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Effect of a Physician’s Bankruptcy on Medical Malpractice Awards

It is not unusual for successful medical malpractice claims to result in large judgments against physicians. Generally, the patient will be able to collect the award at least up the limits of the physician’s malpractice policy. However, if the policy is for less than the amount of the judgment or if the physician did not have malpractice insurance, the physician may be personally liable for the remainder, forcing him or her to declare bankruptcy.

Federal statutes discharge most debts of a bankrupt individual in order to permit him or her to make a fresh start. Certain debts are exempt from discharge, including debts that arise from intentional torts. Thus, the question to be answered is whether a debt arising from a medical practical claim against a physician is based on an intentional tort, thereby surviving the bankruptcy, or whether the debt is discharged, leaving the patient and his or her family out of luck.

As recently as 1998, the United States Supreme Court finally answered the question, concluding that damages awarded for professional negligence are dischargeable in a defendant’s later bankruptcy. This determination was based on the Court’s interpretation of the word “willful” in the statutory language that excepted from discharge debts for willful and malicious injury by the debtor to another entity or to the property of another entity. The Court concluded that because “willful” modified “injury,” nondischargeability took a deliberate or intentional injury, not just a deliberate or intentional action that led to an injury. Therefore, a patient’s claim that he or she was injured by the deliberate conduct of a physician who intentionally chose a less effective treatment was not sufficient to permit its inclusion in the category of nondischargeable claims. By the words of the statute, Congress demonstrated its desire to limit nondischargeability to intentional torts where the actor intended not just the conduct but the consequences of the conduct. An interpretation of the statute as prohibiting the discharge of debts resulting from an action that was intentional but from an injury that was unintentional would expand the statute beyond the congressional intent.