Category 5 Claims – Managing High Exposure Claims Against Healthcare Providers

1. Category 5 Claims – Managing High Exposure Claims Against Healthcare Providers John B. Mumford, Jr. Hancock, Daniel, Johnson & Nagle, P.C. Richmond, Virginia

2. Category 5 Claims – Managing High Exposure Claims Against Healthcare Providers While there are no “easy” claims, some claims against healthcare providers are “Category 5” in terms of the attention they receive from: • Plaintiffs’ attorneys • Media • Reinsurers • Captive claims committees • Captive owners’ governing boards

3. Category 5 Claims – Managing High Exposure Claims Against Healthcare Providers Some recent examples include: • Actor Dennis Quaid’s twins who received 1000 times the ordered dose of Heparin during a routine hospital stay • Six premature babies accidentally administered adult doses of Heparin at a hospital - resulting in the death of three • 20 suits by patients alleging that a hospital administered bacterially contaminated solution during heart surgeries causing injuries and death • A class action suit against a dialysis center by patients who claimed that they were exposed to or contracted HIV, HCV, and other diseases due to the center’s failure to appropriately sterilize dialysis equipment • Multiple claims against a surgeon and a hospital after allegations surfaced that the surgeon was under the influence of narcotics during hundreds of his procedures

4. Category 5 Claims – Managing High Exposure Claims Against Healthcare Providers • Good News!!! Fortunately, for any single healthcare captive, claims of this magnitude are rare. • But when they come, they present unique issues and require special handling.

5. Our Scenario Sacred Heart Health System (fictitious) – Bermuda Captive • 4:00 p.m. on an otherwise uneventful Friday. Hospital’s Risk Manager learns that over the course of several hours, eight inpatients became septic and crashed. Two had died - the others were in intensive care. • All had received IV antibiotics. Investigation reveals that bags were highly contaminated with bacteria. • IV bags were obtained from an outside vendor • Vendor claims that hospital must have done something to contaminate the bags.

6. The Immediate Musts Actions taken in the few hours and days after event will have a huge impact on the defense of the claims down the road. • Take steps to make sure that investigation and internal communications on the situation are protected (attorney-client privilege, work product, quality) • Attach privilege statement to all documents created • Beware of communications that might break privilege – e.g., with “outsiders” • Maintaining privilege among unrelated entities through joint defense agreement • Take command and control of physical evidence (bags, invoices, shipping manifests, agreements with suppliers, etc.) • Especially in light of federal electronic discovery requirements, vital to take control of and ensure security of any potentially relevant electronic data (make sure it is not deleted). • Avoid spoliation claims

7. The Immediate Musts • Take Command and control of information: • Appoint point person or small group who will direct investigation and flow of information (“Quarterback”) • Do not have to do the work themselves, but they must track and delegate who is responsible for what - - who is doing what can be a big problem immediately post incident • Avoid the – “I thought someone else was . . .” • Must be “report to” source for all individual components of information. There can be no “separate kingdoms of knowledge.” • Avoid the “I thought you knew . . .” • In terms of information to obtain, in addition to securing any physical evidence and medical records, key to interview staff involved in incident (who knows what they will remember months from now)

8. The Immediate Musts • Take Command and control of communications: • “Quarterback” should also approve and coordinate all communications, including: • Internal communications (who needs to know) • Communications with victims and families • Communications with outsiders (media, regulators, etc.) • No one talks to outsiders without approval of “Quarterback.” No rogue communications (e.g., with families, plaintiffs’ lawyers, media, etc.) Seriousness of this must be communicated. • Who will be point person or on point committee? • Captive’s claims committee can be a huge asset in this process.

9. The Immediate Musts • Notify reinsurer and/or excess insurer • If possibility that claims will implicate coverage lines from commercial carriers - outside what captive covers (e.g., a Fair Debt Collection Practices Act class action potentially implicating D&O coverage), tender to all - even if coverage possibility is remote. • Identify any other “other insurance” that might provide coverage and tender to them. • E.g. physicians policy • Notify actuary? • Is exposure such that immediate actuarial review may be in order? • Regulatory notifications

10. The Immediate Musts • Counsel & Experts • Who to retain to defend the claims: • local panel attorney • national defense firm (with particular expertise) • both? • Must be able to simultaneously litigate multiple suits (manpower issue). • But local jury may not connect with “Big City” attorney • Will collaborative effort work (yes, but need one Sheriff) • Joint defense. Can one attorney defend multiple captive insureds who are named defendants in case? • Are there apparent conflicts? • Act quickly to retain best national experts in all relevant areas, as well as local experts.

11. Assessment & Response • Assessment of fault will dictate response to claims: • Does anyone have liability to plaintiffs at all? • If yes – is it us, someone else (e.g., company that supplied the bags), or combination of two? • If someone else (we are not culpable) – defense strategy is pretty clear – “them not us.” • If combination of us and someone else – defense strategy more complicated – can we assert a joint defense or is finger-pointing inevitable? • Who is really our “friend” here – plaintiffs or supplier?

12. Assessment & Response • Assessment of insurance coverage • Additional insured status and/or indemnity agreements. • Does hospital have insurance coverage or contractual defense/indemnification for these claims from source other than captive (e.g., pursuant to contract with supplier)? • Does captive/hospital owe similar coverage/indemnity to co-defendant? • Depends on terms of relevant contract between parties (if any). • Need to check this early (don’t be too late).

