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Malpractice Lawsuits: How Likely a Physician Is to Be Sued Past Policy Limits, and What to Do to Protect Yourself

Updated: 3 days ago

One of the worst nightmares a physician has is being sued. In addition to the emotional stress of the lawsuit, there is the very practical financial fear that comes along with being sued for an amount that is larger than what your malpractice policy will pay out. Although it is statistically still very unlikely that this will happen, understandably, many physicians want to understand the worst case scenario and do what they can to protect themselves and their families from this situation. Below, we’ll cover what physicians need to know about lawsuits from a financial perspective, what kinds of asset protection plans to consider, and more.


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What needs to happen for a doctor to have to pay out of pocket for a malpractice lawsuit judgement against you

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How likely is it for physicians to get sued past malpractice policy limits?


The TL:DR is that it’s not statistically likely. Of course, if you are the one in x thousands of doctors that it happens to, you don’t care about the statistics, but hopefully this will help put things in perspective a little bit.


Let’s start with some basics:


  • Just because the initial lawsuit is filed for a certain amount does not mean that is what will be awarded if the case actually is ruled in the plaintiff’s favor and renders a verdict against you


  • Many large lawsuit verdicts have multiple defendants, including the hospital system, so not all the financial responsibility from a lawsuit is likely to fall on you in these cases


  • The vast majority of lawsuits are dismissed or settled before even going to trial in court


  • The vast majority of malpractice cases that do go to court are ruled in favor of the physician (usually the ones that the lawyers project will lose in court will be settled beforehand)


  • Many lawsuits that deliver a verdict above policy limits will be appealed, and the amount will be reduced


  • Several states have laws about how large malpractice judgments can be, and those amounts are below the standard amount that physicians have in malpractice insurance benefits


  • Many states may protect physicians to some extent from above policy judgments by incentivizing the malpractice insurance companies to settle within policy limits or potentially be liable for settlements in excess of policy limits 


  • Going after your assets can be a long, drawn out and complicated, process, and depending on where you live, many assets like your house and your retirement accounts are protected 


It’s also important to remember that in most cases, the plaintiff's side is eager to settle before your side. While you have the resources of the malpractice company behind you, a plaintiff rarely has the money or the emotional, mental, and physical bandwidth to make it through a very long, drawn out trial and appeals process that can take years. Additionally, since they may not have the financial means to pay a legal team for all the costs that add up over the course of a trial, many of the cases are taken on contingency, and the law firm is also incentivized to settle to get paid as quickly as possible. If it’s becoming clear that a settlement won’t be reached, there are other things that lawyers often do to ensure they will cover their costs, like setting a minimum and maximum payout prior to trial to ensure they aren’t going to trial out of pocket. In these cases, the insurance company will usually negotiate a maximum that is within policy limits.


There’s also an option of declaring bankruptcy even if a verdict falls on you to pay, but that’s more complex and beyond the scope of this article.


It’s debatable what the exact percentages in each of these categories above are for lawsuits in each category, but suffice it to say, it is an extremely small percentage of lawsuits where the physician is left holding the bag on a balance for a verdict that delivers an above policy judgement.



If I’ve been sued for a large amount, what can I do to protect my assets and my family’s assets?


Unfortunately, the time for asset protection strategies is before a lawsuit is filed, not after. Once a lawsuit is filed, anything that wasn’t protected prior to that point is fair game for the opposing party to go after. So if you’re going to consider asset protection strategies, please do so as soon as possible now, when you’re not aware of anything pending against you, because any asset protection strategy that you implement after a lawsuit was filed is essentially useless. At that point you’re just wasting even more money and time putting things into place that can be undone by the court ruling. 


If you’re interested in speaking to an asset protection firm for a free strategy session, contact our partners at Anderson Advisors. They offer a comprehensive suite of services, including planning, registered agent, and entity formation.  Our affiliate link at http://aba.link/psg will get you a free strategy session to discuss these issues and explore what's right for you.



Will umbrella insurance protect me if a malpractice lawsuit against me renders a judgement above policy limits?


Note that umbrella insurance, while a very helpful and almost mandatory asset protection strategy for physicians to wrap around home and auto insurance policies, does NOT wrap around malpractice insurance to pay in excess of malpractice insurance payouts.




What personal assets can be protected or shielded from creditors in a lawsuit (generally speaking)?


Types of personal assets generally protected from a malpractice lawsuit

This depends a lot on where you live, but many retirement accounts, pensions, insurance policies, primary homes, Social Security or disability benefits, and assets in trusts are protected from seizure in the case of a malpractice lawsuit (maybe one of the few reasons where you can financially justify buying the classic big doctor home!).


