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Lawsuits and the Role of Insurance - Module 4 of 5

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              Medical Malpractice Module 4

The Medical Malpractice Lawsuit and the Role of Insurance

Initial Considerations

Most civil actions require significant pre-trial preparation. This is all the more true when it comes to lawsuits for medical malpractice, as they tend to involve fact-specific questions of medical practice and complex issues of causation, as well as a highly significant role for expert witnesses. The potential plaintiff must take several steps in preparation for a medical malpractice lawsuit.  

Once an injury is discovered that may have been caused by medical malpractice, the first step is virtually always to consult with an attorney. An experienced attorney will guide the client through the initial determination of whether to proceed with a lawsuit by collecting and assessing preliminary information regarding certain key topics. These relate to the nature of the potential plaintiff’s ailment, the conduct of both the doctor and the patient over the course of the treatment and its aftermath, and an estimate of the potential value of a possible damages award.

At the outset, the plaintiff must work with counsel to establish a complete timeline of the doctor-patient relationship and interview witnesses who can provide further information or testify to any aspect of the injury or treatment. In this initial stage, plaintiffs should compile a list of medical costs incurred over the course of treatment and the recuperation process.

Some of the most important questions that will need to be answered from the outset include: how the underlying condition or injury occurred and when it was discovered, which lifestyle changes and limitations are attributable to the injury and how the medical care provider explained the course of treatment and its risks to the patient.

To be useful in determining whether to file a lawsuit, the plaintiff should be specific regarding the harms suffered because of treatment, such as the inability to perform routine functions, loss of employment opportunities and emotional and psychological impacts.  

Any available documentation- such as medical charts, doctors’ notes, test results and photographic evidence- should be carefully examined as part of an initial assessment of evidence to corroborate a malpractice claim. Some of this documentation can be obtained with the consent of the patient while more sensitive material may not be available until the discovery process has begun.

Another important factor in the decision whether to initiate a medical malpractice lawsuit is whether the proposed defendants could afford to pay a damages award. It may not be worthwhile pursuing even a strong case if it seems unlikely that potential defendants would be able to satisfy a monetary judgement.

However, keep in mind that an ability-to-pay analysis should not be restricted to the person who committed the malpractice. Due to the principle of respondent superior, hospitals, clinics or physicians who employ a staff can be held liable for the conduct of employees acting under their guidance in the course of their employment.[1] As such, the employer or its malpractice insurance company may be sources from which a potential judgment could be satisfied even when the person directly responsible for the harm has limited financial resources. [2]

Another step in assessing the potential value of the lawsuit is to research relevant state law, such as statutory limits on malpractice recovery.[3] These determinations can provide a road map for potential plaintiffs to decide whether the potential damages award is worth the expense and time investment of prolonged litigation and to weigh settlement options.

Since these pre-suit investigations can be time-consuming, it’s important to pay attention to the statute of limitations in the state of filing and to note whether the statute begins to run from the date of the injury or the date the injury is discovered.

Note that physicians who have reason to believe they will face medical malpractice lawsuits should undertake similar preparations to collect evidence and interview witnesses. Depending on the circumstances and the physician’s resources, a doctor who is concerned over the outcome of a medical intervention may consult with an attorney, a representative of his insurance company or a risk management specialist from the healthcare facility with which the doctor is associated. As with the patient, these steps will help the physician determine the extent of his potential liability and decide whether to engage his former patient for settlement discussions, aggressively prepare for trial or ignore a pending suit as unlikely to materialize.

Commencing the Lawsuit

Should the injured party decide to commence a malpractice action, the process is like that for other civil actions. The plaintiff files a complaint along with filing fees at the appropriate court and serves notice to the defendants. The case then proceeds with pre-trial motions and a period of civil discovery.

However, unlike most civil actions, those seeking to bring medical malpractice suits often face additional legal hurdles. Due to a perceived increase in frivolous malpractice lawsuits, many states have enacted statutes which require a potential plaintiff to demonstrate that her case has some degree of strength prior to commencing an action against a medical service provider. In many states, this takes the form of a requirement to file an affidavit of merit along with the complaint or within a specified period after initiating the lawsuit.

