Indiana Medical Malpractice Insurer Rejects Policy Limit Settlement, May Be Liable for Verdict in Excess

An insurance company providing Indiana medical malpractice coverage to a doctor, nurse, hospital or other health care provider in Indiana owes its clients a duty of care to carefully consider any injury or wrongful death claim and act in good faith to reach a fair resolution. If the insurer has exclusive control in settlement negotiations, then rejects a claimant’s reasonable offer to settle the case within policy limits prior to or even during trial, the insurer can be responsible for a verdict in excess of policy limits.

As experienced Highland medical malpractice attorneys can explain, Indiana law has been written and interpreted this way to compel insurers to treat medical malpractice claimants fairly. Think about it: If the worst that could happen at trial for a medical malpractice insurer is that they’d have to pay the policy limits, what incentive would there be for them to settle for that amount – even if a person’s losses were obviously far in excess of that, before the case goes to trial? It would cost them the same either way.

Per the 1972 Indiana Court of Appeals decision in Bennett v. Slater, an insurer is liable to its insured for a judgment exceeding policy limits when the insurer had exclusive control of defending/settlement and doesn’t settle within the policy limits because of bad faith or negligence.

In a recent case before the U.S. Court of Appeals for the 7th Circuit, justices considered liability of two different insurers where a physician and hospital were alleged to have been negligent in the post-operative care of a 36-year-old woman, who died as a result. The surgery was supposed to be routine, but post-op, while still hospitalized, she suffered internal bleeding, required another surgery, then died four days later. It was known almost from the beginning that the insured doctor had not responded immediately to the emergency because he’d left the premises to exercise. However, initial discovery findings, as framed by the defense, suggested the doctor was unaware of the emergency and that he’d have responded immediately. However, it was later discovered that on the evening after the surgery, the doctor was notified by voicemail that the patient’s blood tests showed troubling indicators, yet he still left the hospital to exercise.

Medical Malpractice Insurer Rejects Numerous Settlements for Policy Limit 

Plaintiffs, the woman’s widower and minor children, sued the hospital, the doctor and the nurses for breaching their duty to meet the accepted standard of care for decedent, resulting in her death. An attorney for plaintiffs offered numerous times to settle the case for the limits of the policy, or $200,000. The insurer rejected these offers prior to trial and in mediation. Just before trial, defense offered half the policy limit, which plaintiffs rejected. Just after trial started, insurer offered to settle for the full policy limit, an offer plaintiffs rejected and countered with $2.3 million, which defense declined.

When jurors decided the case in favor of plaintiffs, no one was really surprised. But up until that point, the biggest verdicts in that region were somewhere between $2 million and $3 million.  In this case, for losses suffered by defendants’ breach of the standard of care, jurors awarded $14 million, which included an award for punitive damages (based on egregiousness of defendant’s conduct, as opposed to losses of plaintiffs). The verdict was appealed and the amount reduced. A cap on a physician’s liability was going to lower the verdict anyway. However, the court ruled plaintiffs had the option of pursuing a claim of failure to settle directly against the insurer for damages in excess of the policy limit (with the court noting capped liability doesn’t incentivize an insurer to abide its duty to exercise reasonable care when settling medical malpractice claims). Plaintiffs thus “step into the shoes” of the physician for breach of indemnification duty.

Plaintiffs collected $1.7 million from the hospital/insurer and then pursued insurer for the excess verdict. The insurer had its own insurer liability policy, purchased in the midst of these events. That insurer rejected coverage of the claim, saying it wasn’t responsible to cover claims its customer insurer refused to pay by way of a wrongful act (i.e., breach of duty, neglect, error, omission, misleading, etc.). Finally, the doctor’s insurer settled out-of-court with the woman’s family for an undisclosed sum. That case was closed.

But the saga wasn’t over because the doctor’s insurer still insisted its own carrier should reimburse it for the final excess settlement amount.

Which Medical Malpractice Insurer Should Pay?

The trial court granted summary judgment in favor of the larger insurance company, finding evidence sufficient that the doctor’s medical malpractice insurer rejected numerous fair settlement offers from plaintiff and thus was responsible to pay the excess verdict itself.

The federal appellate court, however, reversed in part. Although justices said there was a fair bit of evidence that the doctor’s insurer should have known this case wasn’t going to go in its favor and it would have been wise to settle before that case reached a verdict, there wasn’t enough evidence to show they had committed a wrongful act by rejecting plaintiffs’ repeated offers to settle for the policy limit. The case was remanded back to the lower court for further consideration.

Indiana Highland medical malpractice lawyers note that this all began with a surgery and wrongful death that occurred in 2002. This most recent decision by the U.S. Court of Appeals for the 7th Circuit was just issued late last month. Even though the woman’s family is no longer involved in the litigation, the case gives a sense of how far defendants and insurers will fight to avoid paying on these claims when there is even the slightest chance they won’t have to (and sometimes, even when there isn’t).

You need an attorney who is willing at the outset to thoroughly and accurately assess your claims, engage in aggressive but strategic settlement negotiations and understand when insurers are objectively being reasonable and when there’s a good chance they aren’t acting in good faith.

No patient should ever try to negotiate with a doctor or hospital on their own. Experienced medical malpractice attorneys in Northwest Indiana are committed to our clients and can help answer questions about the viability of your claim.

Indiana Injury Attorney Burton A. Padove handles personal injury claims throughout northern Indiana, including Highland, Gary and Hammond.

Additional Resources:

Medical Protective Company of Fort Wayne, Indiana v. AIG Specialty Insurance Company, Dec. 18, 2018, U.S. Court of Appeals for the Seventh Circuit

More Blog Entries:

Indiana Appeals Court: $1.3M for Rear-End Accident Injuries Not Excessive, Dec. 21, 2018, Indiana Medical Malpractice Attorney Blog