While the rise in verdict severity, and the knock-on effect that has on all settlements, represents a threat to MPL profitability on a per-claim basis, the rising frequency of “mega” batch claims is potentially even more devastating, as Richard Henderson of Trans Re explains.
A batch claim involves (1) a single act or series of related acts which, (2) cause(s) injury to multiple individuals. Batch claim exposures may extend throughout a coverage tower, and require new defence strategies and an adjusted approach to underwriting going forward.
“Pre-identify who you will use as (1) coverage counsel, (2) national counsel, and (3) public relations/media consultants, when a batch claim scenario arises.”
Batch claims were once viewed as random events that strike without warning and so cannot be predicted. Such randomness, combined with the rising frequency of such claims, would cause extreme concern. In fact, four scenarios are behind most batch claims:
- Medical (non)necessity (including intentional improper treatment for financial gain);
- Medical products/equipment-related; and
- Patient abuse (including sexual abuse).
Unnecessary medical procedures
Medical professionals may subject patients to medical tests or procedures which are not medically indicated, usually for the financial benefit of that medical professional. Such allegations span several specialties and settings:
1a. Dr. Moon & Redding Medical Center: viewed by many as the “grandparent” of batch claims. In the early 2000s, Moon and his partners were alleged to have improperly subjected over 1,000 patients to unnecessary cardiac procedures. Total compensation exceeded $400 million.
1b. Dr. Midei & St Joseph’s Medical Center: another cardiac-related batch claim. Midei was accused of excessive stenting, which he disputed but which was ultimately resolved for more than $37 million.
1c. Dr. Fata (Michigan) was alleged to have intentionally misdiagnosed patients with cancer to generate the need for expensive (and allegedly medically unnecessary) treatments. In addition to claims for improper treatment, Fata was convicted of Medicare Fraud and sentenced to prison.
1d. Dr. Yasser Awaad (a paediatric neurologist) was alleged to have intentionally and erroneously misdiagnosed epilepsy for many years His child victims were allegedly forced to undergo a series of unnecessary and gruelling tests, including sleep deprivation. These claims have already resulted in two multimillion-dollar verdicts (most recently $3 million).
When it becomes apparent that a medical professional is an outlier compared to peers in terms of the number of procedures they perform, that is a possible red flag and may draw the attention of governmental or regulatory agencies.
It may be difficult for captives or insurers to identify such outliers before a formal investigation is launched, but a careful review of responses to submission/renewal questions could provide an early warning signal and trigger further, more probing questions.
Underwriters must remain vigilant, because once a regulatory investigation is launched it puts that medical professional on the radar of plaintiff’s bar.
Improper and inadequate infection control, and the inappropriate supervision of drug-abusing employees are highlighted in three strikingly similar cases over the past decade:
2a. Kristen Parker/Rose Medical Center (Colorado);
2b. David Kwiatkowski/Exeter Medical Center/Triage Staffing (New Hampshire); and
2c. Rocky Allen/Swedish Medical Center (Colorado).
Each case involved surgical technicians. Each technician had a history of drug abuse, each travelled from state to state (from employer to employer) and each accessed powerful medication (including the painkiller Fentanyl) to inject themselves.
Each then returned the used needles to surgical trays, and the same needles were used to administer the originally intended medication (now diluted with saline) to unsuspecting patients. Many patients developed hepatitis C, which required extensive treatment. In addition to the large insurance claims, each technician was convicted and a served prison term.
Each claim alleged serious problems with the hiring/screening process and that these individuals should have never been hired. Prior employers may be limited in the information they can legally share with prospective new employers, but that does not absolve the prospective employer from conducting a sufficiently thorough investigation.
In one case (Allen) a third-party company was contracted to screen potential new hires. Although he was still hired, that contract provided the hospital involved with a significant defence.
2d. A New Jersey outpatient surgery centre has been approved for Class Action certification. Unsanitary conditions (including rusting surgical instruments and debris) were discovered, with an outdated infection control plan and unacceptable sterilisation procedures.