The requirements, including the precise content and the deadlines for filing the affidavit, differ by jurisdiction. Generally, however, these affidavits consist of a sworn and notarized statement by an expert with substantial experience in the same field of practice as the defendant that she has personally reviewed the plaintiff’s case and believes that the action against the defendant has merit. The expert must express the opinion that there exists a reasonable probability that the care, skill or knowledge exercised or exhibited in the treatment that is the subject of the complaint fell outside acceptable professional or occupational standards or treatment practices.[4] The affidavit is not evidence in the case and the expert who signs it need not testify at trial. Rather, requiring an affidavit is a means of filtering out groundless cases prior to them being taken up by the court system.

In some jurisdictions, this gatekeeper function is accomplished by medical review panels. Claimants seeking to file malpractice claims must first apply to have the cases considered by panels of doctors who decide whether a case has sufficient merit to proceed. The panel generally consists of three in-state licensed physicians who practice in the same field as the defendant physician. Each state sets selection procedures and these typically allow each party to select a panelist. Those panelists, or a court-appointed attorney, will then choose the third panelist.

The application consists of a statement of the facts of the case, the parties involved, and the allegation of malpractice. The panel is given access to medical records and patient information to determine whether the claim may proceed to court.[5]


Most medical malpractice suits never go to trial. If the plaintiff succeeds in overcoming the barriers to bringing a malpractice suit and it becomes apparent through the discovery process that there is credible evidence of wrongdoing which might sway a jury, it is often in the defendant’s interest to seek a settlement. Note, however, that the two parties may settle at any point in the litigation process and settlement discussion may proceed even during (or after) trial.  

Settling on monetary compensation without going to trial, or before the trial concludes, reduces the risk of the jury awarding extravagant damages, particularly in a jurisdiction without monetary caps on recovery. Settling also eliminates substantial attorneys’ fees, expenses associated with finding and compensating expert witnesses and other trial-related costs.  

Finally, in most cases, it is the physician’s insurance company who will pay any damages award. As long as the settlement is kept within the limits of the physician’s liability insurance, the defendant does not pay out of his own pocket.

So, physicians concerned about a potential damages award that is more than his insurance limit has an incentive to settle. Whether the physician or the insurance company has the final say on agreeing to a settlement may depend on the terms of the insurance policy.

On the other hand, doctors are often reluctant to settle because of the damage to his reputation that could result from paying monetary compensation to a plaintiff alleging negligence. Pursuing a decision on the merits in a trial can vindicate the doctor’s professionalism if the jury finds no wrongdoing. Refusing to settle may also deter future malpractice actions by signaling that a potential plaintiff would have to assume all the expenses of a full trial and any recovery would require persuading a jury that the defendant’s actions meet all the elements of negligence.

Note that once the case is filed, settlement agreements require court approval. However, judges generally grant approval unless there are compelling public policy reasons to reject the settlement.

Mediation and Arbitration

Since out-of-court settlements obviate the need for a trial, they lessen the burden on the court system and, therefore, the state has an interest in promoting settlements. As such, in some states the law imposes a mandatory mediation session, which must be attended by the parties, to attempt to reach an agreement.[6]

In a mediation session, each party can present facts and arguments in their favor. A neutral third party- often the presiding judge or a mediator appointed by the judge- helps the parties to negotiate to try to reach an agreement. While the state may require the litigants to participate in a mediation session, it is still up to the parties to decide whether to settle and to determine the terms of any settlement.

By contrast, another alternative means of resolving the dispute without a trial is arbitration, which involves a hearing before an arbitrator or panel of arbitrators. Arbitrators issue decisions that are legally binding on the parties.  

Arbitration hearings generally proceed in the same format as a trial, with opening statements by the parties, the testimony of witnesses and closing arguments. However, they are subject to less formal procedural rules and less restrictive rules of evidence, so the process is generally an expedited one.

An agreement to submit a case to an arbitrator requires the consent of both parties. Arbitration in the medical malpractice context often arises from pre-treatment agreements between physicians and patients which include arbitration clauses. By consenting to the agreement, the parties agree that any disputes arising from the treatment will be submitted to binding arbitration. Arbitration clauses also stipulate that the parties give up their rights to seek legal redress in a court of law and a jury trial.

