This month we are going to look at an issue that is a bit technical, but if you ever find yourself as a defendant in a medical malpractice case it is one that you will want to know about.
The topic is high-low agreements.
These are agreements that allow a defendant to avoid the results of a verdict. However, unlike pre-trial settlements or settlements that are reached during a trial and so prevent the case from ever going to verdict, these are settlements that actually depend on the verdict.
They set up an alternate payment framework that the verdict will trigger. The role of the verdict then is to provide the facts that will determine the outcome under the agreement: who won and, if it was the plaintiff, for how much?
This should not be confused with a post-verdict settlement. Those are “13th hour” attempts to avoid lengthy appeals by settling the case within policy limits after a large plaintiff’s verdict.
Under a high-low agreement, by contrast, the plaintiff and the defendant pre-negotiate the limits and agree that those cannot be appealed. They set a “high”, a maximum amount that the defendant will pay if the verdict is for the plaintiff even if the actual verdict is for more than that, and a “low”, a minimum amount that the defendant will pay the plaintiff if the jury’s verdict is for the defendant or is for the plaintiff but below that amount.
An example would be an agreement that if the plaintiff wins that they will get a maximum of the defendant’s policy limit of $ 1 million even if the jury awarded more, while the plaintiff will get a minimum of $200,000 if the defendant wins or if the plaintiff wins but the jury awards the plaintiff less than $200,000.
In one case, a high-low agreement therefore gave the plaintiff the policy limit of $1 million even though the jury awarded over $60 million.
Of course, such an outcome gets the immediate interest of physicians, but when they then consider that they would have to pay the plaintiff even if they win they bristle at the idea that they should have to pay a plaintiff they just beat. However, high-low agreements can actually have substantial benefits for the defendant doctor.
True, the plaintiff gets the protection of a “floor”, but the doctor gets the protection of a “ceiling”. This can be very significant for a doctor who would prefer to settle but is swept along in a case by a powerful co-defendant like a hospital that wants to continue, a doctor licensed in a state that institutes disciplinary proceedings based on high awards, or a doctor at risk of losing their insurance or having their premiums raised to an unaffordable level if a very large award comes in against them.
These agreements also help deflect the lack of inflation indexing in medical professional liability policies. Standard policy limits are often still at the $1 million/$3 million level that they have been for decades even though costs have sky-rocketed, increasing the risk of personal exposure for doctors as their policy terms become inadequate to actually cover actuarially-set awards to severely injured plaintiffs. A high-low agreement usually sets a cap no higher than the policy limit.
High-low agreements are really best understood as verdict insurance that both sides mutually take out against their worst-case scenarios, both accepting some potential loss as worthwhile against a far greater risk at the hands of unpredictable jurors.
How high-low agreements cross over with the National Practitioner Data Bank is often a point of concern for doctors, but that is due to confusion as to the process, so let’s look at that now.
Payments to satisfy a malpractice claim for liability are reportable to the Data Bank. If there is no high-low agreement and the doctor wins, there is obviously no payment. However, even if there is such an agreement and the doctor wins but has to pay the plaintiff there is still nothing to report. That is because the jury did not actually assign any liability to the doctor and so the payment to the plaintiff was not made in satisfaction of a malpractice claim. It was, instead, made under an independent contract between the doctor’s insurer and the plaintiff, and that is not reportable.
These agreements can be entered into any time prior to the verdict being reached but are not revealed to the jury during trial to preserve the integrity of their deliberations.
They are also usually not revealed to the judge to avoid influencing them. A critical exception, though, are cases involving minors and adult incompetents, where settlements will always be subject to judicial review. The agreement of the parents or guardian to the agreement is not enough – the judge must supervise the process. The judge will review the agreement to make sure that the plaintiff’s interests are adequately protected, and may also choose to name a guardian ad litem to advocate for the plaintiff. Since these agreements are of significant value to defendants in high-value pediatric injury cases, this point cannot be over-emphasized: if the agreement is found to be deficient by the judge then the large verdict that the doctor was hoping to avoid will click back in.
Now let’s look at some practical issues to consider when using a high-low agreement in your own case.
Will it be beneficial to you?
Most verdicts are for the defense, so if you have a good case and have done well in your own testimony you are probably best off taking your chances with a verdict. However, if your defense is weak or is very technical, or the plaintiff is very sympathetic while you have failed to establish rapport with the jury, then a high-low agreement is an option that you should consider.
The next step is to make an honest evaluation of how your coverage limits stack up against a likely verdict, taking into account that even on appeal actual future needs of the plaintiff will not be reduced.
If you and your attorney have, after evaluating all of these issues, decided that a high-low agreement is a worthwhile approach in your case, the next step is to set it up properly.
Cover possible outcomes
What if there is a deadlocked jury, a mistrial, a post-trial motion by a party outside the agreement asking the court to set the verdict aside, or even a granting of a motion for a new trial? The agreement should cover all of those possibilities.
It should also set out whether taxed costs, interest, and other sanctions are waived and should specify how attorneys’ fees and costs of litigation are to be handled.
Take the rules of the jurisdiction into account
If you are in a jurisdiction where the amount that a plaintiff has already been reimbursed through collateral sources like medical insurance is directly deducted from the verdict or settlement they receive, or one with a cap on damages, you must make sure that the agreement addresses these issues.
What you do not mention you will be assumed to have waived, so you must specifically include any elements that you want to claim as set-offs on what you have to pay.
Be careful to avoid illegal elements
A high-low agreement under which the outcome for one defendant depends on the outcome for the other defendant (for example, the doctor will pay $3 million if only he is found liable but only $1 million if the hospital is found liable as well) is fine.
However, “loan receipt” or “Mary Carter” (named for a case about a paint company) deals are illegal. In these, the plaintiff gets a conditional settlement in the form of an interest-free “loan” from the settling defendant and then releases them from the case, but the other defendants don’t know about that deal. They are inducements for defendants to be the first ones to break ranks but clearly disadvantage co-defendants who have not settled. Including such a deal will make the high-low agreement non-enforceable
Make sure to include operational specifics
Set a specific date by which payment must be made.
Include a stipulation to seal the court file.
Deal with any confidentiality and non-disparagement issues.
Include a merger clause
This will say that this is the complete and finalized agreement between the defendant and the plaintiff.
It is not done until it is written and signed
A handshake between the attorneys is not worth the paper it is not written on after the jury actually reveals its decision and one side realizes just how well it has actually done and wants to back out of the agreement. Since the agreement will not be part of the court record it must be committed to writing as the enforceable contract that you want it to be.
However, do not write it down too early.
Although these agreements can be entered into at any time before the jury actually delivers its verdict, they are supposed to come late in the process, after the trial has largely run its course. If you ever need a court to enforce such an agreement you want to be able to show that the trial process was not distorted by parties with hidden interests. It is therefore most prudent to do nothing formal in this regard until, at a minimum, all testimony is completed and, ideally, until both sides have delivered their closing statements. In other words, as both sides get a feel for how the trial is going they can begin to discuss options and even draft an agreement, but no binding agreement should be actually signed until the trial has significantly played through.
In summary: High-low agreements can provide significant protection for doctors facing a potential high verdict.
