You can lose personal assets in a lawsuit

As the author of asset protection books for physicians and as a lecturer at many medical meetings across the country, I encounter many misconceptions about asset protection planning. The most important is that physicians don't lose assets in medical malpractice lawsuits.

The thinking of many physicians and, often, their advisers is that physicians are at little to no risk of losing their personal assets in malpractice claims, especially if they have the typical $1 to 3 million malpractice insurance coverage.

The benefit of engaging in this type of planning so far outweighs the cost that even if the risk of such a financial catastrophe is extremely small, it is still well worth the time and effort to move forward with the planning.

Reliable data on the number of physicians who lose personal assets in malpractice actions is very difficult, if not impossible, to obtain. That is because the legal system publishes filed cases and judgments rendered, but they do not publish the collections of those judgments.

Any lawyer can consult his or her own local litigation reporter and see on a monthly, quarterly, or annual basis what the medical malpractice judgments in his location were, but published reports of what happens once a judgment is rendered are nonexistent. 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? The answers to these questions do not exist in the published materials.

As a lawyer who practices in New York and California, I review weekly reporters that include dozens of malpractice actions decided in both states. Most decisions are for the physician defendant, some are small judgments for the plaintiff, and a few are very large judgments for the plaintiff. 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 the plaintiffs in these cases will walk away from very large judgments and will settle for the malpractice insurance coverage. Let's look at a couple of reasons why this may not be so.

Payments, not evictions

A common theme in speaking to physicians and their advisers on this topic is that they don't personally know of anyone losing their home; therefore, the conclusion is that it doesn't happen. And, like them, I have not heard of a physician losing his home outright or being evicted by a lawsuit plaintiff.

While evictions may not occur, the plaintiffs may file liens on real estate, levy bank accounts, or put liens on them or on any other assets to the amount of the judgments owed to them. The goal is not to kick the physicians out of their homes, but to make them take loans against the homes to pay off the excess judgments. This, I can assure you, happens with great regularity.

When researching this article, I e-mailed all members the Wealth Protection Alliance, a network of physician advisory firms, and asked them to give me anecdotal stories of physician clients who had been successfully sued for large judgments. They responded with more than 20 stories of advisers whose clients had been sued successfully. In all cases, the judgments had been beyond coverage limits, and the plaintiffs had gone after the doctors' assets. In all cases, the physicians were forced to take loans against assets, liquidate retirement accounts, and sell various assets to pay off the judgments.

Consider this real-life example: I had a couple come to see me 3 years ago. He was a plastic surgeon and she was an OB/GYN. They consulted with me and I made a number of recommendations for tax, estate planning, and asset protection. While they implemented some of the planning, they did not choose to do anything to protect their home, which at the time had more than $1.5 million of equity.

I received a call from the plastic surgeon nearly a year ago. He said that his spouse had just been successfully sued and that the judgment rendered against her was $4 million, $2 million more than her personal malpractice coverage. There was nothing else I could do to help them, since the judgment had already been handed down.