Early action key to mitigating risk in professional liability claims

Professional liability claims affect 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 increasing each year is striking, nearly doubling between 2018 and 2019, from 13.7 percent to 26.5 percent, according to the American Medical Association’s Policy Research Perspectives. In 2022, 36.2 percent of premiums increased, the AMA reported. Major drivers of insurance costs across all industries include substantial claims resulting in higher payouts, rising legal fees and economic inflation.

Disciplinary action can be even more devastating than premium increases. A professional’s sense of self is often intertwined with one’s status in one’s field, and the impact on professional licensing cannot be understated.

Early action – in correcting problems, communicating with clients, alerting insurers and attempting to resolve disputes – can mitigate claims and reduce financial, regulatory and disciplinary exposure for insured professionals.

Early Mitigation Tactics

Professionals face complex and ever-changing laws, regulations, technologies, standards of care, and other dynamics. Either of these increases the risk of non-compliance if policyholders fail to stay informed. Attorneys, associations, and continuing education courses can help professionals stay current.

When clients or patients raise concerns, professionals should address them promptly and communicate what they have done to correct any problems. Consistent, clear and prompt messaging with an aggrieved customer makes them feel heard and can help resolve an issue before a formal complaint is filed.

Professionals should also notify their insurance carriers of any claims, even if no one has made a formal claim or claim. Many carriers will offer pre-claim assistance. According to AXA XL data, more than 80% of the circumstances in which pre-claim assistance is offered are resolved without a formal claim being submitted. Avoiding a complaint can also avoid regulatory and disciplinary consequences.

Once a formal complaint has been filed against an insured, early notification, early problem correction or mitigation, and early resolution strategies can reduce exposure.

The key word here is “early”. When a claim is filed, prompt notification to the carrier and immediate correction of the problem can help mitigate damages. In most cases, early notification and immediate correction of problems can occur simultaneously. However, it is important to distinguish the immediate correction of the problem from the admission of error. A problem can sometimes be corrected without admitting fault, and it should be. Note that insurance policies often prohibit an insured from admitting direct or indirect liability without the carrier’s permission. Professionals who are unsure should ask their carrier for their policy.

Where early correction of the problem is not possible, mediation, voluntary binding arbitration and non-binding arbitration can contribute to speedy resolution.

The settlement of claims can have wide-ranging impacts depending on the profession. The settlement of a medical malpractice claim can have a potential regulatory and licensure impact for the professional. Insureds should also be aware that some policies allow carriers to settle a claim for insureds without their permission.

A significant benefit of mediation is that the process encourages the carrier and coverage counsel, if applicable, to participate in the mediation and participate directly in the process. Early mediation is an excellent way to address insurance issues affecting a potential settlement, such as consent to settle, the nature and scope of insurance coverage, exclusions or limitations of coverage, and the future impact of a settlement on the professional. But mediation often requires several sessions before an agreement is reached, if at all.

Some states allow voluntary binding arbitration (VBA) for certain claims. The 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 from claim review by one or more experienced and impartial arbitrators who are qualified in the specific type of claim. Their decision is binding and terminates the application in its entirety. But the process is voluntary, so it can be difficult to get all parties to agree to VBA.

Non-binding arbitration (NBA) allows either party to reject the award. The process can be expensive and time-consuming, and if either party objects to the decision, the claim will go to litigation. However, the NBA can provide parties with a better 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 be aware of two common pitfalls – avoidance and conflict.

Estoppel issues can arise when a particular position is taken at the pre-claim, complaint or pre-litigation stage and can prevent an insured from taking a different position later in litigation. One of the most obvious forms of exclusion is pleading guilty during the pre-petition process. This could weaken a party’s position later. Insured professionals should discuss potential exclusion issues with their carrier and counsel during the pre-claim process to ensure that any position they take will not adversely affect subsequent litigation. Similarly, when taking a pre-suit position, a professional should avoid situations that might later give the appearance of inconsistent stories at trial.

Conflicts of interest can also arise in professional liability claims. The typical scenario involves a client making a complaint against their professional while the professional continues to serve the client in good faith to correct the alleged error, omission or malpractice. However, these situations may 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 successfully navigating these sometimes complex issues.

An insured can avoid regulatory and disciplinary consequences by staying informed, acting promptly, and informing their carrier in advance of complaints or potential claims against them. If a complaint reaches the claim stage, early resolution tactics can result in a claim being quickly resolved, 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 litigation and bad faith claims, as well as professional liability.

Frank Sheppard, managing partner of RumbergerKirk, focuses his practice in the areas of professional liability, employment and commercial litigation.

TOPICS
Liability Claims Professional liability