I find it interesting that a lifetime of experience can lead you to a point where what you’ve mastered has an impact on a whole new segment of an industry you’ve not considered. Through my health care professional liability (PL) experience, I have made inroads into third-party administrative (TPA) and investigative services, captive claims, coverage consulting, portfolio risk transfer and claim analysis of virtually every aspect of medical malpractice analysis and evaluation. Almost without realizing it, I became more deeply involved in many different aspects of the health care bankruptcy industry.
I've consulted within the health care bankruptcy arena for about 10 years. Having been a health care insurance claims specialist for 33 years, however, my perspective on bankruptcy and reorganization issues differs from the transactional perspective in that I understand the impact that viable insurance sources and self-insured exposures can have on the success of any reorganization or liquidation plan.
Bankruptcy plans, whether reorganization or liquidation, must address the concerns of all creditors, not just the medical negligence exposure present in most health care bankruptcies. PL exposures may be commercially covered. They are, therefore, not an issue in some bankruptcies. However, where there are gaps in coverage, self-insured exposures or exposures in excess of available coverage, PL exposures must be estimated and addressed in any bankruptcy plan.
Handling medical malpractice claims in the bankruptcy case of a self-insured debtor is critical to a fair and successful outcome. Objectively analyzing and estimating the value of the pre-petition malpractice exposures of those individuals and institutions covered under the debtor’s self- insurance program is not a task for the nonspecialist. The debtor’s self-insurance program may or may not be viable post-bankruptcy. If it is viable and adequately funded, the exposures of the insureds must be estimated and apportioned against the self-insured layer(s) and aggregated according to the policy limits. This estimate is almost never the posted reserves, for those reserves do not take into consideration such factors as additional discovery, expert opinions, etc., and reserve development on immature claims.
If indemnity and expense payments for the debtor’s self-insurance program were being made from the operations budget pre-bankruptcy, then the program is not exempt from the bankruptcy process and a different auditing process is required for evaluating and estimating the exposures. Those exposures and the relationship of available layers of coverage, apportionment of co-defendant liability and aggregate exhaustion are of greater importance as the self-insured portion of the exposure is within the proceeds of the bankruptcy.
Excess insurance coverage should be considered in the analysis and estimation of health care professional liability claims, as long as there exists an excess carrier who can be convinced that the insured has the obligation to meet underlying limits before excess contribution obligations are triggered. A legal/coverage opinion should be obtained to address the means by which a debtor can satisfy an underlying obligation within the bankruptcy plan so as to take full advantage of available excess coverage on high-exposure claims.
The scope of the liability and exposure of the employed resident physician, covered community physician or other allied health professional has become an interesting issue. In a recent case, for example, a party who was covered under a hospital's self-insurance program was held personally liable in excess of what was paid on their behalf by the program. Obviously, the potential for such exposure is a significant concern for health care professionals. A solution might be to include language in the physician contracts to assure that in the event of a bankruptcy, their liability would be limited to the assets and risk transfer resources available to the debtor organization. Similar provisions in trust agreements regarding coverage could provide protection for intended insured’s limited to the recovery against the bankrupt named insured.
In a recent bankruptcy court decision discussed by the ABI Health Care Committee, the judge allowed the purchase of tail coverage for the hospital, nurses, technicians and employed physicians. Such a purchase could be a sound move for a reorganization and a means to wrap up the bankruptcy proceedings. Such coverage is likely to be claims-made with a retro date to the inception date of any pre-bankruptcy self-insured program. In such a case, all claims made against the policy would be post-petition, and the arrangement would provide a buffer and cut-off date for the hospital to restart a normal first-year claims-made insurance program.
As an experienced medical malpractice claims technician who has consulted in a number of bankruptcy cases, I see the benefit of involving specialists with the skills and experience necessary to optimize the accuracy of the financial, insurance and other information critical to addressing PL exposures. Unbiased, scientifically derived data can minimize, if not eliminate, improperly identified exposures and permit a reorganization or liquidation plan to better distribute available funds to creditors entitled to such distributions.
The usefulness of specialists in the estimation and valuation of health care professional liability claims goes beyond health care bankruptcy cases and includes nonbankruptcy reorganizations, mergers and acquisitions, turnarounds and captive formations. Networking through ABI is a good way of finding both those specialists and answers to important questions concerning the valuation and estimation of claims.