As consultants to hundreds of physicians, including ophthalmologists, we encounter many misconceptions about asset protection planning every day. In this article, we will address the most significant of all misconceptions regarding asset protection: that this area of planning is not important. 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 his or her personal assets in a malpractice claim, especially if there is $1 to $3 million in malpractice insurance coverage.
There are a number of key issues in this analysis to review. We will take each one individually.
FINDING PROPER DATA IS DIFFICULT
As those of you who have met us or read our book For Doctors Only know, we are not people who use extreme language. Like you, we prefer to see data before making judgments or forming opinions. However, in this area, determining how many physicians lose personal assets in malpractice actions is very difficult, if not impossible. That is because the legal system publishes filed cases and judgments rendered, but it does not publish the collections of those judgments.
No reporters publish what happens after 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 or her attorney pursue the personal assets of the physician and his or her family to satisfy any excess judgments? These are questions for which there are no answers in the published materials.
Every week in the malpractice reports we review, there are dozens of malpractice actions decided in the states where we practice. Most decisions are for the physician-defendant, and there are some small judgments for plaintiffs, but there are very large judgments for plaintiffs. This may be the same in your location as well. Nonetheless, we can only hypothesize about what will occur after these very large judgments are rendered. It seems that many physicians and their advisors assume that their plaintiffs in these cases will walk away from very large judgments and simply settle for the malpractice insurance coverage. Let’s look at a couple of reasons why this may not be so.
1. 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 does not happen. However, if one understands the goal of litigation and the plaintiffs, this certainly is not 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. The goal is not to kick the physician out of his or her home but to 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 former law practice. In New York, David had a couple come to see him. The husband was a cardiologist, and the wife was an OB/GYN. They said that she had just been successfully sued for a bad baby case in which the judgment rendered against her was $4 million, which was $2 million more than her personal malpractice coverage. David told them at the time that there was nothing they could do because there was already a judgment. While David has not spoken with the clients since this conversation, ask yourself if you think that the plaintiff and 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 2 hours with the cost to the attorney of about $500?
2. The Legal Obligation of the Plaintiff’s Attorney: Get the Cash
There seems to be an underlying assumption by attorneys who advise doctors that asset protection is not important and that plaintiffs and their attorneys will not go after physicians’ personal assets because it is “distasteful” or for some other reason. But put yourself in the shoes of the plaintiff and the attorney. The plaintiff’s attorney has a professional and ethical obligation to represent the client with his or her best interest to the fullest extent of the law. If, as an attorney, David represented a plaintiff who had a $4 million judgment, and only $2 million was paid by insurance, and he knew that the defendant had millions of dollars of assets that were unprotected that he could attack in order to get the client paid in full, David would have to do this. In fact, if he did not pursue those assets, he would be liable for malpractice to the client, and rightfully so.
When you combine the misconception of physicians that plaintiffs and attorneys will not go after assets because of some kind of ethical consideration with the fact that there are, in fact, ethical rules requiring an attorney to go after such assets, you can understand why the advice “you don’t need asset protection” is so off base.
WHY WOULD YOU NOT PROTECT ASSETS?
Even with all of the statements made in this article, it is still statistically relatively low risk that you will lose personal assets in a malpractice action, regardless of your specialty. However, the point that we make with our clients and in our books and articles is that asset protection planning can actually benefit you in many ways beyond lawsuit protection.
In fact, most of the asset protection we do for clients is relatively low cost and has numerous financial, tax, and estate planning benefits as well. Thus, the question is this: If asset protection planning can protect you in many ways and costs relatively little, why would you not do it, if there is even a slight chance that you will lose personal assets at some time during your career?
Asset protection planning is a crucial part of a client’s wealth planning today, especially for young doctors. Everyone acknowledges that there is some risk of a lawsuit beyond the limits of insurance for any doctor. If this is true, and proper asset protection may actually help you build wealth, then such planning cannot be ignored.
For a free hard copy of For Doctors Only: A Guide to Working Less & Building More, call 1-877-656-4362. Or, visit ojmbookstore.com and enter promotional code MILEYE11 for a free e-book download of For Doctors Only or the shorter For Doctors Only Highlights for your iPad or Kindle.