Most doctors are aware of what is meant by a “consent to settle” policy. With such language, the carrier will not settle a claim without your explicit written consent.
Once you provide such consent, the carrier will make a decision. Settle for an amount it can live with. Or defend the case.
If you provide consent for the carrier to settle, and the carrier decides to roll the dice, it rolls the dice with its own money.
For example, assume you have a $1M policy and you provide consent for the carrier to pay up to policy limits. The carrier decides to defend. You lose in court. The jury returns a verdict for $5M. Are you on the hook for the extra $4M?
Probably not, assuming the case could have been settled for policy limits. All the carrier had to do was say yes.
Consent to settle is also useful if a claim is frivolous. You’d prefer a solid defense in such cases. Broadly, if a carrier makes a payment on your behalf, whether for $1 or $1M, it’s reportable to the National Practitioner Data Bank. So, if a case IS defendable, you’d typically want the case to be defended.
Which brings us to what is known as a hammer clause.
What if the plaintiff has put an offer on the table that seems reasonable. You have a $1M policy. The plaintiff has offered to settle the case for $100k. You live in a judicial latrine, where there are whopping jury verdicts day in and day out. Some of the facts support your care. Others are iffy. If you have a consent to settle policy, the carrier must get your authorization to settle. The carrier probably even wants you to settle, because if you go to trial, you may lose, and it may be on the hook for the full $1M (policy limits).
Can the carrier twist your arm?
Yes. With a hammer clause.
The COMPANY shall not settle any CLAIM without the written consent of the INSURED against whom the CLAIM has been made. If the INSURED refuses to consent to any whole or partial SETTLEMENT of a CLAIM recommended by the COMPANY within the applicable Limits of Liability, the COMPANY’S obligation to make any further payments for amounts in connection with the CLAIM incurred after the recommended SETTLEMENT was proposed shall not exceed the amount for which the CLAIM could have been settled by the COMPANY had the INSURED consented to the SETTLEMENT. The INSURED is not entitled to, and the COMPANY will not be obligated to pay, any DAMAGES or CLAIMS EXPENSE beyond that amount. To the extent the COMPANY pays any DAMAGES or CLAIMS EXPENSE beyond that amount, you agree that, after the CLAIM ends, such amounts shall be repaid to us by the INSUREDS, each according to his or her respective interest.
The language above is representative language of “the hammer.”
Let’s go back to our prior example. You have a $1M policy. The carrier has recommended you settle for $100k, the offer that was presented by the plaintiff. You, of course, need to consent to such settlement. If you don’t, then you are rolling the dice with your own money. If you go to court, and the jury returns a verdict of $5M, the carrier is only liable for the $100k (the deal it told you to take). The hammer would limit the carrier’s liability. You’ll have to dig deep for the other $4.9M.
So, “consent to settle” can protect your interests. The hammer clause balances that language in favor of the carrier’s interests (to prevent you from always saying “No.”)
Do all policies with consent to settle language have a hammer clause? Actually, no. That’s why it is imperative for you to review your policy with a knowledgeable person. You don’t want to wait until you are sued to learn for the first time what you actually purchased.
What do you think?
There are two key elements here.
1)The physician has no idea what a hammer clause, nor is it explained to him, by the insurance agent, broker, hospital etc.
2)What is the cost of the policy without the hammer clause versus with it. This clause is there to protect the financial interests of the malpractice insurance carrier. Are hammer clauses present in all policies, in all states? Are physician owned malpractice carriers less likely to have hammer clauses.
Decades ago, I was made aware of a case of an anesthesiologist being summoned to intubate a newborn, that had never breathed, and that the respiratory therapist, OB/GYN, and ER doctor had all failed to intubate. The anesthesiologist intubated the baby, when summoned, about 20 minutes after birth. The baby had not taken a breath at that time, and did not for another 20 minutes after intubation. The baby it turned out, had cerebral palsy from an in utero injury. The mother testified to a severe fall in the tub 3 weeks before birth, causing extensive bruising over the abdomen, but never reported that to the OB/GYN.
The anesthesiologist saved the baby’s life. The anesthesiologist was sued, as was the OB/GYN, Pediatrician (who was home in bed), the ER doctor, and the hospital. The pediatrician and anesthesiologist were released 3 years after the suit started with no payout. The malpractice attorney’s cost to the insurance carrier, to attend depositions for the anesthesiologist, over that time was $40k. If a hammer clause had been present, the case might have been settled by the anesthesiologist’s malpractice carrier, because the damaged baby was going to be a very sympathetic image in court. Settle the claim and be blemished for life. OR push on to defend oneself.
Physicians are rarely aware of the consequences of settling a malpractice claim. What if they have no choice and the insurance carrier settles for them?
There are no easy answers. One other thing to keep in mind. An early settlement gets the physician out from under the claim, and stops all of the anxiety and enormous stress from the case.
Oh and in the case above, the physician’s malpractice insurance premium doubled for years after the case settled with no payout. The anesthesiologist went to another more reasonably priced carrier.