Insurance policies are contracts. You pay a premium. In exchange, the carrier covers a specific risk.

Life insurance is the simplest example. You pay a premium and the carrier pays a set amount to your beneficiaries if you die. Whether you die or not is easily determined. (At least most of the time it is easily determined…We won’t get into the unusual circumstance of a person who goes missing and is declared “dead” – for insurance purposes – after many years.)

Of course, the carrier may still deny coverage. There are terms and conditions. It covers the risk based on certain representations. If you have a history of cancer and do not disclose that detail to the carrier – when asked in the application-  and you later die of the same cancer, expect the carrier to deny coverage. The decision to accept the risk is based on specific representations.

If a carrier denies coverage when the policy suggests it should do otherwise, the policyholder may have a claim for bad faith. And the amount of money at play can dwarf what the carrier may have been on the hook for originally.

To be sure, a policyholder also has specific obligations.

For example, you must timely notify the carrier of a high-risk event. Assume you have a claims-made policy with an anniversary date of July 1^st. You perform a wrong level surgery on a patient April 15^th. (I know. Two unhappy events on the same day.) You take the patient back to the operating room the next day. You are aware of the high-risk event. You get a letter from a lawyer asking for records on April 22^nd. (I know, couldn’t the patient have at least waited until the sutures were removed?) You notify your carrier August 1^st, well after the policy’s anniversary date. Your claims-made policy has started a new year. This lawyer files a lawsuit On September 1^st.

Can the carrier deny coverage? It depends upon in which state you live. But, yes, the carrier likely can and will deny the claim. They will argue that they manage their reserves annually and you missed the deadline to report a reportable event.

If you learn one thing from this post, it is this. If you experience a high-risk event, strongly consider notifying the carrier ASAP. It will preserve your rights for the carrier to pay for a lawyer to defend the claim and pay a settlement/judgment if that is the ultimate outcome.

Sometimes, a carrier will scratch its head, writing that they are not sure, at this point, whether a claim is covered. Still, they will pay for an attorney to investigate and defend the claim. But they will reserve their rights to not pay a settlement or judgment (or if paid, claw back what they paid on the claim from you). Their duty to defend is broader than their duty to pay for a loss.

Now for the $52M verdict.

This story begins in 2012.

Dr. Pawankumar Jain, of Las Cruces, was accused by the New Mexico Medical Board of overprescribing opioids resulting in the death of at least 17 patients. Two of the 17 patients were Ruben Bonilla, Jr. and Serina Clark. Bonilla died from Dr. Jain’s injudicious prescribing of morphine in August 2010. He was 43 and was survived by 11 children. Days later, Clark died from Dr. Jain’s injudicious prescribing of opioids and other medications. She was 28 and was survived by three young children.

The doctor’s license was suspended by the Medical Board. The carrier learned of these high-risk events from someone other than the doctor – the insurance broker.

In 2012, [the doctor’s] insurance agent saw a television news story about the physician being accused by the state medical board of overprescribing opioids, resulting in the deaths of 17 patients. The next day, the agent obtained copies of documents from the state medical board, including a summary suspension order and a notice of contemplated action.

The notice of contemplated action specified that [the doctor] had deviated from the standard of care through injudicious prescribing, leading to approximately 17 patient deaths due to drug toxicity. Because the agent realized that lawsuits could be filed against [the doctor]  for the deaths, she sent the insurance company the paperwork from the medical board so the insurer would be aware of the potential claims.

However, when the insurer received the information, it did not investigate or seek more information as it was required to do. The insurer failed to get medical records or specific patient names, and none of the 17 deaths were recorded in the insurance company’s claims system (a failure to follow company procedure). Instead, the insurance company decided to cancel [the doctor’s] policy effective the following month.

The company sent [the doctor] a cancellation letter advising him that his policy was being terminated due to “license suspension, nature of allegations, and practice profile,” and offered him a tail policy to purchase.

The insurance company did not advise [the doctor] that he should ensure all potential claims were reported, including the 17 deaths, before his policy expired. The company also did not advise him that he had a claims-made policy and what that meant regarding future lawsuits that might be filed after his policy period expired.

About a year later, two of these 17 patients sued the doctor for the opioid-related deaths. When he was served with the summons, the doctor notified his carrier, PULIC. The carrier denied the claims.

