Watch Out for This Growing Malpractice Trend

Brian S Kern, Esq. Authors and Disclosures

Physicians who have created legal entities, such as LLCs (limited liability companies) and professional associations, to limit their liability may mistakenly believe that they are well protected against medical negligence lawsuits.

Although this legal structure does protect physicians in areas ranging from contractual obligations to "slip-and-fall" type claims, new litigation trends suggest that this can now increase liability in medical negligence cases.

Here's why: In many nonphysician business settings, creating legal entities transfers liability and insulates individual actions. Plaintiffs will typically sue corporations rather than individuals, and corporations can buy insurance to protect all of their owners and employees.

Medicine is different. Plaintiffs generally sue the individual physician rather than the entity, as by law in many states doctors cannot avoid exposure by working through a corporate entity. Therefore, physicians generally buy medical malpractice policies in their own name, rather than in the name of the practice.

However, because medical malpractice premiums have become more expensive, physicians began buying policies with lower limits of insurance. Previously, individual doctors carried as much as $12 million of insurance per claim; now the majority of physicians carry no more than $1 million per claim.

In response, plaintiff lawyers began to seek larger awards by dragging medical entities into lawsuits. Now more than previously, lawyers sue the individual physician and the corporation. That's true even for solo practitioners.

In the past, plaintiff attorneys may have named entities for a variety of reasons, but mainly to ensure that there was underlying coverage. Once coverage was established, entities were commonly dropped from a lawsuit. Now when lawyers sue an entity, they are less likely to let it out of a case, not only because it may provide potential leverage in settlement negotiations, but also because a number of legal theories can render them an effective source of independent recovery.