Although tort liability is supposed to encourage health care providers to reduce the riskof patient injuries, medical malpractice insurance is thought to dampen this deterrenteffect by insulating physicians from the costs of claims. The degree to whichmalpractice insurance protects physicians from these costs has never been quantified,however, and the oft-heard claim that every physician is “one lawsuit away fromfinancial disaster” suggests that doctors face significant exposure in malpracticelawsuits, despite being insured. This study quantifies the frequency with which insuredphysicians pay out of their own pockets to satisfy malpractice claims. Using TexasDepartment of Insurance data on closed medical malpractice claims for 1990-2003, wefind that claimants frequently received the available primary coverage and rarelyrecovered more. Physicians almost never used personal assets to cover paid claims. Inaddition, we find that even though Texas physicians with paid claims purchased lessreal coverage over time, claim rates and average payments remained relatively stable