Between January and October 2018, almost 4,000 patients were treated at the facility, and have been advised to test for hepatitis B, C and HIV.
2e. Wanaque Center for Nursing and Rehabilitation (New Jersey) had 11 children die and dozens of others hospitalised from adenovirus, allegedly due to unsanitary conditions at the facility.
Although many medical professional liability (MPL) insurers believe they do not cover this exposure, that may not be accurate, and some claims do impact MPL policies:
3a. New England Compounding Center (NECC) had a total of 753 patients, across 20 states, affected by tainted steroid injections, which led to an outbreak of fungal meningitis. The source was ultimately linked back to three lots of methylprednisolone (used in epidural steroid injections) packaged and marketed by NECC.
The three lots were distributed to about 75 facilities and over 14,000 patients received injections between May and September of 2012. Ultimately, a $200 million settlement was reached, much of it paid by MPL insurers.
3b. University Hospital, Cleveland: an equipment malfunction destroyed over 4,000 frozen eggs and embryos. While the total financial impact is yet to be finalised, it is expected to be substantial.
3c. Pacific Fertility Center, San Francisco had a similar (but less publicised) incident. As with 3b., these matters remain pending.
Exposure to claims such as these are not always fully appreciated by the medical professional community, because they are not a common source of MPL losses.
In retrospect, many of the warning signs for those dealing with NECC were not given proper attention. The embryo claims also reveal the potentially massive scope of such losses.
The most prevalent and emotive cause of batch claims that impact MPL is patient abuse. The following are a sample of this most heavily publicised issue:
4a. Dr. Larry Nassar/Michigan State: as a result of the conviction for sexual assault of students and athletes between 1992 and 2015, civil litigation involving Michigan State resulted in a $500 million settlement. Resolution of funding is pending as Michigan State has sued its insurers
4b. Dr. George Tyndall/USC: another college physician accused of inappropriate physical exams of hundreds of female students over many years. In June 2019, Tyndall was arrested and charged with multiple criminal counts. The civil claims remain pending, with a tentative $215 million settlement for one segment of plaintiffs. Extensive coverage litigation is ongoing.
4c. Dr. James Heaps/UCLA: another college physician accused of inappropriate physical examinations of multiple female students spanning many years. The full scope is not yet known.
4d. Dr. Reginald Archibald/Rockefeller University: another college physician accused of inappropriate examinations of multiple male patients spanning decades (at least back into the 1960s and possibly earlier). Archibald died in 2007, although extensive civil litigation has only recently been filed, including coverage litigation. The number of victims could be in the thousands.
4e. Dr. Dennis Kelly/USC: another college physician alleged to have conducted inappropriate exams on male students, specifically within the LGBTQ student population, over the course of approximately 20 years. This is a developing matter, and the scope of civil claims has yet to be determined.
4f. Dr. Robert Hadden/Columbia University: another physician alleged to have engaged in sexual misconduct dating back to the 1990s. The case became public in 2013. As part of a no-jail plea deal, Hadden forfeited his medical licence and registered as a sex offender. The civil claims on behalf of his victims remain pending.
4g. Dr. Richard Strauss/Ohio State University: another college physician alleged to have sexually abused students dating back to the 1970s. The total number of victims is still to be determined.
4h. Dr. Nikita Levy/Johns Hopkins: physician used concealed camera to photograph over 8,000 female patients (including minors) over 20 years. When the case came to light in 2013, Levy took his own life. The claims filed on behalf of the patients settled in 2014 for $190 million (the largest figure at the time, since surpassed by Nassar and Tyndall figures).
4i. Dr. Bradley/Beebe Medical Center: paediatrician sexually assaulted hundreds, perhaps thousands of children over the course of approximately 20 years. Bradlee is serving multiple life sentences for his criminal actions. The civil claims resulted in a settlement of approximately $130 million.
