Introduction
Physicians who have created legal entities, such as LLCs (limited liability companies) and professional associations, to limit their liability may mistakenly believe that they are well protected against medical negligence lawsuits.
Although this legal structure does protect physicians in areas ranging from contractual obligations to "slip-and-fall" type claims, new litigation trends suggest that this can now increase liability in medical negligence cases.
Here's why: In many nonphysician business settings, creating legal entities transfers liability and insulates individual actions. Plaintiffs will typically sue corporations rather than individuals, and corporations can buy insurance to protect all of their owners and employees.
Medicine is different. Plaintiffs generally sue the individual physician rather than the entity, as by law in many states doctors cannot avoid exposure by working through a corporate entity. Therefore, physicians generally buy medical malpractice policies in their own name, rather than in the name of the practice.
However, because medical malpractice premiums have become more expensive, physicians began buying policies with lower limits of insurance. Previously, individual doctors carried as much as $12 million of insurance per claim; now the majority of physicians carry no more than $1 million per claim.
In response, plaintiff lawyers began to seek larger awards by dragging medical entities into lawsuits. Now more than previously, lawyers sue the individual physician and the corporation. That's true even for solo practitioners.
In the past, plaintiff attorneys may have named entities for a variety of reasons, but mainly to ensure that there was underlying coverage. Once coverage was established, entities were commonly dropped from a lawsuit. Now when lawyers sue an entity, they are less likely to let it out of a case, not only because it may provide potential leverage in settlement negotiations, but also because a number of legal theories can render them an effective source of independent recovery.
Be Aware of Everyone Involved
Lawyers often use a vicarious liability theory known as respondeat superior, which translates literally to "let the master answer," to hold entities liable. Under respondeat superior, the master is the corporation or other legal entity that a physician's group may practice under.
"Agency" principles are used to establish all the parties for which the master is responsible. Agency refers to an individual acting or appearing to act on behalf of another, and thus can make a medical practice liable for the acts of its entire professional and nonprofessional staff.
This causes trouble when the individual doctor responsible for an act of negligence does not have enough insurance to cover a claim. The corporation can become jointly and severally liable for paying the remainder of the judgment.
Even if physicians have insurance coverage for themselves and their entities, they must still be aware of the "vicarious" liability that can emerge from using independent contractors, sharing office space, or even using "covering doctors."
Still another negative is that when a practice is sued, it may need to hire its own lawyers to represent it. Legal fees associated with defending an entity can quickly mount, giving plaintiffs' attorneys yet additional leverage to facilitate a settlement. This "double jeopardy" -- suing both the physician and the entity -- can have a devastating effect on medical practices.
How Can Physicians Lessen This Risk?
Buying additional insurance for the entity can reduce the risk for personal liability. However, the cost may be prohibitive. Worse, high insurance limits often result in higher settlements. The more money available, the more money plaintiffs' attorneys may demand.
To lower both cost and exposure, physicians should develop an overall coverage strategy. Four options follow.
First, use 1 policy limit to cover multiple entities, if applicable.
Second, have physicians "share" their respective limits with the corporate limits to avoid bringing additional insurance policies into a lawsuit and largely eliminate a plaintiff's leverage.
Be careful when constructing this, because it can create significant exposure if coverage is not coordinated for every agent of the corporation. Shared coverage will only respond on behalf of the corporation if the claim is related to a physician that is a "named insured" on the underlying policy.
Third, look into creative solutions for insurance. Although state laws and credentialing requirements often govern insurance policy limits for physicians, there is often no similar framework for healthcare entities. As a result, insurers can offer unique solutions, such as high deductibles, aggregate limits, or even policies that only cover legal expenses, but do not insure against losses (settlements or awards).
Fourth, check with your broker before renewing your insurance coverage. Also consider consulting with experts in accounting, healthcare, and insurance law to coordinate your insurance needs with a comprehensive asset protection plan.
Source : http://www.medscape.com/viewarticle/703170
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