Do you think that the plaintiff who wins a $4 million judgment would simply settle for $2 million of insurance coverage when they could put a lien on the $1.5 million of equity in your home in two hours at a cost of $500?
As consultants to hundreds of physicians, we encounter many misconceptions about asset protection planning everyday. In this article, we will address the most important of all misconceptions regarding asset protection: that this area of planning is not important.
Yes, it's asset protection. No, it doesn't count.
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 $1-3 million malpractice insurance coverage.
There are a number of key issues in this analysis to review. We will take each one individually:
1. Finding proper data is difficult
Data on how many physicians lose personal assets in malpractice actions is very difficult, if not impossible to obtain. That is because the legal system publishes filed cases and judgments rendered, but they do not publish the collections of those judgments.
The data's out there...if you can find it.
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 the published materials.
Every week in the malpractice reporters 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. This may be the same in your location as well.
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 their plaintiffs in these cases will walk away from very large judgments and simple settle for the malpractice insurance coverage. Let’s look at a couple of reasons why this may not be so.
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 the 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 any assets of the physicians to 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, I had a couple come to see me. He was a Cardiologist and she an OB/GYN. They said that she, the OB/GYN, 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. I told him at the time that there was nothing I could do since there was already a judgment.
It's hard for me to say, but there's nothing I can do
While I have not spoken to the client since, I 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?