Although most (if not all) of the abuse occurred in the doctor’s office and not within the hospital, the financial exposure for this settlement was largely borne by the hospital. Once again, those in a position to hire or credential the ultimate perpetrator will face allegations they did not have sufficient protocols in place to flag concerns at an earlier date.
It is a very troubling, common thread among these claims that the abuse was sustained over many years, in some cases decades. Other individuals within the organisations are alleged to have known or should have known that abuse was taking place, but allegedly turned a blind eye or conducted a superficial investigation which, in turn, allowed subsequent abuse to occur.
As a result, there have been many more victims of these heinous acts. It is incumbent on everyone to implement tighter risk management controls to reduce, if not eliminate, such claims in the future.
This will include tighter scrutiny of staff, more open channels to enable victims to step forward, and immediate and proactive claims investigation processes. It will also require insureds to adopt a more active “disclosure” process as soon as practicable, to ensure there is a safe forum for victims to come forward, for the institution to respond, and for a productive dialogue to take place.
As many states enact ‘Reviver’ legislation, abuse victims have an opportunity to bring claims that may otherwise have been time-barred by Statutes of Limitation. It is too early to predict how many new cases will result, but the implications are significant, within the medical professional world and beyond.
Batch claims often arise from criminal activity (invariably not intended to be insured) as well as civil negligence (which typically is intended to be covered). That often means batch claims will involve defence counsel and coverage counsel, and many batch claims will involve (costly) coverage litigation/declaratory judgment actions.
Batch claim plaintiff pleadings are often drafted broadly to trigger as many coverage parts as possible (general liability, professional liability, even Directors & Officers or other coverage forms) and as many coverage years as possible. As we have noted, batch claim resolutions may exceed $100 million, and may impact many insurers and reinsurers in a coverage tower.
In addition to coverage counsel, the XS insurers/reinsurers often retain national/monitoring counsel. While such counsel can add value, they may also lead to differences of opinion on legal strategy among insurers, which can undermine an effective/unified/cohesive defence.
The effective management of a claim starts at the primary/captive level.
Claim/litigation strategies to mitigate batch claim exposure
We draw a number of lessons from the cases mentioned:
- Assume that it’s a question of when a batch claim will arise, not if;
- Designate a dedicated internal team to respond to batch claims;
- Proactively engage external contacts (insurers, reinsurers, and other industry peers); and
- Pre-identify who you will use as (1) coverage counsel, (2) national counsel, and (3) public relations/media consultants, when a batch claim scenario arises.
The best defence is a good offence. You must deploy your plan of attack immediately a batch claim arises. Time is of the essence. Early missteps will have significant ramifications down the road.
Underwriting and risk management challenges and suggestions
You will reduce your exposure to future batch claims if you adopt a proactive approach to risk management/loss prevention and underwriting:
- Re-examine your policy/contract wordings, to understand how they will respond to each of the four main batch claim scenarios? Strongly consider coverage analysis from national counsel who have litigated such issues. Many of our insurers are actively re-evaluating and modifying their sexual abuse and molestation (SAM) language.
- Revisit your policy application forms and your renewal submission forms, to understand whether your current questions would identify any of the behaviours underlying potential batch claims (the best batch claim is an avoided batch claim).
- Re-examine the coverage provisions of all your XS insurance or reinsurance contracts. Identify any potential areas where coverage may not be concurrent. Before you bind/renew your cover, discuss these areas to and address potential questions of underwriting intent.
- Maximise the value and feedback from your external contacts. Your current insurers and reinsurers should provide advice and information as well as financial security, and not using the most experienced writers may be a false economy.
Batch claims affect all MPL writers, including captives. They are happening more frequently, and the sums involved are severe. To effectively manage your exposure to such claims, you must (1) understand where and how the exposures arise, and (2) implement processes and strategies to mitigate and/or avoid such exposures.
If you don’t properly manage batch claims, batch claims will manage you.
Richard Henderson is a senior vice president at TransRe. He can be contacted at: email@example.com
Trans Re, medical procedures, North America, Cayman Islands, Richard Henderson