Missouri doctors form new malpractice insurer

Department of Insurance Director Scott Lakin in March issued an operating license to Missouri Doctors Mutual Insurance Co., a St. Joseph-based malpractice insurer that includes State Rep. Robert O. Schaaf, a family physician, among its organizers. Schaaf, who is board chairman of the new firm, formed it with two other St. Joseph physicians under a special Missouri law that allows such firms to open without the typical capital investment.

The other two doctors, James F. Conant and Deborah Stoner (Bryan), are policyholders and will, by law, own the new company. Attorney Martin M. Bauman is the company's president and registered agent, according to an MDI news release.

Physician-organized firms, known as section 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.

According to the release, 383 insurers have no minimum financial requirements for two years and then they 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. Also, 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.

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

One 383 firm, Missouri Physicians Mutual, grew into one of the largest malpractice insurers in the state since it began writing policies in March 2003. 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, even though it was only active half of the year.