U.S. CAPTIVE INSURANCE LAW
  • Welcome
  • Basic Information
    • Who Should Form a Captive?
    • Convert To A Pure Captive
    • How We Work
  • Following the Rules
    • Introduction to Anti-Avoidance Law
    • Substance Over Form
    • Sham Transaction
    • Step Transaction Doctrine
    • The Economic Substance Doctrine
  • Articles
  • Blog
  • About US

They Could Have Used a Captive: Doctor Bob Herrin

7/25/2016

0 Comments

 
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:

  1. For a medical malpractice captive, it’s standard to write a large deductible, essentially turning the third-party coverage into an excess policy.  Here, the insured could have written a deductible of at least $100,000 and probably more. 
  2. It’s also standard to increase the deductible as the captive accumulates capital.  For example, in years 1-3, the captive underwrites the first $100,000 of risk.  Then, in year 4, that amount increases of $250,000. 

  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.  
 
        

0 Comments



Leave a Reply.

    Archives

    April 2019
    March 2019
    February 2019
    January 2019
    November 2018
    October 2018
    September 2018
    August 2018
    October 2017
    September 2017
    August 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016

    RSS Feed

  • Welcome
  • Basic Information
    • Who Should Form a Captive?
    • Convert To A Pure Captive
    • How We Work
  • Following the Rules
    • Introduction to Anti-Avoidance Law
    • Substance Over Form
    • Sham Transaction
    • Step Transaction Doctrine
    • The Economic Substance Doctrine
  • Articles
  • Blog
  • About US