Summit Structured Settlements
755 S.E. Frontier Suite 101
Waukee, Iowa 50263
Voice: 515.987.6888
Fax: 515.987.6999
Toll Free: 866.267.1177
info@summitsettlements.com
Disclaimer
|
Do You Have a Dormant Malpractice Liability?
You surely must hate even to think about a legal malpractice claim waiting to be
filed against you for something that happened years ago. But, the case of Lyons
v. Medical Malpractice Insurance Association, 730 N.Y.S.2d 345 (2001),
illustrates that trial lawyers who thought they had represented their clients
well in obtaining large settlements from both the hospital and the attending
physician in a professional negligence action can be surprised to find out the
clients later found out differently.
Alexander Lyons was unfortunate to develop bacterial meningitis at age 3 that
would cause him profound mental retardation, autism and spastic diplegia
cerebral palsy. He will never be capable of independent living. Alexander's
father, David Lyons, brought suit against both the hospital where this occurred
and the physician who delivered the child, claiming that the duty of care was
breached during delivery. A jury agreed and awarded Alexander and David
$7,065,000 from the hospital. In lieu of a certain lengthy appeal, the father
settled with the hospital for about $2,400,000 in cash.
Do Not Rely on Adversary's Offer
Their lawyers, skilled in this type of case, also negotiated a settlement with
the doctor, who had a $1 million insurance policy with Medical Malpractice
Insurance Association (MMIA). On behalf of its insured physician, MMIA's claim
adjuster handling the case offered a combination of up front cash plus future
lifetime payments for Alexander's benefit, payable for the rest of his life,
with a minimum guarantee of 20 years. The insurer represented to the lawyers
that the "present day value" of this package was $940,180. This was a good
offer, the lawyers convinced their client David, because it approached the
doctor's policy limit.
The claim adjuster had told David through his attorneys that the "yield to
normal life expectancy" from the settlement would amount to $2,540,300, and that
also appealed to the boy's father. Of course, that figure was based on this
11-year-old boy living another 69 years until age 80. Realistically, a person
with these permanent injuries has a life expectancy much shorter than that of a
normal person. Several life insurance company underwriters had already predicted
an abbreviated lifespan for Alexander, including American International Life
Assurance Company of New York's assignment of a "rated age" of 54. It offered
lifetime monthly benefits for Alexander's benefit, knowing that it likely would
be paying them for not much longer, if al all, then the 20-year guarantee
period.
The physician's insurer knew the cost of an annuity from this life insurance
company to provide these future benefits was only about $410,000. But, because
the insurer did not intend to divulge the true cost to the claimants or their
attorneys, it had its structured settlement broker calculate a fictitious
"present day value" that would be about $265,000 higher than it would actually
pay. This evidently was the way they operated regularly. In previous quotes for
this case, the broker even offered to the claim adjuster to make the fictitious
value higher by using a different assumed interest rate. Notice that the claim
adjuster never used the word "cost." Instead, it was called "present day value."
Fee Overcharge was Negligence
David settled, assuming that his attorneys had pushed the insurer to pay out
nearly all that the doctor had in coverage, not realizing that the offer was
about $265,000 shy of what the claim adjuster had said it was worth — roughly
the same amount of the cash component of the offer. He then paid his attorneys
based on an agreement that the lawyers would get a fee equal to one-third of the
total amount recovered. There is a suggestion in the record that the attorneys
actually took less than one-third of what they thought had been recovered in
damages, but it is clear that they took too much based on the actual recovery.
Alexander Lyons, who had been cheated at age 3 out of a normal life, had now
been defrauded, his father alleges, by the insurer for the physician and
unwittingly overcharged by his own attorneys who did not know the settlement was
worth a whole lot less than the claim adjuster had said. Later, when his father
found out that the settlement may not have been worth what they had been told,
he sued everyone who had been involved in that settlement. The trial court
granted summary judgment in favor of the medical malpractice insurer; to the
broker who furnished the illustrations and their fictional values; and to the
annuity issuer and its affiliated property and casualty company that took the
qualified assignment, both aware that the claimants had been told the value of
the settlement was much higher than the amount they were being paid for the
annuity plus what the claimant was being paid in cash. Only the lawyers
representing Alexander and his father remained as defendants, as far as the
trial court was concerned. This gave the claimants the necessary leverage to
settle with their own lawyers.
The trial court ruled, as a matter of law, that there existed no privity between
the claimants and the insurer. Therefore, even though the insurer did not deny
making false representations to the claimants, the trial court accepted the
defendants' argument that the claimants should not have relied on these
representations. Fortunately for Alexander, the appellate court reversed the
trial court and the matter will now be decided on the facts—whether there was
fraud or intentional misrepresentation by the insurer to induce the claimants to
give up their property right of the tort claim against the physician. But, the
attorneys who thought they had done a great job representing their clients in
settling with the hospital and the physician learned the hard way that they
should not have trusted their adversaries to tell the truth.
This article was written by Richard B. Risk, JD |
|