A medical malpractice case settles early. And the doctor then claims that the insurance company was looking out for its interests instead of his own. He has sued his insurer.

The case is classic in the sense of exploring the conflict of interest between the insurer that wants to settle and the insured that doesn't.

But it's also highly unusual because, where I come from, medical malpractice cases never settle early so this is never an issue.

Here are the facts (from the Daily Business Review via Law.com): In 2002, the estate of a patient filed a malpractice claim against a doctor, who then notified Chicago Insurance, his liability carrier. Under Florida state law, the firm had 90 days to investigate the claim and decide whether to contest it or settle the case. (No such law exists in New York.)

According to an appellate court, the company ignored the doctor's protests that the case was defensible and did not undertake any study of his claims until a week before the deadline. The company elected to settle the claim instead of defending as the time was running out.

But that decision put a black mark the doctor's record and affected his insurability, he claimed. Chicago Insurance then canceled his policy and the doctor was forced to pay substantially higher premiums to obtain new coverage.

After a lower court dismissed the case, the doctor appealed, and has now won the right to go to trial. The language at issue included this:

"Any offer of admission of liability settlement offer or offer of judgment made by an insurer or self-insurer shall be made in good faith and in the best interest of the insured."

But, the court said, in return for accepting a policy giving the insurer the exclusive authority to settle claims within policy limits, the insurer must exercise its authority in the best interests of the insured, not in its own self-interest. The court held that "This obligation is solely for the benefit of the insured. If the insured cannot enforce this obligation, then it has no effect at all."

Labels: Insurance Industry