Understanding Consent-to-Settle in your Malpractice Insurance Policy

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One of the most important features of a malpractice insurance policy is the consent provision, which gives you the authority to settle (or not settle) a claim that you are involved in.  While this may feel like it does not concern you now, it could make a huge difference if/when you are involved in a malpractice case in the future. 

Settlement is often an appealing option because it allows the insurer to close a claim for a set amount, instead of taking the case to trial, where the final verdict could be much higher (and take much longer, resulting in higher attorney fees, court costs, etc.)  But settlements aren’t always good for doctors.  They can have many negative impacts, such as:

·       Bad press

·       Outcome reported to the National Practitioner Data Bank / viewable to future employers, credentialing agencies, etc.

·       State licensure may be jeopardized

·       Malpractice premiums may go up, coverage may be non-renewed, or future coverage may be difficult to obtain (will always have to disclose settlement on future malpractice applications)

·       May be pegged as “quick to settle” and seen as an easy target going forward

With a pure consent-to-settle provision in your malpractice insurance policy, the carrier must obtain your written permission before they can settle a case on your behalf.  Without your consent, the insurance company cannot settle; rather, it must allow the complaint to go through the formal legal process.  But be wary of snags in the consent provision or other limitations that may protect the insurance company’s interests. 

A “hammer clause” states that if you refuse to consent to a settlement recommended by the insurer, the insurer’s liability for the claim will not exceed the amount for which the claim could have been settled, and any additional defense costs incurred following your refusal to settle will not be covered.  Essentially, the hammer clause gives the insurance company the ability to limit its exposure to the amount for which the claim could have been settled (plus past costs and expenses) when reasonable consent is withheld. “Reasonableness” can be questioned by the carrier, so be sure to understand how they determine this along with other concerning factors.

Other limiting factors may have to do with unique state attributes, such as Indiana’s medical review panel process.  For example, in the state of Indiana, after a claim goes through the initial panel process, if the findings of the panel are 3-0 against the healthcare provider, the carrier can deny consent-to-settle rights that would have otherwise been allowed.

Top rated malpractice carriers are winning 90% of the cases that they take to trial; furthermore, they are closing 80% of their claims with no indemnity payment at all (in other words, they build such a strong case that the opposition decides not to proceed).  Doctors should talk to their defense teams to determine the proper course of action and take a proactive stance in the handling of their malpractice case to ensure the best possible outcome.  

Be sure to understand how your policy’s consent provision works so that you can have a voice in the handling of your claims.