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COURT REJECTS CLAIMS AGAINST INSURER, STATE FUND
AND DEFENSE COUNSEL FOR SETTLING MALPRACTICE
CLAIM WITHOUT PHYSICIAN'S CONSENT
The Kansas Supreme Court
has dismissed an action in which a physician alleged that a malpractice claim
was settled without his consent by his insurer, defense counsel and a state
patient compensation fund.
A Kansas statute requires physicians to carry medical malpractice insurance and
to pay a surcharge to a state fund (Fund) in order to qualify for excess
insurance coverage. When a physician is sued for malpractice, his insurer
defends the action initially. However, if the claim exceeds the insurer's policy
limits and the insurer agrees to tender its limits to settle the claim, Kansas'
insurance commissioner is authorized to negotiate a settlement with amounts over
the insurer's policy limit paid by the Fund. Once a settlement is reached, the claimant
is required to obtain court approval of the agreement.
In the instant case, a physician was sued for malpractice by a patient who suffered brain damage during surgery. The physician's insurer investigated the claim and retained an attorney to defend the physician. The insurer subsequently tendered its policy limit, and the attorney was retained to continue his representation of the physician and negotiate a settlement between the patient and the Fund. A settlement agreement was reached, and judicial approval of the settlement was sought. Because the physician's attorney was unavailable to appear at the court hearing, another attorney from the same law firm appeared, and that attorney erroneously advised the court that the physician had been notified of the settlement and approved it. The court approved the settlement.
The settlement was later reported to the National Practitioner Data Bank. Subsequently, the physician's malpractice insurance coverage was terminated by the insurer.
The physician brought an action against the insurer, the Fund and the attorneys who defended the malpractice claim. The suit alleged (a) fraud based on the defendants' failure to notify the physician of the settlement and judicial hearing; (b) negligence by the attorneys in failing to properly handle the malpractice claim; (c) negligence in the part of the Fund for failing to protect the physician's rights; (d) violation of due process by the Fund for denying the physician the right to participate in the settlement hearing; (e) bad faith by the insurer for failing to protect the physician's interests by agreeing to settle the claim over his objection; and (f) outrageous conduct. The physician alleged that he suffered damages including increased insurance premiums, lost income and patient referrals, harm to his professional reputation, and emotional distress. The physician also sought declaratory relief establishing that he had the right to retain his own counsel to represent his interests in the settlement hearing. The trial court dismissed the action, and the physician appealed.
The state supreme court affirmed. The court first held that the insurer could not be sued for bad faith because it had a statutory right to tender its policy limit and relinquish control of the malpractice case to the Fund, which had an express statutory right to settle the claim over the physician's objection. Once the insurer exercised this right, the court determined, its duties toward the physician terminated.
The court then ruled that the Fund could not be sued by the physician for its handling of malpractice claim because, unlike a private insurer, the Fund was protected by statutory immunity from liability for bad faith. The court added that allowing physicians to control the defense of malpractice claims that are handled by the Fund would undermine the purpose and financial structure of the statute which created the Fund to provide excess liability insurance in the medical malpractice field.
The court then addressed the claims against the attorneys who handled the defense of the malpractice claim. The court determined that the attorneys had an attorney-client relationship with the physician, and that this relationship required the attorneys to (a) keep the physician informed of the progress of the malpractice claim; (b) notify the physician of the settlement hearing; and (c) refrain from negotiating a settlement without the physician's consent. The court then explained that a breach of these duties could constitute professional negligence and/or fraud. The court concluded, however, that the damages which the physician sought were proximately caused by the malpractice claim itself, rather than the attorneys' handling of the claim. Thus, even if the attorneys violated their professional duty toward the physician, that conduct could not be found to have caused the harm for which the physician sought compensation.
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