Due to the often-unequal positions of power between physicians and patients, some courts are reluctant to enforce arbitration clauses. In one case, a court refused to require a patient to submit to arbitration rather than a trial on the basis that the patient did not knowingly and voluntarily waive her right to a jury trial.[7]

To protect the rights of the patient, some states have enacted legislation which conditions the recognition of binding arbitration on specific safeguards, such as that the arbitration clause must be highlighted, that the clause must be optional for the patient and that it must be revocable within a specified period after the signing.[8]

The Role of Insurance

Insurance companies play a central role in almost all medical malpractice lawsuits. Physicians obtain insurance coverage to be indemnified in case of adverse judgement or settlement in a malpractice action. If the claims made against the insured doctor are covered under the terms of the policy, the insurance company is responsible to satisfy the amount of the judgement or settlement up to the policy limit. 

In addition, the insurance company has a duty to defend the physician through legal representation over the course of a malpractice action.

When a physician or another healthcare provider becomes aware of a potential claim for medical malpractice, he must notify the insurance company immediately. At that point, the insurance company will begin its own investigation of the events surrounding the claim and appoint an attorney to represent the physician if the plaintiff commences the lawsuit.

While the insurance company serves as an advocate for the physician and the physician usually is required by the policy to cooperate with the insurance company representatives, conflicts of interest may arise between the two parties. First, a dispute may arise regarding the applicability of the policy to the case at hand. Insurance companies can deny coverage if they deem the injury or harm at the root of the malpractice claim to have been caused by something other than medical treatment.

In one case, an obstetrician sued his medical malpractice insurance carrier when it refused to pay out a successful damage claim against him for mistreating one of his patients.  The insurance company claimed that since the damages award stemmed from the doctor’s inappropriate sexual contact with the patient, incident to a physical examination, the injury involved was not caused by “a medical incident” in the course of “furnishing medical services.”  As such, the insurance company argued that the physician conduct was not covered by his policy.[9]

Situations may also arise in which there is a conflict between the interests of the physician and that of the insurance company regarding how to resolve a lawsuit. Since the insurance company is responsible to pay out any award or settlement, it is up to the representatives of the insurance company to direct the course of the physician’s defense. This decision-making role includes the authority to decide whether to settle a case or to continue with the trial to a judgement on the merits.

However, insurance companies may offer policy options which include “consent to settle” clauses. Under these policies, the insurance company must seek the approval of the defendant physician to settle with the plaintiff. Note that the “consent to settle” clause does not give the defendant the right to demand a settlement, but rather the right to veto the decision of the insurance carrier to come to a settlement.

Even without a “consent to settle” clause, insurance companies owe a duty of good faith to act in the interests of the insured parties when making decisions regarding settlements.[10] For example, a conflict may arise when it is likely that an adverse judgement against the doctor will be more than his policy coverage. In such circumstances, it may be beneficial to the doctor to settle for the policy limit, but in the insurance company’s interest to continue the case to the verdict, as settling for the policy limit gains the insurance company nothing but helps the physician avoid the risk of having to pay the judgment amount that’s more than the policy limit.

Under similar circumstances, a California court has found that a company breached its duty of good faith when it decided not to settle despite having strong grounds for believing that the defendant would lose the case and face an excessively high damages award.[11]

As conflicts between doctor and insurance company are common, it is advisable for a doctor facing a malpractice suit to retain personal counsel to work with the insurance company’s representative to ensure that his or her own interests are upheld.

In our final module, we’ll look at various aspects of liability for medical malpractice and look at malpractice reforms that have placed limits on malpractice liability and judgments.


[1] See Ward v. Gordon, 999 F.2d 1399, 1404 (9th Cir. 1993).

[2] See Bing v. Thunig, 2 N.Y.2d 656, 666-67 (1957).

[3] See, e.g., Mich. Comp. Laws § 600.1483, which limits non-economic damage in most cases to $280.000.00

[4] See, e.g., N.J. Stat. Ann. § 2A:53A-27 (2013).

[8] See Teresa M. Spina, “Arbitration Clause Considerations in Health Care Service Agreements,” National Arbitration and Mediation, (April 2014), http://www.namadr.com/publications/arbitration-clause-considerations-in-health-care-service-agreements/.

[9] Princeton Ins. Co. v. Chunmuang, 698 A.2d 9, 18 (N.J. 1997).

[10] Bleday v. Oum Group, 645 A.2d 1358, 1362-63 (Pa. Super. Ct. 1994).

[11] Comunale v.Traders & General Ins. Co., 50 Cal. 2d 654, 659 (1958).