January 24, 2003
By: Jerome Harleston, Senior Attorney
You want to know how professional liability funds (also referred to as excess liability or patient compensation funds) operate to pay medical malpractice claims against health care providers.
Professional liability funds supplement insurance coverage and pay the amount of any valid medical malpractice claim that exceeds the amount available under a medical liability insurance policy.
New Mexico and Nebraska have professional liability funds. Oregon authorizes one if the Consumer and Business Services Department superintendent determines it is necessary. In making that determination, after a hearing, the superintendent must find that (1) members of the profession are unable to obtain insurance or (2) professional liability insurance is not available at a reasonable cost.
PRIMARY LIABILITY PROTECTION
In each state, doctors may available themselves of the excess liability protection the funds offer only if they satisfy primary or first-party financial responsibility requirements. New Mexico and Oregon require doctors to buy a minimum of $200,000 per occurrence of professional liability insurance protection (N.M.S.A. §§ 41-5-26, 41-5-5 and Ore. Rev
Stat. § 752.035(1)). In lieu of a policy, New Mexico permits a doctor to continuously maintain a cash deposit of $600,000 with the superintendent of the fund. New Mexico requires the superintendent to determine the amount of the financial responsibility requirement for hospitals and outpatient health care facilities based on a risk assessment of each facility (N.M.S.A. § 41-5-5 (B)).
Nebraska health care providers, except doctors and nurse anesthetists, must buy a minimum $200,000 of professional liability insurance. Doctors and nurse anesthetists must purchase a minimum aggregate $600,000 of liability protection to cover all claims or occurrences against them or their employees made in any policy year. Hospitals must purchase $1 million aggregate coverage for all occurrences or claims made in any policy year (Neb. Rev. Stat. § 44-2827).
Assessment of Surcharge or Contribution
The funds are authorized to assess surcharges or contributions against doctors and other health care providers to establish a pool of money to pay excess liability claims.
New Mexico and Nebraska authorized the superintendent of the fund to determine the amount of the annual surcharge. New Mexico requires the determination to be made on sound actuarial principles and data obtained from New Mexico experience. Nebraska caps the surcharge at 50% of the annual premium doctors must pay to satisfy their financial responsibility requirement (N.M.S.A. § 41-5-25 (B) and Neb. Rev. Stat. § 44-2829 (2)). In Oregon, this authority is vested in a commission (Ore. Rev. Stat. § 752.035 (3)).
New Mexico caps monetary damages at $600,000 in the aggregate. Medical care and related benefits and future medical expenses are not subject to this limitation. Monetary damages for future medical expense are not awarded. Instead, they are furnished directly to the patient subject to a semi-private room limitation (N.M.S.A. § 41-5-6 and 7).
A New Mexico doctor's personal liability is limited to $200,000. Any amount in excess of $200,000 is paid by the fund up to $600,000. Excess awards are paid in accordance with a payment schedule developed by the court. If the fund runs out of money, the amount paid to each patient is prorated. Amounts not paid in one year are paid in the following calendar year (N.M.S.A. § 41-5-25(F)).
Nebraska does not cap damages. Doctors are personally responsible for the first $600,000 of any medical malpractice award. The fund pays any excess award. Nebraska's fund is maintained at about $5 million and the superintendent is authorized, after a hearing, to adjust the amount of any surcharge to a level sufficient to pay all claims. The superintendent is also authorized to levy a special surcharge if the fund is inadequate to pay in full all claims allowed during a calendar year (Neb. Rev. Stat. §§ 44-2830 and 2831).
The Oregon fund operates like the Nebraska fund. Doctors are personally liable for the first $200,000 of any medical malpractice award. The fund pays all sums in excess of the $200,000 limit (Ore. Rev. Stat. § 752.035(1) and (2)).
The New Mexico superintendent of the fund is authorized to establish a segregated account for fund deposits; use fund assets for the exclusive purpose to indemnify injured claimants; invest and reinvest fund assets and use the income derived for fund purposes, including the purchase of insurance (N.M.S.A. § 41-5-25(A)).
The Nebraska fund superintendent is authorized to reinsure the fund's excess liability exposure. Reinsurance must be paid by the fund and taken into account in determining the amount of the surcharge. The fund and any income must be held in trust by the state treasurer, deposited in a separate account, and invested and reinvested (Neb. Rev. Stat. § 44-2829).
The Oregon fund commission is authorized to define coverage provided by the fund, employ legal counsel to represent the fund, and defend and control the defense of any person covered by the fund against whom a claim is made. It is also authorized to contract with a local insurer to administer the fund. The fund is separate and distinct from the General Fund, and interest earned by the fund is credited to it (Ore. Rev. Stat. § 752.035(3)).