A divided Texas Supreme Court found March 6 that an exception to the state's malpractice damages cap that allows further recovery when a liability insurer negligently fails to settle claims, applies only to insurers and does not apply to physicians.
This material originally appeared in the March 13, 2009, issue of Health Lawyers Weekly, a publication of the American Health Lawyers Association (www.healthlawyers.org).
A divided Texas Supreme Court found March 6 that an exception to the state’s malpractice damages cap that allows further recovery when a liability insurer negligently fails to settle claims, applies only to insurers and does not apply to physicians.
The high court explained that, under the Medical Liability and Insurance Improvement Act of 1977 (Act), one provision caps the liability of physicians above a fixed amount, and a second provision creates an exception to this cap when the physician’s insurer has negligently failed to settle a claim within the limits of the physician’s liability policy.
After Vicki Bramlett, a healthy 36-year-old, died from post-operative complications following a hysterectomy, her survivors sued the physician who performed the operation, Dr. Benny Phillips, and the medical center where the surgery took place, alleging negligence in her care and treatment.
The medical center settled the suit but the action against Phillips went to trial. A jury found the doctor and medical center negligent, awarding $11 million in damages and apportioning responsibility, 75% to the doctor and 25% to the medical center. The jury also found the doctor grossly negligent, and awarded $3 million in punitive damages.
The trial court denied the doctor’s request to limit his liability under the Act. The appeals court affirmed and Phillips appealed.
The common law imposes a duty on liability insurers to settle third-party claims against their insureds when reasonably prudent to do so, the high court noted.
Under the Act, if an insurer’s negligent failure to settle results in an excess judgment against the insured, the insurer is liable under the so-called “Stowers Doctrine” for the entire amount of the judgment, including that part exceeding the insured’s policy limits, the court explained.
Such claim is the physician's to bring, the court said.
The high court noted that appeals courts in Texas have disagreed as to whether the Act’s exception to the damages cap applies only to insurers or extends to physicians.
After examining the plain meaning of the statute and examining its legislative history, the high court held that “[w]hen insurance coverage is below the cap, this Stowers-exception claim may be shared by the insured physician and the injured third party because both will potentially have excess claims when the damages finding exceeds the cap. When insurance coverage is above the cap, however, the physician is fully protected, and only the injured third party [i.e., the physician] has incentive to pursue the statutory Stowers exception.”
Accordingly, the high court found that in this case, the judgment against the physician may not exceed the statutory damages cap.
Thus, the court concluded that the Stowers exception “expressly applies to insurers only and does not waive the liability cap” generally.
A dissenting opinion argued the majority court’s interpretation “subjects insurers to liability beyond that which Stowers would allow.”