We list some examples of categories of assets that can be protected against creditors below, but always check with your state and local laws or an attorney, ideally someone experienced with asset protection, to understand the nuances, as many of these vary from state to state or have specific conditions.



Retirement accounts for physicians


There are several retirement accounts protected from seizure by creditors by the Employee Retirement Income Security Act (ERISA). These usually include:


  • 401(k) plans

  • Pension plans

  • Some 403(b) plans

  • IRAs can be protected, protected up to a certain amount, or not protected depending on type and where you live



Insurance policies


We know we generally encourage against whole life or permanent life insurance policies, but some of these are asset protected, especially if held in trust or with a different beneficiary. Again, you want to work with a lawyer to make sure that these are truly protected in your state or what measures you have to put in place to ensure protection.



Primary home


In many states, homes are protected from creditors, or holding titles to your personal property in joint tenancy can help protect them from creditors. Read about homestead exemptions, which are present in most states, and how they apply in your state, and speak to an attorney to clarify any nuances, such as the amount that’s exempt, if any paperwork needs to be filed to ensure that you qualify, and any other conditions that need to be met to qualify. While in some states the full value is exempt, in many it’s more nuanced than that.



Other assets in certain types of trusts


Piggybacking off of the home discussion, it is becoming increasingly common for physicians on our communities to mention the Domestic Asset Protection Trust (DAPT), which can be utilized for permanent assets like houses and vacation homes. We’re sounding like a broken record, but again, it’s important to understand the nuances, as these can be challenged. Usually the longer you’ve owned the property, the more solid this protection is.


Other types of trusts also exist for asset protection, including irrevocable trusts. When you get into the different types of trusts, the options can get complicated fast. You have really entered the realm where you should be talking to an asset protection attorney familiar with the laws of your state.




If I’m still worried about a lawsuit judgment taking my personal assets, can an asset protection strategy or firm help?


Yes. Keep in mind that these are generally not cheap solutions and usually require some ongoing maintenance and paperwork to stay compliant and provide protection, so it’s not a small commitment to take on if you decide to employ more complex asset protection strategies. That said, if it will help you sleep more peacefully at night, it may be well worth the cost to speak to an experienced firm that specializes in asset protection and is familiar with the specific laws and case law from prior verdicts in your state.


PSG PERK FROM OUR PARTNERS

Anderson Advisors: For those interested in implementing asset protection tools, Anderson offers a comprehensive suite of services, including planning, registered agent, and entity formation.  Our affiliate link at http://aba.link/psg will get you a free strategy session to discuss these issues and explore what's right for you.



Is there truly such a thing as a bulletproof asset protection strategy?


No. There are certainly things that you can do to make it harder for people to get to your assets, and certain assets such as some of the ones mentioned above that are protected by law, but ultimately if somebody is determined enough, they'll still be able to get to some things. For example, corporate veils in LLCs can sometimes be pierced. While LLCs in some states require a charging order, they can still be found and accessed. That said, you can make it a royal pain to do so as well as enact strategies that would make it very hard to get a substantial amount, essentially forcing the opposing attorney into a settlement over the taxing process of trying to access those assets. Additionally, it's impractical for YOUR access to your assets to put everything in a very protective structure. You're always going to have some assets that others can get to because you need to have cash accessible for your daily spending, and you likely have some valuable assets such as your cars that aren't protected from creditors by law.



Which doctors should consider implementing asset protection measures?

Every doctor should likely consider basic asset protection measures such as:


For more complex asset protection measures that require an attorney or firm that specializes in asset protection strategy, while any physician could consider it, but the physicians it's going to give the most value to are likely:

  • Those that have enough wealth past the value of their insurance policies that they have a lot to protect

  • Those that are in specialties that have particularly high liability (specialty that's highly likely to be sued and to have large verdicts delivered to them)

  • Those that have a business

  • Those that own real estate rental properties


Even then, you'll want to balance your risk of liability with the costs of complex asset protection measures and the inconvenience of complexity in you accessing your wealth. Make the decision that allows you to sleep at night.


Conclusion


Lawsuits are unfortunately a part of physician life, but we really hope that most people aren’t losing sleep over the possibility that getting sued could result in financial catastrophe. It’s important to understand that your chances of having a lawsuit deliver a judgment in an amount in excess of your malpractice policy’s limits is exceedingly rare, and then make decisions about how far you want to go to put a more complicated asset protection plan in place according to your own risk tolerance. Some asset protection measures are very basic, so be aware of what assets are naturally protected based on where you live. If you choose to implement a more complex asset protection strategy, consult with an asset protection attorney or firm that is familiar with asset protection specifically, and who is familiar with the laws and case law from prior verdicts in your state.



Additional asset protection and malpractice insurance resources for physicians


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