American Academy of Emergency Medicine

Asset Protection Planning / Malpractice Insurance

Robert West

by Robert West, MD JD FAAEM

Dollars are scarce. We now have the bear market, an economic recession, and the bankruptcies of corporate entities such as PhyAmerica. These events coupled with reported increases in malpractice rates from 33% to 300% and the unavailability of occurrence based malpractice policies in many states should prompt a close scrutiny of your personal exposure of in the event that there are more bankruptcies affecting the survival of your professional liability carriers.

Liability insurance is a created by a contract and can be cancelled as can any contract by a party utilizing a variety of defenses to the contract. Furthermore, business decisions by the insurance companies can lead to their voluntary withdrawal from certain markets where they deem the cost of doing business to be too high. Hardest hit are states like Florida where only 4 companies are reported to be writing malpractice policies. In Texas, I don't know of any group that offers an occurrence policy to their contracting physicians. EmCare at last glance was self-insuring their physicians thru an off-shore subsidiary. In most practice realms, the ever present threat of litigation and the potential bankruptcies of our "corporate sponsors" makes the issue of protecting ones assets a priority that needs to be addressed by all emergency physicians who practice in these unstable times. The concept is analogous to having a firewall on your personal computer system. There is a certain truth to the premise that the best deterrent to litigation is for there to be no financial incentive available to the opposing party. However this concept must be balanced with your immediate need for liquidity and your long term plan for financial security.

Malpractice insurance is the first tier of any sound asset protection plan and certainly should be part of everyone's primary defense. The presumption is that all hospital based physicians have a malpractice policy, which is usually a requirement for working in most hospital ED's. However there are few guarantees in our business, including one that your insurance carrier will be there when you need them. There is no future guarantee that your malpractice premiums or your tail policy will paid by the current contract manager, especially if the CMG looses the contract at your hospital, is taken over by another entity, or is liquidated in a bankruptcy proceeding. Furthermore there is no guarantee that your carrier will opt to be doing business in your state next year.

Nevertheless in most states, there is a 2 year statute of limitations for bringing a suit for a tort claim such as a malpractice case. If you are practicing under a claims made policy for liability coverage, this leaves a potential 2 year hiatus between your present patients and your potential claimants that may surface 2 years down the road. The actual cost of just defending a malpractice case averages about $50,000, so a minimal policy of only $100,000 will cover the cost of your defense and still have some modest settlement value of even if the "facts" are not stacked totally on your side. In the worst case scenario, if you carrier or CMG cancels your coverage, a prior acts endorsement can be added to your replacement policy and it is a cost that should be considered essential for continuing business.