As consultants to physicians, we encounter many misconceptions about asset protection planning everyday. The truth about tort reform in Ohio – it is not a panacea. In this article, we will address the most important of all misconceptions regarding asset protection: that this area of planning is not important because physicians never lose personal assets to medical malpractice lawsuits. The thinking of many physicians around the country, and unfortunately their advisors as well, is that there is little to any risk of a physician losing their personal assets in a malpractice claim, especially if there is typical $1 million/$3 million malpractice insurance coverage.

The Facts About Ohio Tort Reform

In April 2003, Ohio tort reform became effective and was updated in 2005. To be clear, tort reform has had a positive economic impact on medical professionals and their practices. After experiencing annual malpractice premium increases of 20 – 30% in the years 2001 – 2004, rates began declining after tort reform, including a rate decline in excess of 10% in 2007. Malpractice carriers also returned to Ohio after tort reform. While the number of carriers dropped to only five carriers in 2003, today there are at least fifteen carriers actively seeking your business. More options create more competition which creates lower rates. In the first year after tort reform was enacted, the number of claims filed and the number of claims resulting in payment declined by 20%.

The most significant reform was the cap on damages, which applies to non-economic and punitive damages. The most widely known form of non-economic damages is pain and suffering. These damages are capped at $350,000 per plaintiff and $500,000 per occurrence. However, there is a risk that plaintiff’s attorneys will chip away at tort reform. Just ask your colleagues in Michigan. In July 2009, the Michigan Supreme Court effectively ruled that the loss of household services (think cooking, cleaning, child-rearing, etc.) by a deceased mother are economic damages. Traditionally, household services were considered non-economic damages. Could this happen in Ohio? Maybe.

The reform also includes:

A time limit of 4 years for filing a claim (calculated from the last date of treatment)

When determining damages, a prohibition against considering the physician’s alleged wrongdoing or misconduct, the wealth or financial resources of the physician or any other evidence that may be offered for the purpose of punishing the physician

Bifurcation of a trial so that punitive damages are only considered if the trier of fact awards compensatory damages.

Now, the rest of the story.

The caps do not apply in cases of catastrophic injury, which is defined as injury resulting in “permanent and substantial physical deformity, loss of use of a limb, or loss of a bodily organ system,” or “a permanent physical functional injury that permanently prevents the injured person from being able to independently care for self and perform life sustaining activities.”

More importantly, the caps do not apply to economic damages, which include medical care and expenses, loss of earnings, and earning capacity. If you think that tort reform is a panacea, the following list of Ohio verdicts reported in 2008 should give you pause to consider the consequences. Will this happen to you? We hope not, but unlike your colleagues in these cases, you have an opportunity to be proactive and protect yourself and your family.

Death of elderly patient Jefferson $133,000
Elbow Injury-Failed to DX Cuyahoga $231,000
Death-Cardiac Monroe $250,000
Negligent Colostomy Reversal Locus $290,000
Brain Damaged Baby Huron $375,000
Death of Nursing Home Patient Cuyahoga $400,000
Delayed Cystic Fibrosis DX Miami $400,000
Eye-Loss of one eye Franklin $400,000
Death-Methadone addict Cuyahoga $420,000
Death Terminal Melanoma Cuyahoga $500,000
Shoulder Dystocia Huron $640,000
Breast CA-misdiagnosed Mahoning $750,000
Death-Aortic Dissection Clinton $755,000
Breast CA-misdiagnosed Cuyahoga $850,000
Shoulder Dystocia Cuyahoga $1,175,000
Psychiatric-Medical induced phycosis Summit $1,200,000
Death-Fall at Hospital Cuyahoga $1,300,000
Brain Damaged Adult Muskegon $2,000,000
Death- Delay DX of Prostate CA Cuyahoga $2,000,000
Death of Fetus Hamilton $2,500,000
Death-untreated kidney infection 60 year old Lucas $3,500,000
Paralyzed 14 year old-ER (settlement) Cuyahoga $3,500,000
Brain Damaged Child Green $5,500,000
Brain Damaged Adult Cuyahoga $7,500,000
Brain Damaged Baby Franklin $17,000,000
Brain Damaged Baby Hamilton $22,000,000
Brain Damaged Baby Hamilton $22,646,023

As these verdicts indicate, if your negligence causes a catastrophic injury or you have injured an individual with a high earning capacity, tort reform offers no comfort or protection.

