Tort crisis spawns carriers selling questionable coverage

About a dozen states are investigating or have shut down companies they believe are selling liability insurance without a license.

By Tanya Albert, AMNews staff.
June 30, 2003.
American Medical News

The price the man on the phone quoted Leesburg, Fla., obstetrician-gynecologist Wendell J. Courtney, MD, for liability insurance seemed in line with what Dr. Courtney felt he should be paying: $50,000 annually.

So, even though he was a little leery, he started filling out the paperwork when he received it.

The unsolicited call had come from a one-man insurance shop in Orlando, Fla. Most insurance companies at least have a secretary answering the phones, Dr. Courtney thought. Also, the premium -- although not inexpensive -- was lower than what other companies were offering. It's not uncommon for ob-gyns to pay $100,000 for insurance in Florida.

"I had seen bogus companies before," said Dr. Courtney, who had also recently received a letter offering insurance from a company based in Bermuda, but he couldn't find a phone number for the company. So as the paperwork was being processed by the Orlando company, Dr. Courtney followed his nagging internal voice and called the Florida Dept. of Insurance. He held off from sending any money.

That was a smart move.

The company, Embassy Bonding & Surety Ltd., wasn't licensed to sell insurance in Florida, and the agents selling the insurance weren't licensed either. Also, the company didn't have sufficient reserves to pay claims and wasn't collecting enough in premiums to pay claims, the state alleges. Risk-retention groups need only be licensed in one state, but can operate in multiple states.

Attempts to reach Embassy for comment were unsuccessful.

Because the company wasn't licensed with the state, Dr. Courtney and others wouldn't be protected by a state fund if the company could not pay claims the physicians filed. A number of doctors -- including some who had sent checks -- called the insurance department. The state ultimately issued a cease and desist order against the company, one of three such orders in Florida since last fall.

Since late last year, several states -- including Georgia, Kentucky, Mississippi, Missouri, Nevada, North Dakota, Ohio and Oregon -- have issued at least one cease and desist order or restraining order against an unlicensed company. Other states issued general warnings to physicians to be wary, and some states continue investigations into companies.

Jim Quiggle, spokesman for the independent, nonprofit Coalition Against Insurance Fraud, said state insurance regulators will likely continue to be busy with investigations during the coming months.

"This is a fairly significant wave of swindles that is taking advantage of the physician's inability to get affordable medical liability insurance," he said. "We're seeing the beginnings of a very large and growing bubble in states around the U.S."

For months, physicians have been hearing that the medical liability climate is an inviting one for companies that might not follow through on paying claims: Many big-name medical liability insurers pulled out of markets, physician liability premiums increased at a fast rate and companies tightened their underwriting policies, making it tough for some physicians to buy insurance.

About a dozen states are investigating companies they believe are selling liability insurance without a license.

The warnings appear to have made many physicians check out insurance solicitations more closely. Insurance regulators say that has been a big help in stopping a number of companies that weren't licensed with the state.

For example, Mississippi insurance regulators say they've noticed an increase in calls from doctors asking if a company is licensed. It's helped lead to the state issuing orders against one individual and three companies selling insurance without a license.

In Oregon, a physician questioned the validity of a fax he received that gave him a password to a Web site for a company offering him 30% to 50% off his current medical liability insurance rates. He called the Oregon Insurance Division, and it led to a cease and desist order this spring against a company doing business as First Actual American Insurance Co.

"We're hoping that with the exposure of this company and others that the audience for these products will become even more aware of problems and check with the insurance department," said John Piper, Oregon Insurance Division spokesman.

The inquiries have tipped off state regulators to a number of unlicensed companies. But it's unclear how many physicians might have paid premiums to an unlicensed insurance company that might not intend to or be able to pay claims.

"Unfortunately, we usually find out about these entities after claims are not being paid," said Nina Banister, spokeswoman for the Florida Dept. of Financial Services.

Too good to be true

Insurance officials say physicians should call their state insurance departments to find out whether a company is licensed or registered with the state to sell insurance. In many cases, physicians can even go to the state insurance department's Web site for a list of licensed insurers.

"Companies have to register with the state to be on our eligible list," said Mark Haire, chief counsel to the Mississippi Insurance Dept. "That's very important in today's climate."

Some companies, such as risk-retention groups, can -- under federal law -- operate in a state without being licensed in that state.

The Federal Liability Risk Retention Act preempts some aspects of state regulation, but it requires that a company be licensed in at least one state. Often that is the state where the company is headquartered.

State insurance regulators, though, caution doctors that it can be risky to sign up with a company that isn't backed by a guarantee fund in the state where they practice. "Physicians need to ask themselves if they want to accept the risk," Banister said.

There are some common red flags that an insurance company might not be legitimate, officials say. There could be a problem if the coverage is easy to obtain because the company doesn't ask about previous claims, the rate system is too simple, the benefits are generous or physicians must join an association to get the insurance. Companies will often advertise through blast faxes or mass e-mails. Another big tip-off is if the rates are substantially less than other carriers.

"We tell them if it is too good to be true," said Ann Womer Benjamin, Ohio Dept. of Insurance director, "then it likely is."

 ADDITIONAL INFORMATION: 

No license, no business

These states are among those that have ordered these companies to "cease and desist" from selling medical liability insurance policies because they weren't licensed to do so in that state.

Mississippi:
Atlantic Standard Reinsurance Co. out of Littlehampton, England
First Actual American Insurance Co. out of Canby, Ore.

Nevada and Kentucky:
Physician's Exchange Assn. Inc. out of Georgia
Reliance General Insurance Co. out of Great Britain and Yugoslavia
Doctors Liability Exchange out of Georgia

Ohio and Oregon:
First Actual American Insurance Co. out of Canby, Ore.