Problems With Malpractice Insurance Questionnaires: The Tip Of An Iceberg

Problems With Malpractice Insurance Questionnaires: The Tip Of An Iceberg

When asked about the risks of a malpractice law suit against a mental health practitioner, I respond with three generalizations based on my experience: 1) mental health professionals are almost never sued, 2) when they are sued, they rarely lose the law suit and 3) when they do lose, if the loss is covered by the carrier, the amount of the loss usually falls well within the policy limits.

Mental health professionals tend to be very risk-averse. Therefore, practitioners should be acutely sensitive to the proviso “if the loss is covered by the carrier.” A recent case, against a New Jersey psychiatrist illustrated this point. The basis of this lawsuit was that, among other things, the psychiatrist inappropriately touched my client. The carrier issued a so-called “reservation of rights” letter, informing the psychiatrist that it would not indemnify him (i.e., not pay) for any judgment stemming from the inappropriate touching. The carrier relied on a provision of the psychiatrist’s malpractice insurance policy which excluded coverage for sexual acts.

By this act, the carrier did two things: first, it concluded that certain conduct was sexual and second, it concluded that this conduct was the only thing the psychiatrist did wrong. In this case, I believe the nature of the physical contact was ambiguous and was not the only instance of malpractice. This vignette illustrates a dynamic of the practitioner-carrier relationship that is almost never discussed, that is, the insurance carrier is not your friend and from the very first report of a problem, part of what the carrier and its claims reps and attorneys do is determine the carrier’s liability for you and, at least in my experience, a prominent focus of this effort is not to find ways to extend a protective umbrella of coverage to the practitioner.

Getting a good handle on the relationship between you and your carrier is a preface for this article which deals with completing your application for malpractice insurance coverage. If this application is done carelessly or incorrectly, you may find yourself without coverage and won’t know it until it is too late.

A recent federal case (Coregis Insurance Company v. Baratta & Fenerty, Ltd., ___________ 3rd Cir 2001) deals with a malpractice suit filed against a law firm by one of its clients. The facts of this case are unimportant except to say that the client first contacted the attorney in 1979 and a law suit was filed in 1981. The law suit was dismissed in 1991 due to inaction by the plaintiff and the client was informed of this by the attorney in 1994! The attorney attempted to reinstate the case but the state supreme court finally denied this motion in April 1996.

Several days after the state supreme court issued its opinion, the attorney’s law firm applied for malpractice insurance for the period from May 1996 to April 1997 and apparently failed to list the above case. The policy included an exclusionary clause to the effect that coverage would be denied for acts, errors or omissions occurring before the policy period where the insureds knew or could have reasonably foreseen that their past behavior might form the basis of a claim against the law firm.

Not surprisingly, the original client sued the law firm and the malpractice insurance company refused to indemnify them. The law firm appealed and lost. The court’s reasoning is worth paying attention to. First, the court opined that a reasonable attorney would have recognized that he had a dissatisfied client who would undoubtedly take further action absent a “miraculous and unlikely turn around.” Second, among other things, in view of the age of the case, the attorneys employed a statue of limitations defense but the court opined that a reasonable attorney could not have been certain that the statute of limitations had expired.

Many of my mental health practitioner clients do not take sufficient care in responding to malpractice insurance questionnaires. They pay the premium and feel secure. The confluence of this case and the natural adversarial relationship between carrier and insured, strongly suggests that a review of past and current clients should be conducted prior to responding to the questionnaire. The extent to which such a review is formal, comprehensive, conducted by an arm’s length entity and is in writing may diminish or eliminate the problem.