One day, a physician receives a letter from a disgruntled patient complaining about medical care. In the letter, the patient sets forth a variety of complaints, asserts the doctor and his office made mistakes, and significant injuries resulted. The doctor promptly provides a copy of the complaint to his insurance carrier, advising it of the claim. Some time thereafter, the doctor’s office receives a letter from his insurance carrier advising him that the insurance company will agree to handle the defense of the claim; however, it is reserving its right to deny coverage and/or seek a declaratory judgment action regarding coverage. The letter also sets out various reasons why the insurance company may not provide coverage, including the patient’s assertion of punitive damages, intentional acts, and conduct which occurred prior to the issuance of the insurance company’s policy.
The initial reaction often is one of “This isn’t fair.” or “What is this?” A reservation of rights letter is written notice from an insurance company advising its insured that it is investigating the claim, and coverage may be denied. A reservation of rights letter must list potential defenses to coverage as set forth in the insurance policy. Whether that list must be exhaustive is open for debate and been the subject of litigation.
Upon receipt of a reservation of rights letter, the doctor has two options. The doctor can accept the reservation and with it, the insurance company’s contingent defense of the claim. Or, the doctor can reject the reservation of rights letter, putting the onus on the insurance company to 1) represent the doctor without reserving its right to deny coverage; 2) withdraw from representing the doctor altogether; or 3) file a separate lawsuit, called a declaratory judgment action, to determine the scope of the policy’s coverage. If a declaratory judgment action is pursued, the insurance company or doctor may request that the underlying proceedings be stayed, if the patient has filed a lawsuit.
In Missouri, insurance companies have an obligation to issue a reservation of rights letter within 15 working days of the submission of all forms necessary to “establish the nature and extent of any claim.” In the medical malpractice arena, this is effectively a floating date, as the disclosure of experts and continuing medical bills would affect the “extent” of the claim being made against the physician. Nevertheless, Missouri’s regulations further require insurance companies to notify a doctor of the need for additional time with updates every 45 days thereafter. The initial investigation of the claim should ordinarily be completed within 30 days after the insured receives notice of the claim.
If an insurance company files a declaratory judgment action, that decision to do so is treated by the courts as a refusal by the insurer to defend the claim. If the denial is found unjustified, the insurer is deemed to have waived its right to control the defense and is bound by the strategy of decisions made by the insured.
What does that mean for the doctor?
Upon receiving a reservation of rights letter, the doctor has a decision to make, whether to a) accept the insurance company’s ongoing defense of the claim (and often most importantly, providing attorneys to the doctor in that defense) while the investigation proceeds, or b) reject the reservation of rights. If the doctor decides to reject the reservation, he is putting the burden on the insurance company to decide whether or not it will defend the claim without a reservation of rights. Absent the reservation of rights, the doctor may elect to “go it alone,” incurring his own defense expenses (including attorneys’ fees) in the interim and with it, run the risk that the doctor may not be able to recover those expenses incurred at a later date.
Ultimately, there is no easy answer for a physician’s response to a reservation of right letter. The patient’s allegations and the coverage issues raised by the insurance carrier requires the physician to decide whether to be patient while the insurance company completes its investigation or demand a prompt decision. If the decision proves to be a difficult one, the attorneys at Lashly & Baer are here to assist in weighing out your options.
If you have any questions about how this may affect your practice, please do not hesitate to reach out to Jeffrey Atkinson, or any member of Lashly & Baer’s Health Care Advisory Team.