1. Finding proper data is difficult

Those of you who have spoken to us, read our books or other articles, know that we are not people who use extremes. We, like you, like to see data before making judgments or form opinions. However in this area, tracking how many physicians lose personal assets in malpractice lawsuits is very difficult, if not impossible. That is because the legal system publishes filed cases and judgments rendered (as cited above), but they do not publish the collections of those judgments.

There are no reporters that publish what happens once a judgment is rendered. Did the plaintiff, with a judgment in excess of coverage limits, simply settle for the amount of the medical malpractice insurance? Did the plaintiff and his attorney pursue the personal assets of the physician and his family to satisfy any excess judgments? These are questions for which there are no answers in published materials.

Every week in the malpractice reporters that we review, there are tens of malpractice actions decided in the states in which we practice. Most decisions are for the physician defendant, some are small judgments for the plaintiff and a few, every week, are very large judgments for the plaintiff. Nonetheless, we can only hypothesize about what will occur once these very large judgments are rendered. It seems that many physicians and their advisors simply assume that the plaintiffs in these cases will walk away from very large judgments and simply settle for the malpractice insurance coverage. Let’s look at a couple of reasons why this may not be the case.

2. Payments, Not Evictions

A common theme in speaking to physicians and their advisors around the country on this topic seems to be that “I have never personally heard of anyone losing their home to a lawsuit,” and therefore the conclusion is that it doesn’t happen. However, if one understands the goal of litigation and plaintiffs, this certainly isn’t surprising. What does occur instead of eviction is that the plaintiff with the judgment will file a lien on real estate, levy bank accounts and essentially put levies or liens on all of the physician’s personal assets for the amount of the judgment owed to them. The goal is not to kick the physician out of their home, but make the doctor take a loan against the home to pay off the excess judgment. And this, we can assure you, happens with regularity.

Consider this situation: a true story from David’s practice. In New York, David had a couple come to see him. The husband was a Cardiologist and the wife was an OB/GYN. The couple said that the wife had just been successfully sued for a bad baby case in which the judgment rendered against her was $4 million, $2 million more than her personal malpractice coverage. David told the husband that there was nothing he could do since there was already a judgment. It was too late. While David has not spoken to the client since, we ask you, do you think that the plaintiff and their attorney who rightfully won a $4 million judgment would simply settle for the $2 million of insurance coverage when they could put a lien on the $1.5 million of equity in the defendant’s home in a matter of two hours with the cost to the attorney being about $500?

The Legal Obligation of the Plaintiff Attorney: Get the Cash

There seems to be an underlying assumption by attorneys who advise doctors that asset protection isn’t important because plaintiffs and their attorneys will not go after physicians’ personal assets because it is “distasteful” or for some other reason. But put yourself in the shoes of the plaintiff and the attorney. The plaintiff’s attorney has a professional and ethical obligation to represent his or her client to the fullest extent of the law. If, as an attorney, David represented a plaintiff who had a $4 million judgment and only $2 million was paid by insurance and he knew that the defendant had millions of dollars of assets that were unprotected that he could attack in order to get the client paid in full, David would have a professional obligation to do so. In fact, if he didn’t pursue those assets, he would be liable for malpractice to the client, and rightfully so. Plaintiffs are most likely to pursue personal assets and seek to punish a physician in the most egregious cases. While tort reform has established caps on punitive damages, it is critical to understand that neither your professional liability insurance nor your personal umbrella policy will cover a punitive damage claim.

When you combine the misconception that plaintiffs and attorneys won’t go after physician’s personal assets because of some kind of ethical consideration with the fact that there are, in fact, ethical rules requiring an attorney to go after such assets, you begin to understand why the advice “you don’t need asset protection” is so off-base.

Why Wouldn’t You Protect Assets?

If you have ever read our materials or heard us speak, you know that we are not people who say the “sky is falling.” Even with all the statements that we made in this article, it is still statistically a relatively low risk that you will lose personal assets in a malpractice action, regardless of your specialty. However, the point that we make with our clients and in our books and articles is that asset protection planning can actually benefit you in many ways beyond lawsuit protection.

In fact, most of the asset protection we do for clients is relatively low cost and has numerous financial, tax and estate planning benefits as well. Thus, the question becomes “if asset protection planning can protect you in many ways and costs relatively little, why wouldn’t you do it…when there is even a slight chance that you will lose personal assets at some time during your career?”

Understand your professional liability policy. Maximize your professional liability coverage limits.

Conclusion

Certainly, asset protection planning is a crucial part of a client’s wealth planning today – especially for physicians. Everyone acknowledges that there is some risk of a beyond-insurance limits lawsuit for any doctor. If this is true, and proper asset protection may actually help you BUILD wealth, then such planning cannot be ignored.