We continue our discussion regarding the power of the “consent to settle” clause. If you missed Part 1, read it here. With that said, let’s jump in with a brief recap. 

In the event you become embroiled in litigation, 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. 

Here’s a list of common objections (raised by doctors) that frequently do not fall under an insurer’s definition of “reasonable” …

If the doctor believes his case is winnable, but the insurer’s experts opine otherwise, the doctor is likely out of luck…

If the doctor objects to a settlement because he does not want to be listed in the National Practitioner Data Bank, he’s likely out of luck…

If the doctor objects to a settlement because he does not want a) his hospital privileges to be revoked or b) does not want his insurance premiums to increase, he is likely out of luck…

We repeat ourselves: Frequently, such objections will not be considered “reasonable” by the insurer.

We return to the courts with another quote:

“An insurance policy’s purpose is indemnification and defense against covered claims, not to protect an insured from increases in insurance premiums or damage to the insured’s reputation.”

Unless there is substantial evidence the insurer is explicitly undermining the insured doctor, they will not be penalized for propelling a settlement. And attempting to prevent a settlement after the ink has “already dried” is a fast way to make the situation even worse.

One relevant example: A doctor canned his policy to stop his insurer from finalizing settlement negotiations with the plaintiff. The court set the doctor’s cancellation aside and held him to the insurer’s move to settle. Ouch.

So, the obvious question. What happens if, even as the end approaches, the doctor remains adamant that the case will not be settled?

Stop. Hammer time.

More specifically, hammer clause time. What is a hammer clause? A hammer clause specifies that if an insured doctor refuses to settle, he will be personally responsible for all additional expenses if the case ultimately costs more than the carrier could have settled for. To be clear, “additional expenses” include the cost of the settlement or verdict, as well as the defense costs.

At this point, the original policy limits don’t matter. The coverage is now limited to the level of the settlement that the insurer suggested. The potential costs are sobering, which is one of the reasons why the device is called a “hammer clause.”

As an example, you have a consent to settle clause. Plus, a hammer clause. Your defense attorney can settle the case for $25k. You say no. Case goes to trial and the jury returns a verdict for $100k. You are on the hook for at least $75k, the overage. Plus, potential additional defense costs. The time to learn about hammer clauses is before various objects hit the fan.

Let’s review: The insurer’s right to settle the case is enforceable. And the policyholder (doctor) should expect “an offer he cannot refuse” if he presses his resistance.

What can the insured (doctor) do to strengthen his position? You do have options.

• Wider limitations on the insurer within the explicit terms of the policy.

This requires a consent to settle clause. Simple as. But be cautious: While many companies advertise these sorts of clauses, the rights of the insured (the doctor) are often limited by other clauses. Review any policy that offers a “pure” consent clause with an attorney who specializes in professional liability policy contracts. Our Founder and CEO, Jeff Segal, MD, JD, can help you understand your policies. Visit our booking page to schedule a free consult – it’s fast and easy.

• Limitation of penalty clauses.

The hammer clause excels at fitting square pegs into round holes. But if you require a solution with more finesse, consider its gentler cousin: the “modified hammer clause.” This is sometimes referred to as a “coinsurance clause.”

When a coinsurance clause is in play, you and the insurer split the amount by which an eventual outcome on a case you refused to settle exceeds the cost of the case had it settled. Splitting the baby.

The percentage split varies from carrier to carrier, so it pays to shop around.

• Be prepared to take advantage of alternative dispute resolution methods.

Let’s return to a point we made earlier: The carrier judges whether a doctor’s refusal to settle is reasonable or unreasonable. And if the carrier already wants to settle, the doctor’s battle will always be uphill. As the indemnifier, the carrier starts from a favorable position. The addition of a neutral third-party can benefit an insured doctor who opposes a settlement.

Here are two examples…

Binding arbitration – If you and your insurer cannot agree on whether to settle the case, the matter will go to an arbitrator.

Board of your peers – If you and your insurer cannot agree on whether to settle the case, a panel of physicians will make the decision.

A doctor can lean on the above options when presenting his contentions to a neutral third-party. A key point: Understand who gets to pick the arbitrator or board members. You do not want to find yourself in an ineffective position, explaining your grievances to a cast of decision-makers groomed by your insurer to ignore/dismantle your arguments. You’ll also need to consider which laws will dictate the terms of the evaluation – state law, the rules of an arbitration association, etc.

Though most of these terms are protective, none are without pitfalls. It always pays to review these policies with a seasoned attorney (one knowledgeable in healthcare practice management and insurance) before signing on the dotted line. Our Founder and CEO, Jeff Segal, MD, JD, can help you understand your policies. Visit our booking page or schedule a free consultation using the tool below.

Addressing the matter of cost: Devising an enhanced “consent to settle” clause tailored to your needs will add to the cost of your policy. But if it protects your professional reputation (and your practice), the additional cost is more than worth it.

Let’s make something else clear: Carriers want to get cases off their books. But they also want your business. A carrier that rolls over and settles every claim will soon be out of business – word will get around, and doctors will be repelled. Next, plaintiff’s attorneys will be drawn to the perceived weakness of the carriers, on the hunt for easy money.

The practical reality is that most med-mal carriers (especially those sponsored by doctors) stick by their doctors. Even if a carrier can legally side-step a consent to settle clause, they often do not. We will have more to say on specific carriers that are less doctor-friendly. Yes, we’ll be naming names. The best carriers are concerned with the professional reputations of their clients, as well as their own.

In closing, let’s review what we learned.

A consent to settle clause adds essential layers of protection to almost all personal risk management strategies. However, because it can be limited (judicially or by policy terms), the addition of an even stronger protective clause can protect you from the worst med-mal outcomes. Lastly, reviewing your policy (and any subsequent additions) with a seasoned attorney further increases the chances that in the event you are sued, you’ll wear the captain’s hat throughout the ordeal, increasing the likelihood a favorable outcome manifests.

Planning your professional liability coverage may feel as onerous as building a house from scratch. But with the right kind of help, it can be as simple as tightening your belt and buttoning your suspenders. It doesn’t have to be an ordeal. But it does need to be done right. Your reputation, your career, (and your sleep) may one day depend on a few sentences – your consent to settle clause. Let us know your thoughts 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 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.