Hospitals and physicians in Ohio are scrambling to procure liability protection as the state's largest malpractice insurer teeters on the brink of liquidation.
The company is Cleveland-based PIE Mutual Insurance, which provided malpractice insurance to 15,000, or one-third, of Ohio's physicians before the Ohio Department of Insurance took it over on Dec. 13. Since then, PIE has stopped writing new policies.
The insurance department has declared PIE insolvent, and blame is being cast on three former executives. On Jan. 9 the department filed suit in Columbus, Ohio, against the three to recover $11.5 million from what the department called "unauthorized employment contracts."
The insurance department is seeking the restitution to PIE of $5.8 million from Larry E. Rogers, the company's former president and chief executive officer; $3.6 million from James M. Marietta, former chief financial officer; and $2.1 million from Warren Udisky, former chief legal counsel. Rogers, Marietta and Udisky have yet to respond to the lawsuit.
The insurance department says the three men received the money on or about July 29 without the approval of PIE's board, which fired them on Dec. 13.
The insurance department has until March 15 to decide whether to rehabilitate or liquidate PIE, says Ohio insurance department spokeswoman Terri Leist, though she says she doubts it will take that long for the decision to be made.
As part of the rehabilitation complaint filed by insurance superintendent Harold Duryee, the company also is accused of inflating its 1996 collections by at least $51 million. The company reported a $65 million surplus in 1996, but regulators have said it's more likely PIE had a deficit of about $34 million.
One rating firm, A.M. Best, has lowered PIE's rating four times since June 1994, culminating with a "D" (poor) rating issued in December.
Napa, Calif.-based insurer The Doctors Company in December signed an agreement with PIE in which the company will take on the Ohio firm's physicians when their policies expire. However, Leist says that agreement doesn't allow PIE client doctors to break their agreements or get their premiums refunded for switching to The Doctors Company. The insurance department is examining contracts and premiums as part of its review of whether PIE can stay in business.
Some doctors are switching even if they have to pay another premium. Meanwhile, some Ohio hospitals are proposing that doctors who practice with them be required to have malpractice insurance with a company rated "A," or "excellent."
Motivating such proposals is the fear that hospitals will end up being on the hook for paying malpractice claims if PIE can't afford to pay them. In at least one case, which includes Cleveland's University Hospital as a defendant, two of the three physicians involved were dropped from the lawsuit because they were insured by PIE.