Wasting Liability Insurance Policies

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LNCtips.com:  Wasting Liability Insurance Policies


Wasting liability insurance policies refer to medical malpractice insurance policies that waste away or dwindle in value after the initiation of a lawsuit.  This type of policy isn't new - it's been around for 40 years - but many legal nurse consultants don't know about it.  And that's a shame, because wasting policies have implications for both plaintiffs and defendants.

Other names for wasting policies are cannibalizing policies, self-consuming policies, and defense within limits policies.  Unlike non-wasting policies, the indemnity limit in these policies shrinks as defense lawyers become involved in the case. 

For example, if the healthcare professional has a $100,000 wasting liability insurance policy, and the defense attorneys charge the insurance company $40,000 in fees and expenses, only $60,000 remains potentially available to plaintiffs for settlement.  In non-wasting policies, the insurance company pays the defense lawyers their $40,000 fees and expenses, but there is still $100,000 potentially available to the plaintiff. 

Wasting policies aren't particularly popular with either plaintiff or defense attorneys.  Both plaintiff and defense attorneys may need to rethink their strategy in the case.  For example, attorneys may limit the number of experts they retain or limit the number of depositions of fact witnesses to decrease case expenses.  Even though the insurance company pays defense attorneys if the defendant has a wasting policy, monetary constraints may limit an effective defense.  If defense attorneys DO launch a vigorous defense, it can exhaust the insured's policy limit, leaving him or her exposed to cover the remaining cost of the defense. For plaintiffs in particular, the amount available to them and their attorneys immediately drops when defense attorneys become involved.  Of course, if the insured has a policy with a higher limit, such as $1,000,000, these concerns may not be as pressing.

How do LNCs know if the insured's policy is a wasting one?  They can review the insurance policy's declaration page.  On the declaration page, there will be wording in the policy that restricts, limits, or denies an obligation to defend the case after the policy limit has been reached.  Here are two examples of wording for a wasting policy (emphasis added):

  • "It is agreed that the Limit of Liability available to pay damages shall be reduced and may be completely exhausted by payment of claims expenses."

  • (Name of insurance company) "shall not be obligated to pay any damages or claims expenses, or to undertake or continue defense of any suit or proceeding after the applicable limit had been exhausted by payment of damage or claims expenses...and shall have the right to withdraw from the further defense by tendering control of said defense to the insured."

  • After reviewing insurance policies to determine if they are wasting, legal nurse consultants need to inform their attorneys of pertinent findings.  In some law firms, paralegals review insurance policies.  In any case, the attorneys will determine if they need to alter case strategy based on insurance policies.

    ...Katy Jones