Professional liability claims impact a multitude of professions, including those in the legal, medical, financial and insurance industries. Claims for malpractice, breach of contract, breach of fiduciary duty and related issues can result in widespread premium increases and professional discipline.
In the medical industry alone, the proportion of malpractice premiums rising each year is striking, nearly doubling between 2018 to 2019, from 13.7% to 26.5%, according to the American Medical Association’s Policy Research Perspectives. In 2022, 36.2% of premiums increased, the AMA reported. Major factors driving insurance costs across all industries include substantial claims resulting in larger payouts, escalating legal fees and economic inflation.
Disciplinary action can be even more devastating than rising premiums. A professional’s sense of self is often intertwined with one’s standing in his or her field, and impacts on professional licenses cannot be understated.
Early action – in correcting problems, communicating with clients, alerting insurers and attempting conflict resolution – can mitigate claims and reduce financial, regulatory and disciplinary exposure to insured professionals.
Early Mitigation Tactics
Professionals face complex and ever-changing laws, regulations, technologies, standards of care and other dynamics. Any of these increase the risk of non-compliance if insureds fail to stay informed. Attorneys, associations and continuing education courses can help professionals stay updated.
When clients or patients raise concerns, professionals should address them promptly and communicate what they have done to correct any issues. Consistent, clear and quick messaging with an aggrieved client makes them feel heard and can help resolve a problem before a formal complaint is lodged.
Professionals also should inform their insurance carriers of potential claims even if no one has made a formal demand or claim. Many carriers will provide pre-claim assistance. According to AXA XL data, more than 80% of circumstances in which pre-claim assistance is offered are resolved without a formal claim being filed. Avoiding a claim may also ward off regulatory and disciplinary consequences.
Once a formal complaint has been lodged against an insured, early notice, early issue correction or mitigation and early settlement strategies can reduce exposure.
The key word here is “early.” When a claim is filed, prompt notice to the carrier and immediate correction of the issue can help mitigate damages. Most of the time, early notice and immediate issue correction can happen simultaneously. However, it is important to distinguish immediate issue correction from admitting fault. An issue can sometimes be corrected without admitting fault, and it should be. Keep in mind that insurance policies often prohibit an insured from directly or indirectly admitting liability without permission from the carrier. Professionals who are unsure should ask their carrier for their policy.
Where early issue correction is not possible, mediation, voluntary binding arbitration and non-binding arbitration can help bring about early resolutions.
Settling claims can have wide-ranging impacts, depending on the profession. Settlement of a medical malpractice claim can potentially bring regulatory and licensure impacts for the professional. Insureds also should be aware that some policies allow carriers to settle a claim for the insured without their permission.
A significant benefit of mediation is that the process encourages the carrier and coverage counsel, if appropriate, to attend the mediation and directly participate in the process. Early mediation is a great way to address insurance-related issues impacting a potential settlement, such as consent to settle, the nature and scope of insurance coverage, coverage exclusions or limitations and the future impacts of a settlement on the professional. But mediation often requires multiple sessions before a settlement occurs, if at all.
Some states permit voluntary binding arbitration (VBA) of certain claims. VBA is similar to a bench trial, placing the power to resolve a claim in the hands of one or more arbitrators. VBA parties benefit by having the claim evaluated by one or more experienced and impartial arbitrators who are skilled in the specific type of claim. Their decision is binding and concludes the claim entirely. But the process is voluntary, so it can be difficult to get all parties to agree to VBA.
Non-binding arbitration (NBA) permits either party to reject the award. The process can be costly and time consuming, and if either party objects to the decision, the claim will move to litigation. However, NBA may offer the parties a greater understanding of the strengths and weaknesses of their cases, information that can lead to more productive settlement negotiations.
Avoiding Common Pitfalls
While trying to avoid regulatory and disciplinary consequences by employing early mitigation tactics, insured professionals should watch out for two common pitfalls – estoppel and conflicts.
Estoppel issues can arise when taking a certain position during the pre-claim, claim or pre-litigation phase and can bar an insured from taking a different position later in litigation. One of the most obvious forms of estoppel is admitting fault during the pre-claim process. This could weaken a party’s position later. Insured professionals should discuss potential estoppel issues with their carrier and counsel during the pre-claim process to ensure any position they take will not adversely affect subsequent litigation. Similarly, when taking a position pre-suit, a professional should avoid situations that could later give the appearance of inconsistent stories at trial.
Conflicts of interest also can arise in professional liability claims. The usual scenario involves a client making a claim against their professional while the professional continues servicing the client, in good faith, to correct the alleged error, omission or malpractice. However, these situations can violate codes of professional conduct and subject an insured to disciplinary or regulatory consequences. Recognizing potential conflicts, and engaging competent counsel early in the process, is crucial to successful navigation of these sometimes complex issues.
An insured can avoid regulatory and disciplinary consequences by staying up-to-date, acting promptly and informing his or her carrier early of claims or potential claims raised against them. If a complaint makes it to the claim stage, early settlement tactics can lead to swift resolution of a claim either before or during litigation. While attempting early mitigation tactics, it is important to avoid common pitfalls that could further complicate a claim, prohibit certain defenses or positions and subject an insured to regulatory or disciplinary consequences.
Robert Barton, an associate in the RumbergerKirk Tampa office, focuses his practice in the areas of coverage disputes and bad faith claims, as well as professional liability.
Frank Sheppard, RumbergerKirk’s managing partner, focuses his practice in the areas of professional liability, employment and commercial litigation.
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