No doctor is expecting a medical malpractice lawsuit. But you're human. Mistakes happen.
If you find yourself in this situation, one potential outcome is a settlement. This typically means the accuser will accept a lower judgment than what he or she initially sought. It also rules out the risk of receiving nothing by ensuring some compensation for the suit.
The insurance company will pay out a fraction of what may have been required if the case went through the complete legal process. It also reduces the amount of legal expenses required to defend against a malpractice complaint.
But settlements aren’t always positive for doctors. After all, a settlement means admitting to some level of guilt or negligence. Doing so may:
- Damage your reputation.
- Affect your licensure status.
- Limit future career moves.
That’s why a malpractice insurance policy with a consent-to-settle clause is a must for doctors.
A consent-to-settle clause means the insurance company must obtain your written permission before they can settle with the plaintiff bringing suit against you.
Without your consent, the insurance company cannot settle. Rather, it must allow the complaint to go through the legal process. Although the insurance company may strongly try to persuade you to settle, the final say belongs to you.
On the hand, a policy without this provision means you have no control over whether or not the malpractice carrier settles the claim.
Even with this provision, most insurers try to limit their liability in case they want to settle. This can be done in a few ways.
The most common way to do this is with a hammer clause. If your policy contains this clause and you refuse to consent to a settlement, the insurer’s liability will be limited. This means they will not have to pay the full amount awarded at trial.
The amount the insurer must pay depends on the type of hammer clause. Some will cap the amount they are required to pay if they want to settle, even if that amount is less than the policy’s coverage limit. For example, your policy could have a liability limit of $1 million per occurrence. But the hammer clause in the policy may limit the company's payout to $300,000 if they recommended a settlement offer and your refused to consent.
A hammer clause may also stipulate that the insurance company is liable for a percentage of any judgment above the recommended settlement.
Another type of hammer clause dictates the insurer will not owe more than the amount they agreed to pay in the settlement. For example, if the insurer recommends a $100,000 settlement and the claim results in a $200,000 judgement, the insurer would only have to pay $100,000. This means you would be responsible for the other $100,000 due to your refusal to consent to a settlement.
An arbitration clause is another common way insurers try to limit liability. This provision enables the insurance company to hire an arbitrator if they believe the physician is unreasonably withholding consent to settle a claim. The arbitrator will hear both sides, then determine if:
- The physician has grounds to fight a claim.
- The insurer's desire to settle is the better option.
If the arbitrator sides with the insurer, it can settle the case - even without the doctor’s consent.
As you see by now, doctors should do whatever they can to maximize their medical malpractice insurance coverage.
Sure, this means paying more now. But when you consider the impact of features like a pure consent clause, it's definitely worth it.
A pure consent clause means the insurers's provision does not contain:
- A hammer clause.
- An arbitration clause.
- Any other clause that limits the physician’s consent ability.
A pure consent clause allows you to reject the insurer’s offer to settle without further ramifications. Even if you lose at trial, the insurer must pay the full amount of the verdict and legal fees as stated in the policy contract.
Consent-to-settle clauses are another reason why doctors need an individual malpractice insurance policy.
Under your employer's group malpractice policy, you may not have a consent-to-settle clause. The employer owns the policy, which means there's a strong chance it owns the consent-to-settle.
If your employer believes it’s in its best interest to settle, they can consent to do so. Even though you may be the one most adversely affected by admitting guilt or negligence.
All practicing doctors need an individual malpractice insurance policy with a consent-to-settle clause. A pure consent-to-settle clause is ideal because it prevents the insurer from limiting its liability. While this may feel like it does not concern you now, it could make a world of difference someday in the future.
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Joel Palmer is a writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.