Mo. Doctors Form Third Med-Mal Insurer

Physicians have formed their third medical malpractice insurer under a special Missouri law that allows such firms to open without the typical capital investment.

Department of Insurance Director Scott Lakin last week issued an operating license to Missouri Doctors Mutual Insurance Co., a St. Joseph-based concern that includes a state House member among its organizers.

State Rep. Robert Schaaf, a family physician, will serve as board chairman of the new firm, which he formed with two other St. Joseph doctors, James Conant and Deborah Stoner (Bryan); policyholders, however, will own the company by law. Attorney Martin Bauman is the company’s president and registered agent.

The company is the eighth new entry into Missouri’s medical malpractice market in the past year, although not all those companies are actively marketing. The state experienced severe capacity problems and rising rates after several national malpractice insurers withdrew from the business or became insolvent in 2001 and 2002; insurers nationwide have reportedly been reluctant to invest capital to expand their malpractice portfolios and fill those voids.

The physician-organized firms, known as “383 companies,” take advantage of Missouri laws that allow three professionals to form mutual – or policyholder-owned – liability insurers without the minimum $1.6 million required to license a casualty insurer that sells medical or other types of malpractice coverage.

One 383 firm – Missouri Physicians Mutual – grew into one of the largest malpractice insurers in the state since it began writing policies last March. The St. Louis-based firm sold $18.9 million in 2003, or the fourth-largest total for physician coverage in Missouri. The third 383 company – Physicians Professional Indemnity Association, based in Poplar Bluff and Jefferson City – wrote $938,833 in coverage in 2003, although it was active only half the year.

A fourth 383 firm – the Missouri Hospital Plan, formed by Missouri Hospital Association members – focuses on large medical facilities, but writes a few hospital-employed physicians.

“We are pleased by the resourcefulness of physicians who are working to fill the unmet demand for affordable coverage in Missouri,” Lakin said. “However, we also continue to educate physicians about the limitations on these firms compared to regular commercial carriers.”

The 383 insurers have no minimum financial requirements for two years and then have three years to meet solvency standards. If a 383 company runs a deficit or becomes insolvent, the policyholders must pay an assessment in addition to their premiums. In such cases, physicians could have responsibility for paying all or part of their own legal defense costs and any judgments.

These 383 companies are not covered by the state’s guaranty association, which pays claims up to $300,000 if a company becomes “insolvent,” or the insurance equivalent of “bankrupt” because it cannot reliably pay claims.

After 1986 difficulties in the medical malpractice market, several 383 companies began operations in Missouri. Those that survived reportedly became so successful that they evolved into commercial carriers or sold their business to regularly licensed companies. By 2002, only the Missouri Hospital Plan remained as a 383 operation.