Insurer's exit is sign of ailing malpractice market. (St. Paul Companies).

St. Paul Companies' exit from the medical malpractice insurance market dramatically demonstrates the need for federal tort reform legislation, some observers say.

The insurance firm's decision will end coverage for 42,000 physicians, 745 hospitals, and 73,000 other health care workers, a company spokeswoman said.

In a mid-December announcement, St. Paul cited lack of profitability as the main factor in its decision. The company reported a $940 million loss in its medical malpractice business for 2001.

St. Paul's departure will take about 18 months; mailed nonrenewal notices will warn policy holders that they must change insurers to avoid a lapse in coverage.

The announcement could spell more trouble for physicians, who are already concerned about continuing increases in malpractice insurance premiums.

"Because of the sky-high cost of professional liability insurance, physicians are closing or limiting their practices, some have stopped delivering babies, and some are even going without professional liability insurance," Dr. Donald J. Palmisano, secretary-treasurer of the American Medical Association, said in a statement.

St. Paul's decision was not a surprise for insurance industry observers. The move reflected the general state of the market and the company's own track record, experts told this newspaper.