The facts for this post are from the following case: Medical Protective Co. v. Bob Herrin, (Tex. App. 2007)
We're holding two upcoming webinars: An Introduction to Captive Insurance on Thursday, July 28th and Commercial Real Estate Companies and Captives; a Natural Fit, on Thursday, August 4th. You can sign up for each at the following respective links: here and here. We formed and operate the first series LLC in Montana (named Aegis) for captive insurers. Several other firms provide key services such as accounting, audit and actuarial work. Please contact us at 832.330.4101 if you'd like to discuss forming a captive for your company Dr. Bob Herrin was a practicing physician in Marshall, Texas for approximately 50 years. For 40 of those years, Medical Protective provided his malpractice insurance. In 1994, Dr. Herrin settled a $300,000 malpractice case. Two years later, Medical Protective declined to renew the doctor’s liability policy. The case’s facts do not offer a reason for the denial. How a captive would have helped:
Let’s look at this situation from several perspectives. Using the facts stated above, assume that Dr. Herrin formed a captive 1 year before the suit was filed. The doctor could have taken the first layer of risk with the captive paying $100,000 (or another amount) and the insurance company paying $200,000. When the doctor renewed his policy, he could have told his third-party insurer that he’d like to continue writing a large deductible, which may have increased the likelihood of a renewal. Next, assume the doctor formed the captive 10 years before the lawsuit. At first, the captive took the first layer of risk – say, $100,000. Then, after the captive built-up some capital, it increased the deductible to $250,000 or higher – again, a fairly standard captive fact pattern. In this situation, the captive may have paid the entire claim, which would increase the likelihood that the third-party insurer would renew the policy. No matter how you look at this fact pattern, a captive would have helped. If you’d like to discuss forming a captive, please call us at 832.330.4101.
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