Tuesday, November 30, 2004

Post Mortem...
From today's Wall Street Journal ($):In Malpractice Trials, Juries Rarely Have the Last Word
Earlier this year, a New York state jury awarded Elizabeth and John Reden $112 million in a medical-malpractice case filed on behalf of their brain-damaged daughter.

But the Redens didn't get $112 million. They got $6 million.

In the debate over medical-malpractice lawsuits, multimillion-dollar verdicts have become an important rallying cry for advocates of legislation to curtail jury awards. From emergency rooms to state houses to the White House, the advocates point to the heavy cost of large malpractice awards.

Behind the big dollar numbers, the reality is more complex. Many plaintiffs settle for less than a jury's verdict, to eliminate delays and the uncertainty of appeal. Sometimes, even before a jury rules, a plaintiff has signed an agreement that limits how much money actually changes hands.

The Redens, for example, hedged the outcome of their case through a common device known as a "high low" agreement. No matter what the jury ruled, the two sides agreed to settle for between $2 million and $6 million. Such agreements protect plaintiffs from a lengthy appeals process and typically set the top end of any potential award close to the limit on the physician's insurance policy.
On reason the do this is because the plaintiffs do not want a protracted appeal process that can delay payment, especially if the verdict exceeds the policy limits. Going after a physician's personal assets can be time consuming and expensive.
So why do the big judgments matter if they are reduced? The high judgments themselves can "raise the bar" for settlements:
Proponents of tort reform acknowledge that verdicts for plaintiffs are often reduced to amounts that are kept confidential. But even if the headline-grabbing numbers are never paid out, proponents of limits say, big jury awards create benchmarks that raise the costs of future settlements.

"The verdict amount for a given case sets the bar for the value of that type of case during future settlement negotiations on similar cases," says Lawrence E. Smarr, president of the Physician Insurers Association of America, which represents physician-owned or operated companies that insure an estimated 60% of the nation's doctors.
The reduction of an award can sometimes be dramatic:
But Neil Vidmar, a Duke University law professor, and colleagues of his there and elsewhere have come up with estimates based on studies in several states. After examining a pool of 105 malpractice verdicts from 1985 to 1997 in the New York City area, they found that 44% of jury awards were reduced after the verdict. The eventual payments to plaintiffs were, on average, 62% of the awards. Prof. Vidmar says this estimate is "very conservative" because the data he looked at covered only a short time after the verdict. Had the time been longer, he says, the study would have likely found that more of the awards had been reduced.

Prof. Vidmar also found that the larger the award, the steeper the discount. Large malpractice verdicts in New York were typically reduced to between 5% and 10% of the original verdict amount. One case with a total award of $90.3 million settled for $7 million. Another award, for $65.1 million, was reduced to $3.2 million.

My insurance carrier, MAG Mutual, prides itself on their aggressive defense of a suit, but sometimes pride goes before the fall:
Emboldened by this success, insurance companies are often willing to roll the dice with a jury. This happened two years ago during a trial in Lenoir County Superior Court, in eastern North Carolina. In that case, the family of John Waters, a 66-year-old retired manufacturing worker, sued Kinston surgeon Wayne T. Jarman and others. Dr. Jarman allegedly misdiagnosed Mr. Waters's ruptured appendix, then went on vacation without making arrangements to monitor the man's condition. Seven weeks later Mr. Waters died, and his family filed suit.

Dr. Jarman denied the allegations, and the Waters family offered to settle the case for as little as $250,000, says Bill Faison, the Waters' attorney. But Dr. Jarman's insurance carrier, Atlanta-based MAG Mutual Insurance Co., refused.

MAG is one of the largest physician-owned malpractice insurers in the Southeast, and a leading proponent of tort reform. One piece of legislation it successfully opposed earlier this year was the Georgia Sunshine in Litigation Act, which would have made it difficult for insurers like MAG and others to keep medical-malpractice settlements confidential.

MAG is also highly successful in the courtroom. Last year, says the company, it won 84% of its trials. In court filings, the company acknowledged that its highest offer to Mr. Faison on Dr. Jarman's behalf was $75,000.

Mr. Faison rejected that offer and the case went to trial. After three weeks of testimony and two hours of deliberation the jury awarded Mr. Waters's family $4.5 million. This was the largest medical-malpractice verdict involving a physician in North Carolina in 2002, according to North Carolina Lawyers Weekly, a legal publication based in Raleigh.
Oops!. This may serve as ammunition for the foes of tort reform as they can point out that the massive awards that are raised like bloody shirts are reduced. My argument would be that any award that equals or exceeds coverage limits is massive enough. The crisis is not seen in the 2 percent of medical costs made up of malpractice awards, it is in the individual practicioner who can't afford their liability coverage.
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