circumstances promptly to the insurance carrier. This allows the insurance company to prepare a defense ahead of the lawsuit, to investigate the case more thoroughly, and to project its risk into the future. Insurance companies dislike being caught by surprise.

Occupational physicians who work for companies or other large employers such as public agencies may be somewhat protected from the full brunt of a lawsuit, since the employer would normally be named as well and would typically take the lead in preparing the legal defense. Even so, it is dangerous for occupational physicians to assume that their exposure to malpractice liability is shielded by their employment. Individuals within large management structures can be and increasingly are sued for damages, particularly when the injury is said to result from negligence on the part of an employee of the organization. Although such cases are rare, it is not unheard of for the organization to settle out of court without resolving the question of the liability of its employee, opening the possibility of an independent judgment against a physician who works for an employer. For these reasons, it is customary for an employer who hires physicians to provide them with malpractice liability coverage in their own name, unless the arrangement is only part-time and the physician already has personal coverage. If an employer offers a physician being recruited an arrangement in which self-insurance for malpractice coverage or indemnification for a judgment is considered part of the general liability obligation of the employer, it should be considered highly suspect.

In occupational medicine, the physician usually does not have an ongoing relationship with the patient and the patient's family. The patient seldom feels as close to the physician as when there is a family involved or care is given for a personal health problem. The initial encounter with the patient and the quality of the medical records can be especially critical in avoiding a future legal action. Most occupational health services are relatively low risk, especially the preventive and administrative services. The common high risk services include minor surgery, managing orthopedic injuries, acute care and stablization of the seriously injured, and dispensing medication for personal health problems (particularly if it is done without taking a full history to identify other medical conditions and allergies). Occupational physicians should be especially cautious in assisting in surgery, giving general anesthesia, becoming involved in sports medicine, or performing surgery or extensive suturing (especially of the hand or face). The chances of avoiding a claim are improved by regularly visiting the workplace, talking to workers, and showing a respectful and personal interest in their well-being. Physicians who are perceived as remote, condescending, and closely tied to management are most likely to have an action taken against them at some point, even if their medical care is exemplary.

Insurance companies operate by the principle of "pooling risk", or spreading the probability of loss among as many risk-takers (called "underwriters") as is compatible with acceptable earnings. The more individuals or institutions underwriting the risk, the larger the pool that can be created and the less likely it is that any one underwriter will suffer catastrophic losses.

Insurance companies fall into one of three categories, "stock insurance companies," "mutual insurers", and "interinsurance exchanges" or "reciprocal exchanges". Stock insurance companies are corporations, almost always for-profit, providing insurance for a premium. Mutual insurers are corporations without capital stock, usually but not always non-profit, in which the insurance pool and operating capital are formed by premiums and by contributions from policyholders who are also owners with similar rights of control as stockholders in a stock corporation; dividends may be paid out or used to lower premiums. An interinsurance exchange is a device to create a network of reciprocally insured insurers; insurers exchange contracts and share risks in a joint venture managed by an "attorney-in-fact" who is delegated a power of attorney by subscribers to the pool. The attorney-in-fact is empowered to set rates, negotiate assignment of contract shares, and to manage operating funds. The interinsurance exchange is not itself for profit, being an arrangement to serve the individual subscribers who are often themselves in the business of underwriting other risks, and who often seek an especially high profit through underwriting particularly risky ventures. Lloyds' of London is the best known exchange. During the medical malpractice crisis of the 1970's, many stock insurance companies and mutual insurers sought to discontinue writing malpractice liability policies or to raise premiums to almost unpayable levels because of fears of potential losses. This led to action by state insurance commissioners and to the development of numerous physician-sponsored insurance exchanges. In addition, a number of large medical organizations established sponsored programs for their members underwritten by commercial underwriters and administered by professional insurance services under contract.

