By ROBERT HALL
Many have written about it; the lament that history repeats itself.
When I was a younger man, in 1994, I started my career as the managing agent for a national medical malpractice insurance carrier. It was a rather cool gig for a twenty-something. They empowered me with a lot of authority for a young man with limited experience.
During that time period before 2003, we underwrote medical malpractice insurance coverage beneath a Sword of Damocles; because we understood a jury verdict was unlimited regarding pain and suffering. My direct report was a lot older and wiser, and he pounded that point into my fertile brain.
In basic terms, a judgement from a medical malpractice case breaks down into two components: The economic loss calculated based on the plaintiff's personal situation, and the non-economic damages, known as pain and suffering.
Since 2003, in the state of Florida, until about June 8, 2017, the legislature has capped damage awards for pain and suffering in medical malpractice cases at $500,000. I know there is legal wiggle room, but for this article I'll keep it simple. If you'd like to know the case, N. Broward Hosp. Dist. v. Kalitan, Fla., No. SC15-1858, 6/8/17
One of my duties on the carrier-side was analyzing, underwriting, the information submitted to us from an insurance broker or directly from a physician or hospital. The submission was a paper application with supporting data. In those days, we had a lot of dead trees dropped onto my in-box. At the peak renewal season, I often wondered if I was playing a tiresome game of Jenga.
My job was to unscramble the data looking through the company underwriting guide's prism, and hopefully from on-the-job training, and instruction, I would have learned to have developed good judgment. I had no place to hide if the insurance coverage that I had signed off on blew up in my face. The underwriting file had my reasoning, my analysis, and the policy form had my name and signature at the bottom of the declaration page for all to see.
I'll share one of my real a world experiences from the late 1990s, and what as a practical matter, it means for the pain and suffering caps being struck down, and how that has quietly impacted carrier financial exposure.
I had underwritten a physician, and I had added him to our book of business. Unfortunately, a year later he got sued for medical negligence by a young woman with a terrible medical and personal history. (The information I'm sharing is vague on purpose.)
To put it mildly, she was in severe pain. Our physician's therapy efforts had not eased her pain. But the medical records showed that the physician had tried his best. I read the records; we had talked with our insured. From our perspective, our physician had not committed medical malpractice by any textbook measure, and our medical experts agreed to back up our legal response.
We thought the plaintiff's lawyer was being unreasonable. As time passed, it was clear we could not resolve the dispute, so; We took the case to trial.
In reality, the plaintiff made a compelling witness. The lawyer understood what he had in her, and also understood our reliance on the cold, hard facts, and the fact we had a mountain of money behind us.
Unfortunately for me, looking back twenty years, I think the jury felt what her pain and suffering meant. She swayed the trial in her eyes. Unfortunately, for me, my claim manager, and our lawyer, we were not paying close attention to what mattered to the jury; her suffering.
Remember, when an insurance carrier or other takes a case into a trial arena, as the saying, all bets are off. It's not just about quality care or breaching the standard of care. They do not compose a jury of clinical risk managers, physicians, and hospital executives.
We got our pride handed back to us with a $5 million plus verdict, and we paid our legal fees. It was an expensive lesson. And I should point out, our insured's insurance policy had a $250,000 per occurrence limit. We had not offered the policy limits timely; we got caught in bad faith.
For the next year, it was not comfortable sitting in my office chair, wondering if I needed to work on my resume. I understood it would take a lot of new insurance premium to cover up a $5 million sin while simultaneously not adding more liability claim files.
Fast forward to 2019.
It has been well over a decade since the medical malpractice insurance business has, for what the insurance industry labels, a hardening market. If I were to share a graph starting in 2005, it would show a consistent downward line in premium cost relative to time.
The reason for this premium trend moving downward year-over-year, in part, related to the pain and suffering caps working, and having provided a downward pressure on carrier aggregated losses. I know there are other contributing factors that have influenced a softer market.
In the meantime, this healthcare delivery era has ushered in value-based payment models and the need for quality metrics driven from data aggregation. The data impacts provider decision making and hospital system and practice revenue. These systemic shifts occurred, while the medical malpractice insurance market has mostly remained soft.
But my instinct is that in Florida the trend is to a hardening period. And I suspect there will be a cascading effect on all commercial insurance lines and alternative financing models.
If so, and I hope I'm wrong, my recommendation going forward is pay closer attention to the financial rating for medical malpractice insurance carriers and reinsurers. Inquire insurance brokers and insurance carrier representatives about loss trends, and if to expect upward rate pressure.
Be prepared to manage the inherent conflict. As we all know, history repeats itself.
Robert Hall, a broker in Healthcare products for ARCW Insurance in Pinellas Park, has over twenty-four years of experience in the healthcare, life sciences, and long-term care liability insurance and risk management business. He holds the ARM designation and has developed an expertise in healthcare, having placed complete insurance programs for hospital systems and large physician groups. He has also created captive feasibility studies and other alternative risk models. He has a strong understanding of HMO Reinsurance and Provider Stop-loss. Contact him at robert@arcwinsurance.com
