At a social gathering, a PAR insured’s producer got into a discussion with a plastic surgeon. The doctor mentioned his desire to reduce the premium for his medical malpractice coverage.

The producer subsequently sought and obtained three quotes. With an eye to savings, the surgeon selected the lowest bid, despite the producer’s verbal explanation that, in the event of an insolvency, the state’s guaranty fund would not apply. This caution was never put into writing to the doctor.

Initially, the medical malpractice risk retention group earned an “A” rating from A.M. Best, but it became insolvent a year-and-a-half later. After the insolvency, two women brought an allegation of malpractice against the surgeon. They had had the same facial procedure and were not happy with the results.

The plastic surgeon paid the two women approximately $240,000 and then sued for reimbursement from the insurance agency, stating the producer had not described the inapplicability of the guaranty fund. The doctor subsequently established a lucrative face cream business, and after several years had passed, decided to drop the lawsuit. The PAR insured firm and PAR were left with more than $50,000 in legal expenses.