Insurance companies in the U.S. and Canada categorize physicians into risk categories, with as few as three and as many as nine classes. Occupational physicians tend to be treated very differently by different companies. Seven insurance companies writing malpractice coverage in Southern California were queried in 1984. Three indicated that board-certified occupational medicine specialists and nonboarded "industrial medicine" practitioners would be routinely considered class 7 (high risk, high premium). Three made a distinction between the groups, assigning board-certified specialists to class 2 (low risk, low premium) and others to class 7. One indicated that company policy was to examine the practice patterns of each physician individually. This latter approach makes a great deal of sense in occupational medicine.

Occupational physicians, almost uniquely, fall into either the highest or the lowest risk categories depending on their particular situation and the degree of formal preparation they have completed. The factors most often cited in determining whether an occupational physician would be considered low-risk are board certification in occupational medicine, whether one's activities are primarily administrative duties, the emphasis on preventive medicine in the practice, and presence within a large organization. Factors cited as determining a high-risk classification include the lack of special credentials, primarily patient care responsibilities, emphasis on surgery or trauma cases, and solo practice.

Since differences in fees for liability coverage between categories and types of coverage can be many thousands of dollars per year, reclassification can yield considerable savings and can even mean the difference between a viable and a money-losing practice. Insurance carriers will usually, on request, review the actual practice mix and duties of their insured physicians. If a physician has moved from a part-time position in a plant dispensary to a corporate position and now sees fewer patients, that may be grounds for an adjustment. Some carriers have special rates, in between existing categories, for physicians whose practices are mixed, with part-time duties on one area and the balance in another. Although insurance companies are interested in receiving premiums, they are even more interested in reducing their exposure to risk. They will usually be very helpful in making suggestions as to how one may change one's practice to reduce one's liability coverage.

Another critical consideration in arranging malpractice liability insurance is selecting between "occurrence" and "claims-made" coverage. Occurrence policies cover any medical act that occurred (or was omitted) during the period the policy was in force, regardless of when the patient files a claim or initiates action. The uncertainty of anticipating future claims makes this form of insurance more risky for the insurer and premiums are accordingly higher. A major disadvantage of occurrence policies is that higher settlements in the future could, if trends continue, exceed the limit of liability the insurance company is obliged to pay. The physician would then have to pay the balance. Claims-made policies, on the other hand, cover acts during the period the policy was in force but only when claims are made within the same period. Claims filed after the policy has expired or has been cancelled would not be covered. Claims-made policies allow the physician to adjust-coverage on a year-to-year basis to reflect the climate and trends affecting claims in that year. Physicians with an expiring claims-made policy who wish to protect themselves against unexpected late claims must purchase "tail coverage", also known as a "reporting endorsement" because it covers claims reported beyond the initial term of the policy. Claims-made policies allow the insurer to control exposure to risk but transfers that risk onto the insured physician. The insurance company may refuse to renew a policy or may increase the premium. Although claims-made policies carry lower initial premiums, the later cost of obtaining tail coverage, if needed because one leaves practice or takes an administrative position, must also be taken into account. The most suitable type of coverage for an occupational physician depends in large part on whether one's practice involves clinical care in high-risk situations and to some degree on whether one is in solo practice (and thus relatively unprotected), or stays in an institutional setting. Most malpractice insurers are promoting claims-made policies in the present uncertain climate.

Although there is little that can be done to protect oneself against a malicious or totally unfounded lawsuit, physicians can reduce their risk of claims by practicing good medicine, being sensitive to the psychological needs of their patients, avoiding casual remarks or "thinking out loud", keeping complete and detailed records, taking care to keep close track of prescriptions, and advising on side effects and risks of treatment. The American Society of Internal Medicine has suggested that there are "Nine R's of Malpractice Prevention". Rapport, Respect, Remarks, Record, Rationale, Risks, Rx's, Results, and Res Ipsa Loquitor. Res ipsa loquitor is the legal concept of the "thing that speaks for itself", referring to an injury that is so clearly the result of physician negligence (such as sponge retained in a body cavity) that it could not have arisen otherwise and therefore constitutes prima facia evidence of improper management. It is hard to defend a case against such an obvious finding.