Constitutional rights versus malpractice insurance settlements.

Malpractice case defense is very costly and the decision of the jury can never be predicted accurately. For these reasons, malpractice insurance companies settle out of court, even when they are convinced that the physician is not at fault. Artz and Blume indicated in 1991 that approximately 35 percent of all malpractice cases were settled out of court or before a verdict was reached and responsibility for damages was determined.[1] Many interpret settling out of court as an admission of guilt by the physician and the insurance company. Settling a case is rarely seen as what it is, an insurance company's selecting a cheaper and less risky solution, regardless of the merits of the complaint. What insurers do not consider is the physician's reputation and capacity to earn a living as a health care provider in today's climate?

In 1985, the State of Florida passed a law providing that, on each malpractice insurance policy, a clause be added allowing the insurer to settle a claim without the insured's permission. The law states: "A clause authorizing the insurer to make and to conclude, without the permission of the insured, any offer of admission of liability and for arbitration pursuant to 766.106, settlement offer or offer of judgement, if the offer is within the policy limits."[2] Similar statutes and or regulations were passed in other states.

Insurance companies place the following or a similar statement in their policies: "...and such settlement of any claim or suit as it deems expedient." This newly created right for insurance companies violates the Fifth and Seventh amendments to the U.S. Constitution. The Fifth Amendment states: "...nor be deprived of life, liberty, or property, without due process of law...." The Seventh Amendment states: " In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved...."

Physicians have contested the actions of insurers, claiming that the insurers acted in "bad faith" and that those bad faith actions created a tort. The Florida Supreme Court addressed the issue recently in Schuster v. South Broward Hospital District Physicians Professional Liability Insurance, 591 So. 2d 174(Fla. 1992). The court held that, when the physician claimed "bad faith" in the settlement of claims without consent by the insured, the issue was basically one of contract rather than of tort. In essence, the court stated that the agreement granted the insurer the right to settle within the policy limits, regardless of the merits of the claims. The only exceptions the court noted are when there are multiple parties to a suit and the insurer discriminately settles with one or more of the parties for the full policy limits, thus exposing an insured to excess judgment, or when the insurer acts in bath faith by settling a claim in a manner that bars the insured's counterclaim.

The question arises, was the contractual agreement made under duress or freely? If the physician does not agree to the insurer's terms, he or she cannot buy insurance. The lack of malpractice insurance is reason enough in many hospital bylaws to deny privileges. Therefore, the physician had lost the constitutional right to earn a living. Therefore, is the contract that the physician signed as the only alternative completely legal and enforceable or a voidable contract because it was signed under duress?

A New York court concurred with Florida in Filiberty v. Damon, 527 N.E. 2d 261 (N.Y., 1988). The court stated that an insurance company may settle a claim without the consent of the insured.

A more equitable approach was taken by the U.S. Court of Appeals, Fourth Circuit, in Gardner v. Aetna Casualty and Surety Co., 841 F. 2d 82 (4th Cir., 1988). The court held that, in weighing possible settlement offers, an insurance company does bear a responsibility of dealing with its insured fairly and in good faith and that the widespread use of "deems expedient" clauses does not grant absolute broad authority to insurance companies. The court also states that an insured reasonably expects that the insurer, in using the authority granted under the policy, will not knowingly effect a settlement that works to the detriment of the insured. The effect on the insured and the insured's reasonable expectations are the same whether the detriment is in the form of liability in excess of policy limits or in the derogation of a collateral right.

The reason physicians should be concerned about having their claims settled without their consent is Health Care Quality Improvement Act of 1986. The Act had several purposes, one of which was to restrict the ability of incompetent physicians to move from state to state without discovery of their previous damaging or incompetent performance.[3]To forestall physicians' changing their locale of practice when sanctions were applied, the Act created the National Practitioner Data Bank. The Act also prescribes that, in every credentialing process (for original licensure, appointment, or reappointment), the National Practitioner Data Bank is to be consulted. Severe penalties are imposed for those who do not follow that step in the credentialing process. Therefore, even though a physician was not deemed guilty by an insurance company or his or her peers but had a claim settled, at credentialing the second panel is forced to decide his guilt or innocence. This second "review" constitutes double jeopardy, against which there is specific protection in the U.S. Constitution. The Fifth Amendment of the U.S. Constitution states: " ...nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb...."

Possible Solutions

The ideal solution to the paradox of statutes conflicting with constitutional rights is to separate the financial reparation that an insurance company pays on behalf of a defendant from the determination of guilt by the defendant. The physician, whenever a case is to be settled out of court or before court adjudication, must be entitled to an impartial panel review to determine his guilt or innocence.

This impartial panel should be composed of practicing physicians of the same specialty as that of the insured physician and one attorney or arbitrator to ensure that due process is followed. Only after the panel determines that the physician was negligent will the case be entered into the National Practitioner Data Bank. Cases in which the physician is innocent of wrongdoing and the payment of a settlement was for business reasons should be excluded from National Practitioner Data Bank. Further insurability of the physician should not be determined exclusively by the amounts paid on the physician's behalf, but also on the degree that the physician's actions created the need for the payments.

Finally, NPDB data would be erased automatically after 10 years, except in cases of willful damage to patients. Behavioral credentialing's point of view indicates that the most important data are behaviors in the recent past, the best predictors of the ability of the individual to function properly within the scope of his or her license. This step could save great amounts of time and dollars in the credentialing process.

References

[1.] Artz, D., and Blume, E. "Malpractice Threat Is Daunting, Real." Journal of the National Cancer Institute 83(17):1208, Sept. 4, 1991. [2.] Constitution of the State of Florida, 1968 Revision, Article I, Section 9, Due Process. [3.] Demos, M. "What Every Physician Should Know about the National Practitioner Data Bank." Archives of Internal Medicine 151(9):1708-71, Sept. 1991.

Further Reading

The following citations from the literature on liability have been gathered through a computerized search of electronic databases. For further information on the research process or the citations, please contact Gwen Zins, Director of Information Services, at College headquarters. Demorest, B. "Comparison of State Legislation Regarding Professional Liability." Ophthalmology 86(7):1253-63, July 1979. Hutton, W. "Physicians' Suits Against Medical Malpractice Insurers. An Analysis of Current Issues in Professional Liability Insurance Litigation." Journal of Legal Medicine 11(2):225-45, June 1990. Scott, C. "Should Physicians Have a Voice in Insurer Settlements of Medical Malpractice Claims?" Journal of the Florida Medical Association 80(9):633-6, Sept. 1993. Sloan, F. "Winners & Losers: How Medical Malpractice Disputes Are Resolved." Journal of American Health Policy 1(2):20-5, Sept.-Oct. 1991.

Albert E. Trentalance, MD, MBA, FACPE, is a medical consultant and licensed health care risk manager, in Ponte Vedra Beach, Fla. He is Chair of the College's Society on Insurance and a member of its Forums on Quality Health care and Clinical Guidelines.