They Could Have Used a Captive: Doctor Bob Herrin

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:

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.