The current medical malpractice insurance crisis has led some Florida physicians to consider dropping their malpractice insurance coverage and practice uninsured or “bare.” Many have been persuaded by friends, lawyers or “asset protection specialists” (usually life insurance agents) that they could weather the consequences of a malpractice case without malpractice insurance in place. As you face the critical decision of whether or not to carry malpractice insurance coverage, consider the following possibilities:
- Bankruptcy. Without medical malpractice insurance in place, if you lose a medical malpractice case and have a judgment entered against you, there will be little choice but to pay the entire judgment, negotiate a settlement or go to Federal Court and file for bankruptcy. The State of Florida has been called a “Debtors Haven” because it allows for numerous classes of assets to be considered “exempt” from creditors in bankruptcy (i.e. you continue to own these after you emerge from bankruptcy). In the bankruptcy filing, you must list ALL of your assets, including those you claim to be exempt. Failure to do so would be considered a felony by the State of Florida. All filings of bankruptcy are PUBLIC filings. Consider:
- The personal embarrassment of bankruptcy. Your friends, colleagues, and neighbors will have knowledge of your bankruptcy. Do NOT underestimate the additional stress placed upon you during a bankruptcy proceeding.
- Non-exempt assets. You probably have far more non-exempt assets than you realize. Only the first $1,000 in equity in a single motor vehicle is exempt. Jewelry and collectibles are other assets that many physicians have accumulated that are not exempt. Many other assets that you may believe have been exempted can be drawn back into the bankruptcy estate and sold to satisfy the judgment based on the manner or time in which they were conveyed.
- Possible denial of discharge. You may be denied a discharge of your debts (including malpractice judgments) if the court determines that you transferred property within one year of the filing with the intent to defraud creditors. This charge is often raised by the creditors as an objection during the bankruptcy proceeding. You may also be denied a discharge if you conceal (or even fail to keep) certain records and documents related to your financial condition and business transactions, fail to explain satisfactorily any loss of assets, make false or incomplete statements related to your property or refuse to answer a material question (i.e. you do NOT have the right to remain silent).
- Change in bankruptcy laws. There is significant pressure on Congress to make comprehensive changes to the federal bankruptcy laws. Proposed legislation includes requirements to implement “means testing” which could require a Chapter 13 filing (including payments on a judgment debt for a minimum of five years) instead of a Chapter 7 filing, implementation of a $125,000 cap on homestead exemption, increased presumption of fraudulent transfers and other items.
- The patient effect. Imagine your patients receiving a letter from the court-appointed bankruptcy receiver who instructs them to send the $10 co-payment that they owe to them because your practice is in bankruptcy. While no definitive study exists, one might expect to lose a significant portion of their patients after the filing of bankruptcy. This could have a major impact on future revenues.
- Suspension of medical license. If you decide to go bare, you are agreeing with the State of Florida (and your patients) that you are able to, AND WILL, satisfy any judgments against you. If you receive a judgment against you that remains unpaid for a period of sixty days or longer, the State of Florida has the legal obligation to suspend your license to practice medicine in the State of Florida pursuant to Florida Statute 458.320. Several physicians have been advised that they could practice in another State should they lose their license in Florida, but this is simply NOT TRUE as nearly all jurisdictions maintain statutes that forbid renewal of a medical license if your license is under suspension in another State.
- Dollar One Defense. Many physicians have been led to believe that a plaintiffs attorney will not file suit against them if they do not carry malpractice insurance. They are told that they will not be a “target” if there are no assets to recoup. This line of thinking is outdated, unreliable and extremely risky. A plaintiffs attorney realizes that any physician who intends to continue practicing medicine has to meet judgments against them (or negotiate a settlement) if they want to maintain an active license. When you carry medical malpractice coverage, you receive what has become known as “Dollar One” defense. The carrier steps in to the lawsuit immediately and defends you against the claim (or settles the claim). If you decide to go bare, you may not have a legal defense team in place to defend you against claims. Furthermore, should you decide to pursue a vigorous defense against the claim, you will be paying the entire cost of defense; there are no attorneys who take the defense of medical malpractice on a “contingency” basis. Finally, some physicians have already decided that they will file bankruptcy upon the entering of a judgment against them and may decide not to mount any legal defense at all. If this is so, the plaintiffs attorney will most likely trample all over them at trial and allege that they committed certain acts of malpractice that they were not prepared to defend against (including certain acts that would result in a judgment that is unable to be discharged in bankruptcy). As is the case with bankruptcy, all the legal filings and transcripts are public records. Additionally, a “bad” decision may not be appealed without first posting a bond in the amount of the judgment.
- Incomplete asset protection. Nearly all physicians have been approached by an “asset protection specialist” or have attended a seminar on asset protection. Asset protection plans vary from those that would be considered well-reasoned and comprehensive to those that promote criminal behavior. From the onset, one should be aware that it is nearly impossible to implement an iron-clad asset protection plan. Many professionals consulting on asset protection have little to no formal training and are not fully aware of the bankruptcy laws, the medical licensing laws, the credit laws, the tax laws and other laws affecting the plan. For example, consider the interplay of asset protection and estate planning laws. Property held in joint tenancy by the entireties is often utilized in asset protection planning, but generally runs counterproductive to estate planning objectives. Certain asset protection planning may be considered by the courts as a scheme to defraud creditors. Be aware that many professionals wishing to sell you an accounts receivable protection plan are NOT capable of implementing a complete asset protection plan and could even be considered as co-conspirators in a scheme to defraud creditors. Many banks have become apprehensive about entering into certain accounts receivable financing deals for this reason. Even if not viewed in this felonious way, most transactions occurring within twelve months preceding a bankruptcy filing will be considered ineffective and disallowed. A complete asset protection plan includes a review of ALL of your assets AND your liabilities as well as pending or threatened lawsuits. Even many law firms do not offer a complete asset protection plan.
- Loss of retroactive coverage. Should you go bare and wish to obtain medical malpractice coverage again, you will NOT receive retroactive coverage. Even a brief lapse in coverage will result in the loss of retroactive coverage. Understand that if you held a claims-made policy (most policies sold are claims-made) and did not purchase tail coverage, that all of your prior acts are uncovered (not just the time you were bare). Even with tail coverage in place, the time you were bare will always remain a potential liability to you.
- Referring physicians. Many physicians are hesitant when referring patients to a physician who does not carry malpractice coverage, believing that they could be drawn into a potential malpractice lawsuit simply because of the referral (i.e. they have the “deep pocket”). Physicians who rely on referrals from other colleagues must consider the loss of patient referrals if they decide not to carry malpractice insurance. Furthermore, a physician is likely to be countersued by the referring physician (or their insurance carrier) if they are named in a lawsuit as a result of the referral.
- Effect on credit. The Fair Credit Reporting Act allows for bankruptcy information to remain on your credit report for a period of 10 years. While you are likely to receive normal credit card type credit after a bankruptcy, you will generally have tremendous difficulty obtaining credit for other transactions.
Obtaining medical malpractice insurance should be considered as the cornerstone for the implementation of any asset protection plan. By maintaining even the minimum coverages offered by most carriers, you will generally meet the financial responsibility requirements of the Florida Statutes. Medical malpractice coverage offered by State licensed insurance carriers provides assurance of coverage, State regulatory oversight and the ability to get a good nights sleep.
