Posted On: March 20, 2006, 2:46 pm CST

Posted By: Linda Fermoyle Rice

This is my last comment. I am willing to concede that insurance defense costs are probably going up. The cost of everything goes up over time. And, insurance companies are litigating cases that previously would have been resolved at an earlier point in time by settlement than occurs now, which invariably means that there will be greater defense costs.

Frankly, I can't figure out why med mal insurance isn't profitable. It certainly should be, at least in California. There has been a $250,000 cap on non-ecoomic damages for 30 years. Economic losses track the increase in wages and health care. In addition to this cap, carriers which used to write medical malpractice policies for $5 and $10 million rarely offer more than $1 million in coverage. With the median-priced home in Los Angeles County now valued at almost a half million, the liability limit is ridiculously low.

So if, for example, if I represent a child who was severely brain damaged because the obstetrician who was called in by the hospital to perform an emergency C-section because the fetal monitor strip showed the baby was in trouble didn't arrive at the hospital for more than three hours because he was at dinner, the cost of care to that child over his or her lifetime will likely be in excess of $10 million.

The doctor only has a million dollars in coverage. Unless the doctor is also independently wealthy, most lawyers will make a policy limits demand to the defendant. That means the case will settle for the $1 million, if the doctor and the carrier agree to pay it. If they do not and the case goes to trial, the carrier will be on the hook for the entire verdict.

It is generally only when the insurance companies decide to roll the dice on a case with damages in excess of the insurance policy limit that it can get tagged for more than $1 million - at least in this state.

Furthermore, the number of medical negligence cases is falling - not, unfortunately, because there is less medical malpractice, but because the economics of these cases make less and less sense as time further erodes the value of the $250,000 cap. If a child dies because a nurse mistakenly gives him 100 times the dosage of medication ordered by a doctor, the most the family can recover is $250,000 - since that child has little or no economic "value." Today, the costs paid to experts, court reporters, the filing fees and other costs associated with such a case can easily exceed $50k before trial and twice that amount if the case goes to trial. It's hard to justify putting $100,000 at risk when the most you can cover on behalf of the client is $250,000 - an amount, by the way, the carrier will never pay in settlement, since that's the most they could possibly lose at trial.

I tend to think insurance companies are making a profit in med mal. Most got into trouble because they were vying for market share during the '90's, when their stock portfolios were performing so well. Prices were kept artificially low during that decade. When the stock market tanked, the insurers had to boost earnings and realized that this product was not priced appropriately. So, instead of raising rates 3-7% per year during the '90's, the carriers raised rates 50-100% and declared a medical malpractice insurance crisis. We've seen this all before - every time the stock market takes a dive.

Overall, insurance profits are up dramatically. I don't think we have to worry too much about the carriers or the agents who sell their products.