I learned a new term this week. It’s called runoff. I thought I knew what it meant, but apparently not.
Webster defines it because it is one of those difficult English words that has two distinctly different meanings. The first definition is “a further competition, election, or race after a tie or inconclusive result.” The second is “the draining away of water (or substances carried in it) from the surface of an area of land, a building or structure.”
I now know there is another definition in the insurance industry. If an insurer goes broke and has no more money, they go through a runoff of all claims. In other words, they dispurse their few remaining assets among the various claimants. Then they “run off.”
I learned this new definition this week when I received an email from opposing counsel on a medical malpractice case informing me that the insurance company for the doctor I had sued was broke and the insurer was engaging in a runoff of its claims. That means that the victims of medical negligence will not get fully compensated for their losses, but instead will receive pennies for having their lives disrupted and ruined.
Very few lawyers handle medical malpractice cases. There are significant limits on recovery, and the cases are expensive and difficult. I enjoy handling these cases because they are fascinating. I love digging into medical records to find the truth of what happened. It is kind of like digging for gold or a rare gem because there is a whole bunch of digging and not many golden nuggets.
I spend a considerable amount of time reviewing cases I do not take. Sometimes bad things happen to good people and there is no wrongdoing that caused it. In other instances, even if a wrong occurred, it is not financially practical to pursue the case. Yet, when a case is resolved to the mutual satisfaction of all involved and justice is served, it is very rewarding
I have two cases in which I have filed a lawsuit and have recently learned that either the insurance company insuring the doctor has no money, or in the other instance, the nursing home was undercapitalized and is no longer in existence. Most nursing homes have insurance, but the nursing home is self-insured up to as much as $500,000. I settled two cases last year in which the nursing home settled the case and made payments over a period of months because they did not have the funds to pay a lump sum.
In the medical malpractice arena, the doctors have devised some ways to reduce the cost of insurance. Of course, it is my fault that they have to pay so much anyway because I have the audacity to represent their patients when they make a mistake. I have been arguing for years that the real culprit is the malpractice insurer, but it is easier to blame the trial lawyers. I have also advocated that Missouri doctors do what Kansas doctors do and have the state form a fund called a stabilization fund, which is a self-insured pool that insures losses above $200,000. The doctor buys an insurance policy for the first $200,000 and then pays a surcharge to the fund for claims above $200,000. It works well in Kansas and results in lower malpractice insurance premiums. I frankly don’t understand why it has not been tried in Missouri.
Instead doctors do things like form their own insurance companies, which is what happened to cause me to learn a new definition of runoff. It’s called a “joint underwriting association.” It is akin to a mutual insurance company with an important difference.
State Farm and American Family are mutual insurance companies. Essentially, the policy holders own the insurance company. The challenge is to effectively screen the policy holders. If there are too many claims, there is not enough money. Mutual companies succeed because they carefully choose who they insure. The physicians’ joint underwriting association is obviously not so careful. If a large number of physicians are bad doctors and they are not excluded from the association, then the risks exceed the benefits. And when that happens there is a runoff.
The problem for the doctors is that if there is not enough money in the joint underwriting association to pay the claims and if the injured party refuses to accept the paltry runoff money, the doctor and his or her group are personally responsible for the loss. Normally, the insurance company provides a defense to the doctor, but that defense may disappear if there is no money to pay the lawyers. The patient loses, the doctor loses, and the insurance company closes its doors.
In my case, the association had $19 million in 2010 and in every year since that time has suffered losses because the premiums collected were insufficient to pay all of the claims. The doctors are the members of the association. Perhaps they should have seen the train coming down the tracks, but now there is heartache, misery and gnashing of teeth. I would feel sorry for them if my clients were not getting run over too. Sadly, this was all avoidable. Just ask the doctors in Kansas.
Bob Buckley is an attorney in Independence, www.wagblaw.com . Email him at firstname.lastname@example.org