13. Assessment & Response • Assessment of insurance coverage • Does this situation present one claim or numerous claims for purposes of the per claim and aggregate retentions of captive’s policy (or excess policy)? • Depends on policy language. Examples: • Any such act or omission, together with all related acts or omissions in the furnishing of such services to any one person, shall be considered one Medical Incident. • All claims arising from continuous, repeated, or related acts or omissions shall be deemed to constitute one Medical Incident. • Why is this significant - deductible, per claim, and aggregate limits?

14. Assessment & Response • Assessment of insurance coverage Are there special provisions in the captive’s reinsurance agreements, such as clash cover, that may increase or limit the availability of reinsurance in situations where multiple claims arise from common or similar incidents?

15. Communications • Communications with victims and family members (and their attorneys) • Helpful = expressions of sorrow and sympathy; recognition that outcome unexpected; acknowledgment that cause is unknown but being vigorously investigated. • Not Helpful = Wild speculation, half stories, and statements as to cause before all the facts are in. • For example, a family takes away a much different picture from the following statements – • “your husband received solution that was contaminated with bacteria” • “your husband received solution that was contaminated with bacteria that we received from an outside vendor”

16. Communications • Communications with victims and family members (and their attorneys) • Should we “suggest” a plaintiffs’ attorney to victims. • Is it easier to deal with one firm that has most of the plaintiffs (who we know) – versus a separate attorney for every plaintiff? • Is there any opportunity for alliance of hospital, captive, and plaintiffs against common “enemy” (e.g., the supplier) – we are on the same side?

17. Communications • Communications with media (Crisis Communications) • If nothing good to say, don’t say anything. • Public is not surprised by answer – “due to patient confidentiality laws and out of respect for our patient’s privacy we cannot comment on this situation or litigation.” • But if compelling story to tell – Tell it. • E.g., we received bags from an outside vendor that were contaminated and brought the issue to the attention of the FDA and CDC which likely saved lives. • The first story out there is typically what sticks in the minds of public and potential jurors. • Opportunity to use local advantage (relationship with press).

18. Communications • Communications with Reinsurers or Excess Insurers • Vital to keep reinsurer or excess insurer up-to-date on case, especially where future resolution is likely to involve their money. • If you think it’s going to hit them, tell them (and get them involved in decision-making early)!! • Accurate reserving is difficult in these situations (especially early on due to “me too” claims), but hugely important. • Request anticipated defense budget (including expert costs) and frequent updates • Obtain jury verdict research on comparable situations.

19. Resolution • Opportunities for early resolution • Especially where liability is clear, vital to pursue early mediation with plaintiffs. • Should not wait around for suits to be filed, get it set-up ASAP!! • Standstill agreements • Mutual exchange of information in lieu of formal discovery • Benefits include: • Reduced defense costs; • Opportunity to control media exposure through confidentiality agreement (plaintiffs’ attorneys know that bad media exposure is good leverage, so they are not inclined to squander it); • Opportunity to get cases settled before any “worse facts” that might be out there are uncovered in discovery

20. Resolution • Strategy issue – When mediating numerous related claims, the first settlement will set ceiling and floor for the cases that follow. • Even if several different plaintiffs’ attorneys, word still gets out. • So should worst damages case be mediated first or last? • What do we do with cases of claimants (and their attorneys) who have “come for the party” due to media exposure, but who have weak causation cases in terms of their damages being in any way related to the incident? • Make them wait. • Strategy wise, attempt to resolve the worst cases first, leaving these plaintiffs to stand alone. • Will plaintiffs’ attorneys invest resources to fight speculative fight alone? Probably not.

21. Resolution What are the captive’s options when it appears that the value of multiple claims might exceed available insurance and reinsurance limits? • Depends on asset base (other than insurance) of named defendants – e.g., single dialysis center or nursing home versus large health system. • Where defendant cannot be collected from outside insurance, plaintiffs may be motivated to seek some insurance money (and reduced settlement), rather than run risk of no money at the end of the day. • Universal mediation or universal arbitration (here is all the money we have for claims, come and make your case). • Does captive owe any duty to claimants in settling cases where settlements will exceed limits? (e.g., Can captive settle with Mary, leaving nothing for John?)

22. Excess Insurance/Reinsurance Where claims are covered by excess policies from commercial insurers (not issued by captive): • Vital to know and follow policy conditions on reporting claims, information sharing, and cooperation. • Vital to keep excess insurer directly involved in settlement discussions – don’t want settlement to unravel because excess insurer will not buy-in. • What options does policyholder have where excess insurer adopts an overly bullish view of case and refuses to participate in settlement? (Depends on whose money is at risk.) • Under applicable policies, can captive tender limits to plaintiffs and require that excess insurer assume defense?

23. Excess Insurance/Reinsurance Where claims are subject to reinsurance agreement, which significant portion of settlements will be ceded to reinsurer? • Again, vital to know and follow policy conditions on reporting claims, information sharing, cooperation, and updating claim reserves. • Reinsurers typically do not have right under reinsurance agreement to approve or block settlements (although it is certainly a good idea to keep reinsurer apprised and seek their input where settlements will involve substantial sums of reinsurer’s money). • Captive makes call on settlements. • And reinsurers cannot challenge settlements undertaken by captive in good faith (Follow the Fortunes Doctrine). But there are sometimes disputes where reinsurer feels that captive entered settlements that were not reasonable (because it was not captive’s money at risk). So it is important to document justification for settlements.

24. Trial Trial strategy issues: • Maneuver to have most defensible cases tried first. • Judgment in first case will set tone in media and public mind for future cases • And significant loss in first trial will drive-up settlement demands in other cases. • Value of mock trials. • Value of jury consultants

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