As consultants to hundreds of physicians, we encounter many misconceptions about asset protection planning every day. In this article, we will address the most important of all misconceptions regarding asset protection — that this area of planning is not important, because physicians, practically, don't lose assets to medical malpractice lawsuits.
The thinking of many physicians around the country is that there is little to any risk of a physician losing personal assets in a malpractice claim, especially if there is the typical $1 million to $3 million malpractice insurance coverage.
There are a number of key issues in this analysis to review.
Finding proper data
Those of you who have spoken to us or read our book For Doctors Only or other articles know that we are not people who use extremes. We, like you, like to see data before making judgments or forming opinions.
However, in this area — tracking how many physicians lose personal assets in malpractice actions — data is very difficult, if not impossible, to obtain. That is because reports are published on cases filed and judgments rendered, but not on the collections of those judgments.
There are no reports that publish what happens once 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 attorney pursue the personal assets of the physician and his 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 malpractice actions decided in the states in which we practice. Most decisions are for the physician defendant, some are small judgments for the plaintiff, and a few are very large judgments for the plaintiff. This may be the same in your location as well.
Nonetheless, we can only hypothesize about what will occur once these very large judgments are rendered. It seems that many physicians and their advisers simply assume that their plaintiffs in these cases will walk away from very large judgments and that they will simply settle for the malpractice insurance coverage.
Payments, not evictions
A common theme in speaking to physicians and their advisers around the country on this topic seems to be, "I have never personally heard of anyone losing their home to a lawsuit," and, therefore, the conclusion is that it doesn't happen.
However, if one understands the goal of litigation and the plaintiffs, this certainly isn't 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 physician 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 practice:
In New York, I had a couple come to see me. He was a cardiologist and she, an OB/GYN. They said that she, the OB/GYN, had just been successfully sued, and the judgment rendered against her was $4 million, $2 million more than her personal malpractice coverage.
I told them at the time that there was nothing I could do, since there was already a judgment. While I have not spoken to the clients since, I ask you, do you think that the plaintiff and their 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 two hours, with the cost to the attorney being about $500?
Get the cash
There seems to be an underlying assumption by attorneys who advise doctors that asset protection isn't important, 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 his or her client with their 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 in 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 didn't 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 won't go after their 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 not protect assets?
If you have ever read our materials or heard us speak, you know that we are not people who say the "sky is falling." Even with all the statements that we made in this article, there 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 becomes, "If asset protection planning can protect you in many ways and can cost relatively little, why wouldn't you do it, when there is even a slight chance that you will lose personal assets at some time during your career?"
Certainly, asset protection planning is a crucial part of a client's wealth planning today. Everyone acknowledges that there is some risk of a beyond-insurance-limits lawsuit for any doctor. If this is true, and proper asset protection may actually help you build wealth, then such planning cannot be ignored.