Tort Laws Complicate Malpractice Insurance

Daily Observer

December 13, 1976

As of February 1, 1977, the carrier for malpractice insurance for the physicians of the state of New Jersey will drop their coverage and, unless stopgap measures are established to insure doctors, there will be no malpractice insurance available. Without malpractice insurance, no physician will be able to practice medicine without risking his home, automobile, holdings and future earnings. Clearly an impossible situation.

The Medical Society of the State of New Jersey voted to establish its own insurance company at the meeting of the House of Delegates, December 1, 1976.

The public is largely uninformed about malpractice insurance. In fact, physicians are largely uninformed about malpractice insurance. Because so many facts are hidden, little in this article will be enlightening. There are, however, a few things that the public should know.

Perhaps most important is that no carriers in the nation are willing to carry malpractice insurance. The reason for this is that tort law, that which requires compensation for damages, has become open ended. The statute of limitations has stretched like a rubber-band, so that an insurer has no way of figuring how many years ahead it must plan, or how much escrow money should be set aside for a suit in 1986 for injuries incurred in 1976. Awards have become astronomical and seem to be on the increase, so that again, the assurors have no way of making estimates for the future.

In other words, the possibility of indemnity has become infinite, compared to the finite amount of insurance premiums that can be collected from the doctors in any given year.

Unless tort law is changed so that insurance companies can make valid estimates of future losses, there will be no solution to the problem. The statute of limitations must be defined within reasonable limits, and the court awards must be also defined at certain maxima.

For instance, if a person wins a malpractice award for $1 million, and within a year has died of causes unrelated to the malpractice incident, his heirs inherit the award. One corrective would be for the award to be paid during the lifetime of the plaintiff and to end with his death.

The insurance companies are in the business to make a profit, and surely would continue if they could see their way clear. But under present circumstances, they can’t establish a data base for future payouts, and with this degree of unpredictability, they would just as soon back out of the business altogether.

The insurance companies are not entirely blameless, however, because they lost much of their monetary reserves in the stock market crash between 1972 – 1975. If they couldn’t predict the stock market shambles with real information staring them in the face, it certainly is asking too much of their clairvoyance to predict the future in which no hard data is available. That insurance companies should be allowed to gamble premiums in so questionable an investment as the stock market is something the Insurance Commissioner (who is supposed to guard our premiums) should certainly look into. But he won’t because he is wedded to the fiction that the stock market is a mirror of the health of capitalism, when in reality, it is a horse race. Insurance companies should be severely restricted with respect to the quality of investments it is allowed to make with our money.

Although the New Jersey Medical Society is going to try to go into the insurance business, its forte is medicine, not insurance, and there is no reason to expect it to succeed where others have failed. This is particularly true since it has no information on which to make calculations.

It is absolutely impossible to find out from the insurance companies exactly how much money was awarded in malpractice claims in any given year. The information is simply not available. The Malpractice Commission of the HEW was unable to come up with any hard figures on this issue. However, there are sources which estimate that only 15 percent of all premiums are paid out in malpractice awards. Whatever happened to the other 85 percent?

Another fact of law which weighs heavily in favor of the plaintiff is that the plaintiff’s lawyer is permitted to learn the amount of insurance the defendant carries. Were he denied this information, he might think twice about instituting a questionable suit. Actually, the amount of insurance coverage of a physician should be a private matter, to be disclosed, if at all, only after the suit has been instituted and won. Allowing the plaintiff access to this information merely whets the appetite.

One alternative for physicians would be to stop playing by the rules of the establishment. If the insurance companies couldn’t make it under those rules, how can the doctors? There are about 9,000 doctors in New Jersey currently paying $45 million a year in malpractice premiums, which has been mismanaged by the insurance companies and encumbranced by tort law which changes unpredictably with each adverse decision brought against the physicians.

This $45 mission dollars yearly could be better managed if the money was removed entirely from the surveillance of the Insurance Commission, divested of all administrative costs, and used only for paying jury awards. Doctors could pay their own legal fees, for which they probably could obtain insurance.

Some may say this plan is “way out.” But it is no more bizarre that the New Jersey Medical Society trying to go into business under the regulation of the Insurance Commissioner.

Doctors have tried playing the game according to the rules of the Insurance Commission, the courts, and the legislature. They have lost. They must now contrive to change the rules of the game. Were they t do this successfully, the insurance companies might even try to get back into the business. But we wouldn’t let them, unless they promised to leave their stock market activities to keener minds.