The facts for this post are from the following case: Medical Protective Co. v. Bob Herrin, (Tex. App. 2007)
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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.