SETTLEMENTS & RELEASES – Insured Physicians Liability under Policy upon refusal to settle
DATE:  3/23/2006

This was a medical negligence case in which the plaintiff Schmidt offered to settle the claim within policy limits but the insured physician (Dr. Tabler) withheld his consent and the matter went to a jury in which the plaintiff obtained a verdict in excess of the policy limits of $1 million.  This appeal followed.

Like many professional liability insurance policies, Tabler’s policy with KMIC contained a "consent to settle" clause providing that:  "The Company shall not compromise any claim hereunder without the consent of the named Insured ."

KMIC maintained it did not enter into negotiations with Schmidt because Dr. Tabler did not consent to a settlement of Schmidt’s claims against him.  After judgment was entered pursuant to the verdict, Dr. Tabler retained personal counsel who negotiated a settlement offer from Schmidt in the amount of 1 .2 million dollars, or $200,000.00 more than KMIC’s policy limits, and demanded that KMIC pay that amount to settle the judgment.

Dr. Tabler testified on direct examination as a witness for Schmidt, inter alia, that he "did not recall" being warned by his attorneys of his potential exposure to liability in excess of his policy limits and that he "did not understand" that he could be personally, as well as corporately, liable for an excess judgment. He also denied withholding his consent to a settlement of Schmidt’s claim . However, when confronted on cross-examination with sworn statements he had previously made during a discovery deposition, he admitted having reviewed the "settlement brochure" prepared by Schmidt’s attorney claiming over $900,000 .00 in medical bills, demanding five million dollars in settlement, and advising that he (Tabler) would be personally liable for any excess judgment over his policy limits. 

The attorneys who had represented Tabler in the malpractice action also testified that they had advised Tabler of the risks of going to trial but that he was convinced that he had done nothing wrong and that he would be exonerated by the jury.

There was ample evidence to support the jury’s finding that, after being "fully informed" of the risks, Dr. Tabler did not consent to a compromise settlement prior to the return of the excess liability verdict. The Court of Appeals erred in usurping the fact-finding authority of the jury on this issue .

An insurer acts in "bad faith" with respect to a potential excess judgment against its insured only if it is afforded the opportunity to settle within the policy limits . Davis v . Home Indem . Co . , 659 S.W.2d 185, 189 (Ky. 1983)

Although KMIC’s policy covered costs and fees incurred during an appeal, it only covered the cost of an appeal bond to the extent of its policy limits and only its pro rata share of interest payable on the judgment. Thus, the policy required Tabler to supersede the excess portion of the judgment and to pay any interest thereon .

Here, the plaintiff was willing to settle for the policy limits, but the insured exercised his right under the policy to withhold consent to any such settlement, thus denying the insured the opportunity to settle within the policy limits.

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