Insurance
  • Consent to Settle: Know Your Rights

    A little-known clause in your malpractice policy could have a dramatic effect on your professional reputation and possibly your ability to practice. The clause in question is the consent to settle clause.

    The type of consent to settle clause in your malpractice policy could have a direct impact on the settlement of any claim made against you. The time to determine your rights regarding a settlement is not when you are named as a defendant in a malpractice suit. Whether you purchase your own malpractice coverage or it is provided by your employer or facility, it is important to familiarize yourself with the consent to settle clause in your malpractice policy before you are involved in any legal action.

    According to the Americans for Insurance Reform, approximately 85,000 malpractice lawsuits are filed annually.1 It is not unusual for multiple entities and individuals to be named in a single lawsuit. A report compiled by the Bureau of Justice Statistics for the states of Florida, Illinois, Maine, Massachusetts, Missouri, Nevada, and Texas stated that about 95 percent of all malpractice insurance claims are settled before trial. The report also noted that “claims decided by trial resulted in median payouts that were at least two-and-a-half times larger than claims that were settled.”2 The report also indicated that the insurance companies’ defense costs were greater for claims that were decided by trial.

    Insurance companies are clearly motivated to settle claims to avoid the larger settlements and increased defense costs associated with taking a case to trial. Considering the financial incentives involved, insurance companies may be inclined to settle claims even if there is little or no evidence of negligence on your behalf.

    From a business standpoint, it is often less expensive for an insurance company to pay a claimant’s demand than to defend you. Unfortunately, a settlement of this type could negatively affect your professional reputation and have an impact on your license. Any settlement, even if it is only $1, must be reported to the National Practitioner Data Bank (NPDB). Hospitals, future employers, and credentialing bodies, as well as state nursing boards will then have access to this information. As a result, your status with these organizations could be negatively impacted. This information could also jeopardize your ability to obtain malpractice insurance in the future.

    If you are named in a lawsuit but did nothing to cause or contribute to the patient’s adverse outcome, you probably do not want your insurance company to settle the claim on your behalf. What can you do to be sure you have a say in how your claim is handled? You want to be educated on what rights you are afforded by your policy’s consent to settle provision.

    Depending on your insurance company, your policy will contain one of the following types of consent to settle clauses:

    • No Consent To Settle – You have no say whatsoever in the settlement of your claim. It is entirely up to the insurance company to decide how the claim will be handled and/or settled.
    • Consent to Settle with a “Hammer Clause” – Your consent is required before any claim can be settled. However, if you refuse to consent to any settlement recommended by the insurance company and elect to contest the claim, the insurance company’s liability for the claim shall not exceed the amount for which the claim could have been settled plus any legal expenses incurred up to the date of the refusal.

    This is a sample wording of consent to settle with a hammer clause: The insurance company shall not commit the named insured to any settlement without their written consent. If the named insured refuses to any settlement in writing by the insurance company and elects to contest the claim or continue any legal proceedings in connection with such claim, then the insurance company shall be relieved of any further duty to defend the claim, and the liability of the insurance company for damages and claims expenses shall not exceed the amount for which the claim could have been settled.

    Consider this example:

    You are sued by a former patient for $1 million. The claim against you is baseless. After spending $100,000 in legal fees and expenses to defend you, the insurance company receives a settlement offer for $450,000. You reject the offer because you know you did nothing wrong. If your policy contains consent to settle with a “hammer clause,” your insurance company can cap its liability at $550,000, the amount of the $450,000 settlement offer plus the $100,000 in legal fees and expenses incurred before the settlement offer was received. If you lose at trial and a $900,000 verdict is entered against you, you would be required to pay $350,000 of the verdict, the difference between the $900,000 verdict and the $550,000 liability cap imposed by the insurance company, plus the additional legal fees and expenses incurred in your defense.

    Clearly, the potential out-of-pocket financial exposure you would face, if you elected not to settle the claim, is the “hammer” the insurance company would use to compel you to consent to a settlement.

    • Pure Consent to Settle – With a pure consent to settle you get to make the final decision; there are no strings attached. In order to settle any claim, the insurance company must first obtain your written consent. You can reject any settlement without penalty. This is the clause providing you with the greatest benefits.

    Here is a common sample of a pure consent to settle policy wording: The insurance company will not settle any claim or suit against you without your prior written consent.

    If you purchase your own malpractice coverage, you should never accept a policy that limits your consent to settle. The only exceptions to this would be if you had a claim as a result of a breach in the standard of care, a substance abuse issue, a licensure issue, or an unusual
    risk characteristic.

    AANA Insurance Services offers polices with no consent to settle limitations. This is rarely true of other agents who sell malpractice
    policies to CRNAs. Unfortunately, other agents do not necessarily prioritize your interests and will seldom disclose that the policies they
    are selling have consent to settle limitations.

    If you do not purchase your own coverage but instead rely on the coverage provided by your employer or facility, it is very unlikely you
    will have any say in how a claim or suit against you will be handled. Even if your employer’s policy has a consent to settle clause, your employer will make the consent decision, not you.

    If you currently rely on your employer’s malpractice policy, recognize that your employer’s interest in settling a claim may be very different than yours. Your employer’s policy is designed to protect your employer’s interests, not yours.

    If you are a CRNA employed by a hospital or group and recognize the value of having an attorney dedicated to representing your interests, you may want to consider the policy offered by AANA Insurance Services. This policy is designed to supplement the coverage provided by your employer. While having your own attorney cannot prevent your employer’s insurance company from settling a claim, it is certainly valuable to have your own attorney monitoring the settlement process.

    Having your own legal representation may reduce the likelihood of the entire settlement being reported to the NPDB under your name, without your knowledge. Your designated attorney can help you understand the NPDB process, how to correct inaccurate information, and the timeframe in which to do so. Once a settlement is reported to the NPDB it will also be reported to your state’s board of nursing. It is very unlikely that your employer’s policy will provide you with any legal resources should you need to respond to an inquiry from your board of nursing. With the supplemental policy, you will have your own attorney who can assist with issues arising from board of nursing inquiries.

    If you have questions about consent to settle or would like us to review your current policy, please contact AANA Insurance Services at (800) 343-1368 or email insuranceinfo@aana.com.

    Sources

    1. Costs of the Current Medical Malpractice System are Much Lower than People Think. Americans for Insurance Reform “Protecting Rights, Not Wrongs” Web site. http://www.insurance-reform.org/factsheets/medmalsystemcostsfactsheet2009f.pdf Accessed January 12, 2015.
    2. Cohen T, Hughes K. Medical Malpractice Insurance Claims in Seven States, 2000-2004. U.S. Department of Justice, Office of Justice Programs, Bureau of Justice Statistics Special Report. 2007; 1-12