The doctor’s life went from bad to worse. He and his wife of 35 years filed for divorce. He then filed for bankruptcy. The bankruptcy trustee filed a lawsuit against the carrier for failing to defend and pay claims related to the two deaths. This trustee then settled the case with the two plaintiffs by paying the families $680k from the bankruptcy estate. And by assigning the bad-faith lawsuit against the carrier to the plaintiffs.

The doctor was done with this case. The two plaintiffs could continue forward as if they were the policyholder.

The case continued into 2020, when a New Mexico District Court held that PULIC (the carrier) owed Dr. Jain a defense and indemnity for the Bonilla and Clark wrongful death lawsuits in 2013, that PULIC breached its insurance contract with Dr. Jain, and it violated New Mexico’s Unfair Insurance Practices Act. Early in 2023, an Albuquerque jury determined that PULIC also willfully violated the Unfair Practices Act and engaged in punitive conduct, resulting in a $52 million verdict for punitive damages.

Had Dr. Jain settled the case on his own (outside of bankruptcy), arguably he would have been the recipient of the $52M verdict. That would have been quite a payday. But those funds now belong to the plaintiffs.

Will PULIC file an appeal? Presumably. They may also negotiate with the plaintiffs, settling the case for an amount it can live with.

In this case, the carrier was aware of the high-risk events. While the doctor had a duty to notify the carrier of the high-risk events, it already knew about the cases, and their potential for litigation. Carriers say they need to be timely notified so they can properly allocate reserves to pay for such claims. The prior knowledge made it harder for the carrier to justify the denial of coverage.

What is not clear is whether the doctor actually purchased tail coverage. The reporting suggests he did not.

The second take-home point is this. If you terminate coverage with a carrier, and you have a claims-made policy, you should either purchase tail coverage or make sure the new carrier will cover any claims that pop up down the road for past medical care (nose coverage). You do not want a window of time lingering where no carrier is covering your risk for medical events that have not yet surfaced as bona fide legal claims.

If a carrier denies a claim, and you believe the policy language supports that they should cover, and you have met all your obligations, you may have a claim for “bad faith.” As you can see from Dr. Jain’s circumstances, a jury may award a sizable sum, well beyond policy limits.

What do you think?

Medical Justice provides free consultations to doctors facing medico-legal obstacles. We have solutions for doctor-patient conflicts, unwarranted demands for refunds, online defamation (patient review mischief), meritless litigation, and a gazillion other issues. If you are navigating a medico-legal obstacle, visit our booking page to schedule a free consultation – or use the tool shared below.

Jeffrey Segal, MD, JD

Chief Executive Officer and Founder

Dr. Jeffrey Segal, Chief Executive Officer and Founder of Medical Justice, is a board-certified neurosurgeon. Dr. Segal is a Fellow of the American College of Surgeons; the American College of Legal Medicine; and the American Association of Neurological Surgeons. He is also a member of the North American Spine Society. In the process of conceiving, funding, developing, and growing Medical Justice, Dr. Segal has established himself as one of the country’s leading authorities on medical malpractice issues, counterclaims, and internet-based assaults on reputation.

Dr. Segal was a practicing neurosurgeon for approximately ten years, during which time he also played an active role as a participant on various state-sanctioned medical review panels designed to decrease the incidence of meritless medical malpractice cases.

Dr. Segal holds a M.D. from Baylor College of Medicine, where he also completed a neurosurgical residency. Dr. Segal served as a Spinal Surgery Fellow at The University of South Florida Medical School. He is a member of Phi Beta Kappa as well as the AOA Medical Honor Society. Dr. Segal received his B.A. from the University of Texas and graduated with a J.D. from Concord Law School with highest honors.

In 2000, he co-founded and served as CEO of DarPharma, Inc, a biotechnology company in Chapel Hill, NC, focused on the discovery and development of first-of-class pharmaceuticals for neuropsychiatric disorders.

Dr. Segal is also a partner at Byrd Adatto, a national business and health care law firm. Byrd Adatto was selected as a Best Law Firm in the 2023 edition of the “Best Law Firms” list by U.S. News – Best Lawyers. With over 50 combined years of experience in serving doctors, dentists, and other providers, Byrd Adatto has a national pedigree to address most legal issues that arise in the business and practice of medicine.