Many physicians appear to be unaware of the potential impact on their reputations of not having a right to consent to any settlement in their contract for professional liability insurance. Without such a clause the insurance company, may settle a nuisance claim against a physician for a small token payment, yet in making a payment on behalf of a physician, no matter how small, the insurance company is required to report the payment to the National Practitioner Data Bank under the Healthcare Quality Improvement Act of 1986. It is in fact sometimes better for a physician to make a nuisance payment himself or herself to settle a case if the amount is small enough, because payments made by the physician are not reportable.
The lack of a consent provision in a professional liability policy is a critical fact. Generally insurance policies that have consent to settlement provisions cost more than those that do not. Without a consent provision an insurance company, absent bad faith, is generally deemed entitled to resolve and settle any claim within the scope of its liability coverage regardless of the consent of the insured and the impact of a settlement on the insured’s reputation. In the case of Webb v. Witt, 976 A. 2d 858( N.J. Super., App. Div. 2005) the court addressed exactly that “novel issue.” Applying general contract principals, the court determined that it could not alter the terms of the contract between the insurance company and the insured to insert provisions or protections that were not in the contract.
We hold that such a physician or practitioner has no right to object to the settlement, nor to demand an apportionment of his or her responsibility before the settlement is reported to either the National Practitioner Data Bank or the New Jersey Division of Consumer Affairs.
In Teague, M.D. v. St Paul Fire and Marine Insurance Company, et al., 10 So 3d 806 (La. App. 4/7/09), Dr. Teague sued his insurance company for settling his claim without notifying him. The court noting that there is always a conflict between the desire of a defendant to vindicate himself and the insurance company’s desire to minimize the cost of litigation and to avoid the risk of loss, held that there was no conflict between Dr. Teague’s insurance company and his attorneys, where Dr. Teague had contracted away his right of consent to settlement.
Defendants who settle face an uphill battle in convincing others, including members of the of the interested public or the media that they were completely innocent of the charges . . . .These are the ordinary consequences of settlement. A party purchasing a liability insurance policy containing the duty to defend language at issue here agrees to accept the insurer’s view concerning the point at which the benefits of settlement exceed the risk of continuing litigation. The alternative is to negotiate-and pay for - a policy with a consent provisions.
There are several reported cases dealing with the insurance company’s discretion in allocating settlement responsibility so as to implicated data bank reporting. In Melendez v. The Hospital For Joint Diseases Orthopedic Institute, et al., 575 N.Y.S. 2d 636 (NY Super. 1991), a hospital employed surgeon moved for any order modifying the proposed settlement of a malpractice lawsuit to reflect no payment made on his behalf. The court held that absent any employment contract provision giving surgeon the right to object to the proposed settlement, the potential impact of the report on the surgeon’s career did not entitle the surgeon to blanket insulation from the collateral effects of the settlement.
In John Doe, M.D. v. South Carolina Medical Malpractice Liability Joint Underwriting Association, (S.C. 2001), the physician brought a bad faith claim against the underwriting association for allocating all of the settlement claim against him, when there were other defendants. He didn’t contest that he was at fault, he only claimed that he was not solely at fault. The court held that the evidence did not show bad faith in the allocation and dismissed the action. See also, Babic, M.D. v. Physician’s Protective Defense Fund, 738 So. 2d 442 (Fla. App. 1999)( insurer immune on claim that it inaccurately reported allocation of liability in the settlement of malpractice litigation).
Physicians would be well served by a careful examination and understanding of their professional liability policies and should explore the price differential that would give the physician rather than the insurance company final control over the settlement decision.