The Liability System and Medical Malpractice Insurance Issues

Litigiousness has become a societal problem in the United States. The tort system cost $254.7 billion in 2008 in direct costs, which translates into $838 per person, and many billions of dollars more in indirect costs, according to Towers Perrin’s most recent tort costs study.

U.S. consumers pay directly for the high cost of going to court through higher liability insurance premiums because liability insurance rates reflect what insurance companies pay out for their policyholders’ legal defense and any judgments against them.

And they pay indirectly in higher prices for goods and services since businesses pass on to consumers the expenses they incur in protecting themselves against lawsuits, including the cost of commercial liability insurance.

Beginning in the 1980s, in an effort to reduce litigation costs, business groups and others mounted a campaign to reform tort law. Tort law is the basis for the U.S. liability system. Most reforms have taken place on the state level and during the last decade all but a handful of states passed significant tort law reforms.

However, some have been overturned by the courts. Many reform efforts have focused on medical malpractice issues. Medical malpractice insurance covers doctors and other professionals in the medical field for liability claims arising from their treatment of patients.

The cost of medical malpractice insurance began to rise in the early 2000s after a period of essentially flat prices. Rate increases were precipitated in part by the growing size of claims, particularly in urban areas.

Among the other factors driving up prices was a reduced supply of available coverage as several major insurers exited the medical malpractice business because of the difficulty of making a profit. New research suggests that premium increases may be moderating but, for any significant turnaround to take root, major reforms in the delivery of medical care that focus on patient safety need to occur, industry observers say.

State Tort Reform Issues

Caps in Noneconomic Damages: According to the National Conference of State Legislatures, 30 states, the Virgin Islands and Puerto Rico limit jury awards in malpractice cases. In the past few years, a number court have ruled against such limits.

In Georgia, the Supreme Court ruled that a 2005 state law that limited jury awards for pain and suffering in malpractice cases to $350,000 improperly interfered with a jury’s duty to determine damages in a civil lawsuit.

In the decision Chief Justice Carol Hunstein said that limits in any amount violate the right to trial by jury. In Illinois, the Supreme Court overturned the state’s 2005 medical malpractice statute, which capped noneconomic (pain and suffering) medical malpractice awards at $500,000 in lawsuits against physicians and $1 million for hospitals.

The court ruled that the law violated the state’s constitutional principle of separation of powers in that lawmakers had made decisions that should be made by judges and juries. Some states, such as Maryland, are deciding to retain their caps when challenged.

Arbitration: To keep small disputes out of the courts, insurers are increasingly turning to arbitration. The nation’s largest arbitration provider, nonprofit Arbitration Forums, resolved more than 520,000 inter-insurance disputes in 2009 valued at $2.5 billion, for a savings in litigation costs of $700 million.

Disputes leading to arbitration typically arise when insurance or self-insured companies believe their policyholders or employees are not at fault or due to disagreement over the percentage of liability or the amount of damages. More than 85 percent of these disputes involve auto collisions.

Tort Liability Environment: In December 2009 the American Tort Reform Association (ATRA) released its annual list of states and counties characterized as “Judicial Hellholes,” places with courts that have a disproportionately harmful impact on civil litigation.

ATRA explains that personal injury lawyers seek out these places as targets for their efforts to expand liability and develop new opportunities for litigation. ATRA’s newest list includes six Judicial Hellholes, including holdovers South Florida; West Virginia; Cook County, Illinois; and Atlantic County, New Jersey, and New Mexico appellate courts and New York City, which are new on the list.

ATRA highlights several reforms that can help restore balance to these jurisdictions. They include stopping venue shopping (looking for jurisdictions where juries are favorable to plaintiffs), imposing sanctions for bringing frivolous lawsuits, stemming abuse of consumer laws, ensuring that noneconomic damage awards serve a compensatory purpose, and strengthening rules to promote sound science in the courtroom.

Location: Indonesia