You Want a “Consent to Settle” Liability Insurance Policy. Here’s Why. (Part 1)

Medical Justice provides 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. We also provide counsel specific to COVID-19. If you are navigating a medico-legal obstacle, visit our booking page to schedule a consultation – or use the tool shared below.

Imagine you are sued for malpractice. You’re prepared to do everything necessary to defend your professional reputation. Based on the facts, you feel confident in prevailing. All you must do is speak up. But you can’t. You open your mouth, but you have no voice. Your carrier assumes control and elects to settle the case. The payout is modest, but the damage is done. Your name is enshrined within the National Practitioner Data Bank. This scarlet letter follows you. It’s not a career ender, but it is an enduring professional headache. 

The worst part? You could have won. Easily. If only you had the chance to speak up.  

That sounds like a nightmare. But if your professional liability policy is missing a consent to settle clause, that nightmare could become your reality. 

When reviewing your professional liability coverage, there are few elements as critical as the “consent to settle” clause. Why is the consent to settle clause so valuable to doctors? 

Your insurer has the right to investigate and settle any claim. This is their privilege as the indemnifier. And without a consent to settle clause, that would be the end of it. But if your policy contains a consent to settle clause (and it has a full set of teeth), you have the chance to fight a settlement that you believe is unreasonable.  

On paper, that sounds great. And for the most part, the consent to settle clause is great in practice. But properly invoking it can be complicated. And heed this warning: Not all consent to settle clauses are created equal. You do not want to be hung out to dry by shoddy language. 

Doctors who know how to capitalize on these clauses will likely remain in the driver’s seat throughout their case. And while a greater degree of control does not guarantee a favorable outcome, if nothing else, it allows doctors to wear the captain’s hat (for the most part).  

Let’s talk about it. What steps do doctors need to take today to make sure their consent to settle clause is ready to protect them tomorrow? 

The first step – the consent of someone (or something) is required to make the consent to settle clause work. But it might not be your consent.  

What are we talking about? If you work for a hospital or a group practice, your consent may be subordinate to the hospital’s consent. And if the hospital/group has the power to consent/refuse, you’ll want to know this in advance. Imagine a scenario where you attempt to dispute a demand to settle, only to find out your consent doesn’t matter.  

Making this distinction requires a close study of the relevant policy and its technical points. The right to refuse to consent may lay with “the named insured”, which is often the hospital, facility, or group. Conversely, if the right to refuse to consent is the subject of “the insured”, that could mean the doctor. It could also mean the group or facility. We recognize this latter example is ambiguous. The outcome is largely dependent upon your state’s legal precedent.  

The bottom line: Identifying and comprehending these delicate technical points is tricky. We advise consulting with an attorney. Medical Justice can help you make sense of these complexities. Schedule a consultation with our Founder and CEO, Jeff Segal, MD, JD. 

And in the event, you are sued, keep in mind your defense attorney is hired by the carrier insuring you. Your carrier is paying the bill. This is important because your insurer may tell your defense attorney, “Listen, we’re calling the shots. Dr. Doe’s consent isn’t required. You defer to our judgment. If we want to settle, you’ll settle.” Ethically, attorneys are supposed to be zealous advocates for their clients. But the policy is the policy. If the carrier has the right to settle and be done with the claim, the defense attorney must facilitate that exit gracefully. 

The worst way to find out you’ve had the rug pulled out from under your feet is after your head hits the floor. Researching these nuances in advance is the equivalent of jumping just before that rug is pulled. With the right amount of preparation, you’ll likely land on your feet. Discuss the logistics with your group before a crisis strikes. Agree in advance that your group/facility will keep you in the loop in the event a med-mal settlement advances towards a settlement. In that situation, your voice can be heard. 

The next step – consider what will happen in the event you and your insurer have a disagreement. If they want to settle and you don’t, what happens? Most of the time, an insurer will honor a consent to settle clause. If they make a habit of contesting those clauses, their reputation will suffer. But there are many other reasons (not specific to the consent to settle clause) that could cause an insured doctor and his carrier to disagree. You want leverage. And to obtain that leverage, you must first address the limitations native to your policy. The precise wording of the consent to settle clause is critical. 

If your policy includes a consent to settle clause, the clause likely states that the insurer must request your permission to settle. That statement is likely garnished with the following caveat: Your permission to settle cannot be withheld “unreasonably.” This means the insurer will judge whether your objection to settle is reasonable or unreasonable. 

But first – why would your insurer want to end the matter quickly? Simple. Ending things quickly reduces their financial risk while allowing them to serve their clients at a reduced cost. On the opposite side of the coin, the doctor does not want to settle because he reasonably fears the settlement will damage his professional reputation. 

You want to save your reputation – the insurer wants to save money. If the insurer determines your objection is unreasonable, your options are limited. You can sue your insurer to stop that settlement action, but don’t expect an easy fight, especially if you are already embroiled in a separate med-mal case. Such suits rarely end in favor of the physicians propelling them. 

One court put it thusly:  

“There is a public interest in extrajudicial settlement of lawsuits. The settlement clause tends to defeat that interest and therefore will be narrowly construed so as not to defeat the covenant of good faith and fair dealing which is an implied reciprocal term of the policy.” 

Translated: As far as the courts are concerned, fast and efficient settlements are preferred over litigation that drags on like a glacier. Unless there is substantive proof the insurer is violating its own rules, the court will not dispute its actions. 

That said, when would the courts rule in favor of the doctor? If there is evidence the insurer never investigated the claim, the courts may come to the doctor’s aid. They may also act in the doctor’s favor if the doctor entered a settlement that made it impossible for him to levy a valid counterclaim. Most of these examples fall under the “acting in bad faith” umbrella. 

This concludes Part I. Stay tuned for Part II, coming soon – and let us know your thoughts in the comments below.

Medical Justice provides 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. We also provide counsel specific to COVID-19. If you are navigating a medico-legal obstacle, visit our booking page to schedule a 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 2021 edition of the “Best Law Firms” list by U.S. News – Best Lawyers. With decades of combined 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.