Don't Overlook the 702(e) Release

How many of us have been in this situation. You have a good damage case and a decedent argument on liability. The primary carrier for the doctor has tendered to the CAT Fund. The trial is two weeks away, but you are getting nowhere fast with the Fund. You’re upset and so is defense counsel because you both believe that the CAT Fund ought to be putting more money on the case. Your client would like to avoid the risk of getting zero at trial, but you do not think the amount offered thus far is fair or adequate.

If you ever find yourself in this quandary and think you have no option but to endure the frustration caused by the CAT Fund’s intransigence, think again. In particular, think about Section 702(e) of the Health Care Services Malpractice Act, 40 PS §1301.702(e). That provision, first included in the original Act from the 1970s and now re-codified in the new MCARE statute at §714(e), states the following:

“(e) Releases. – In the event that a basic coverage insurer enters into a settlement with a claimant to the full extent of its liability, it may obtain a release from the claimant to the extent of its payment, which payment shall have no effect upon any claim against the fund or its duty to continue the defense of the claim.”

What this means is that the plaintiff and the primary carrier can cut their own deal and, at least to some extent, get around the road block set up by the Fund. In plain English, 702(e) says that the primary carrier can pay its limits to the plaintiff, and thereafter the plaintiff can try the case for the CAT Fund’s money. Obviously, that can be an attractive proposition to the plaintiff. You not only get to put some money in your client’s pocket and thereby eliminate the ‘sting’ of a defense verdict, but you now have cash to fund the balance of the case. In fact, it seems so attractive to the plaintiff that you may ask yourself, “Why would the primary carrier ever agree to this?” Here is why. Because the defense lawyer and his doctor are concerned about the possibility of an excess verdict. Thus, if the plaintiff is willing to release the doctor of any responsibility for the portion of a verdict above CAT Fund limits, the primary carrier has tremendous incentive to make the deal available to plaintiff’s counsel.

There are some caveats to note, however. From the plaintiff’s standpoint, a 702(e) release, tempting as it may be, should be avoided in those cases where one believes the case has a legitimate shot at a verdict above CAT Fund coverage and the doctor has assets that would be subject to execution. That later circumstance may be the more rare of the two, because there are not many cases where the plaintiff stands a good chance of executing on the doctor’s assets. Nevertheless, it is a consideration that might cause one to resist a proffered 702(e) release.

From the doctor’s standpoint, the only reservation is this: Even with the release, he still has to show up at trial and withstand all the tension and/or inconvenience that ordeal may create. Furthermore, he/she must be prepared for the possibility of a plaintiff’s verdict and any adverse publicity or notoriety that might surround it.

By the way, if you are wondering whether or not there is anything the CAT Fund can do to prevent the plaintiff and the defendant from signing a 702(e) release, the short answer is “No.” The statute is pretty clear that the right to pursue this sort of settlement exists and the CAT Fund has no standing to object. Admittedly, the signing of such a deal might strain the relationship between the Fund and the primary carrier, the feeling being that the defendant, in effect, “aided and abetted” the plaintiff by funding his case, but defense counsel and the carrier realize that their first obligation is to the insured, so the prospect of offending the Fund should provide no disincentive.

One final thought on the 702(e) release. Although this settlement option has not been pursued with great frequency in the past, it should be more attractive now since mandated coverage levels have increased so substantially. Up until the late 1990s, the primary carriers only had $200,000.00 of coverage within their control. Starting in 1997, however, the mandated limits of basic coverage have increased by $100,000.00 every two years up to the current required level of $500,000.00. Thus, there is potentially much more money that can be transferred to the plaintiff via this option than in earlier years. Again, in the right case, that makes the 702(e) release even more attractive.

So the next time you are afflicted with a bad case of the “CAT Fund blues,” think about whether a 702(e) release might soothe your pain. In the right case, and I emphasize it must be the right case, it might just do that.