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California med mal cap increase may have wider influence

med mal

Insurers, defense attorneys and the plaintiffs bar generally welcomed an incremental increase in California’s cap on medical malpractice awards that went into effect last month, and some said it could be a basis for tort reform in other states.

While the Modernized Medical Injury Compensation Act will increase health care providers’ loss costs and lead to higher medical liability insurance rates in the state, the compromise legislation replaced a ballot measure that could have led to significantly higher awards, insurance industry experts say.

Some experts, though, say the law could have unforeseen financial consequences and encourage a more aggressive plaintiffs bar.

The law, often referred to as Assembly Bill 35, amended the 1975 Medical Injury Compensation Reform Act. That earlier measure, which was groundbreaking when it was enacted, needed updating in light of its $250,000 cap on noneconomic damages.

The new law raised the cap on noneconomic damages to $350,000 in non-death cases and $500,000 in wrongful death cases. The caps will increase incrementally over 10 years to $750,000 and $1 million, respectively, and will be subject to a 2% annual inflationary increase thereafter.

The law also establishes separate categories for contingent attorneys fees: 25% for settlements executed before filing a civil complaint or demand; and 33% for recovery under settlements, arbitrations or judgments after a civil complaint or arbitration demand.

Passage of the law was supported by insurers, medical associations and consumer groups. 

“It was actually a relatively reasonable compromise,” said Gisele Norris, San Francisco-based managing director, U.S. national healthcare practice, for Marsh LLC.

“They did a decent job” in creating legislation that does not have a huge immediate impact, said defense attorney Paul W. Pitts, a partner with Reed Smith LLP in San Francisco.

Deepika Srivastava, East Lansing, Michigan-based executive vice president at med mal insurer The Doctors Co., said that because economic damages will increase in only modest increments, it will be easier for insurers to handle the expected increase in frequency and claims.

The changes are “knowable and quantifiable and predictable,” said Mia Lathrop Winter, of counsel with Wilson Elser Moskowitz Edelman & Dicker LLP in San Francisco.

The Sacramento-based Consumer Attorneys of California said in a statement last year after the legislation was agreed upon that it “updates California’s Medical Injury Compensation Act of 1975 to prioritize patients’ access to justice and quality health care.”

But some say the law is still detrimental to the health care sector.

“It was a compromise” but “still a negative for the medical community,” said Rob Francis, Birmingham, Alabama-based executive vice president, health care professional liability, at med mal insurer ProAssurance Corp., pointing to the expected increase in claims frequency and severity.

Chad Follmer, health care practice leader at Woodruff Sawyer & Co. in San Francisco, noted that plaintiffs attorneys who persist in their cases rather than settle before suing will see their compensation increase, which may lead “to some wacky numbers if this really gets out of control.”

In light of the potentially higher contingency fees, “It may now be more economically feasible for plaintiff attorneys to take on malpractice cases,” which typically require expensive expert witnesses, said Paul R. Baleria, a partner with Lewis Brisbois Bisgaard & Smith LLP in Sacramento.

Insurers may respond to the law by either limiting their exposure in the state or by focusing on large health care systems, said Joshua B. Rosenberg, a partner with Barnes & Thornburg LLP in Los Angeles.

Many believe the law will be influential elsewhere. The 1975 law has “always been held up as a model,” and if states are considering tort caps, they may look to the new law, Ms. Norris said.

Dan Ryan, senior director at Oldwick, New Jersey-based A.M. Best Co. Inc., said, though, “We think the states themselves will continue to unilaterally decide what’s best for their state in order to keep their health care system functioning efficiently.”

James Irvin, Sacramento-based senior vice president and director of healthcare, Pacific Series, for Lockton Cos. LLC, said there is already pressure in several states to increase caps.

The law may lead to wider rate hikes as insurers that operate in California that have exposures in other states seek to ensure they have sufficient capital and surplus, said Peter Reilly, Springfield, Pennsylvania-based practice leader and chief sales officer of Hub International Ltd.’s North American healthcare practice.

“We don’t know how far these ripples will go,” he said.