Almost 2,500 doctors who bought medical-malpractice insurance policies of $2 million or more from the state's largest malpractice insurer in 2003 will receive refunds under an order announced today by the state insurance commissioner.

Physicians Insurance and its affiliate, Western Professional Insurance, must refund more than $1.3 million plus interest on excess premiums charged. They also must pay a fine of $90,000. The order said the companies used rating factors to set premiums that had not been filed with the Insurance Commissioner's Office, as required by law.

Gary Morse, Physicians Insurance's senior vice president and general counsel, said the company agreed with the order and considered the fine reasonable. "We have to be accountable for the mistake we made in our paperwork," he said. "This is the appropriate thing."

The order by the insurance commissioner, however, described the company's errors as "numerous and widespread operational issues which reflect serious insurance-code compliance issues."

"It's not a paperwork mistake," Deputy Commissioner Beth Berendt said.

In the order, Physicians Insurance agreed to hire staff and consultants with proper expertise to address and correct code-compliance problems. Berendt stressed that the problems don't put the company in financial jeopardy. "The company is financially sound," she said.

Morse said the refunds will range from $1 to $4,681 each. The doctors should received them within 30 days.

"By entering into this agreement, we believe the executive management and board of directors of Physicians Insurance are fully committed to improving their compliance," said Insurance Commissioner Mike Kreidler. "We will continue to monitor their progress and have already observed positive steps toward improvement."

Carol M. Ostrom: 206-464-2249 or costrom@seattletimes.com