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Medical liability insurance legislation--"dollars for docs".


The medical liability insurance situation has been simmering for a long time now, and recent events occurring up here in Albany threaten to cause the matter to boil over into a big mess in the upcoming months. While medical liability carriers seek to promote legislation calling for a new methodology of financial oversight, better tailored to the highly particularized needs and obligations of their insurance product, New York's doctors and trial lawyers have been on the move developing legislation of their own that would radically change settlement procedures on malpractice cases in court and shift some of the costs of liability insurance charged to physicians back to the insurance industry itself.

This brewing conflict threatens to make an upcoming hearing on medical malpractice insurance scheduled by the Senate Standing Committees on Health and Insurance a veritable "cage match", pitting some of New York's most powerful interests against each other.

The problem is an old one in Albany, dating back to the medical liability insurance crisis of 1986. The insurer's need to request an adequate rate to allow them to operate their business and remain solvent enough to pay ever-increasing medical liability awards is juxtaposed against the need of physicians to keep their medical liability insurance costs at a reasonable level. The New York Insurance Department is caught in the middle with the power to review and approve rate requests and to oversee the operation of the Medical Malpractice Insurance Pool (MMIP). The result over time has been a system in which insurers believe the rate they are allowed to charge is inadequate and physicians believe that their rates have become prohibitively high. Both physicians and insurers complain that trial lawyers have abused the legal system bringing too many unnecessary malpractice suits, clogging up the system and increasing costs. Insurers also assert that the all-important MMIP, the risk pool of the system, is underfunded for several recent years. In 2008 and 2009, the legislature passed a law prohibiting the Superintendent from increasing the premium level at the required time to allow enough time for the State and all of the interested parties to develop a solution that would resolve the conflicts in the system.

With the collapse of the Insurance and Health Department's task force in this area the various parties appear to be seeking individual solutions to the problem without resolving the needs of the other parties in the system. The most recent iteration of this trend is a piece of proposed legislation, purportedly drafted by the Medical Society of New York (MSNY) and the New York State Trial Lawyers (NYSTLA), in cooperation with the Governor's office, which could have profoundly negative effects on the insurance industry if passed.

The proposed legislation, which has been put in bill draft form by the legislative bill drafting commission, makes several changes to the civil practice rules dealing with medical malpractice legislation and includes several new measures designed to make liability insurance more affordable to physicians at the expense of all liability insurance policyholders.

The Proposed Legislation

I should note from the onset that the bill discussed herein has not been introduced by anyone in the legislature. Officially, it has not been made public and I'm not sure which draft I have been shown. The proposal may have changed subsequently. However, the essentials of the bill indicate that the State's physicians and trim lawyers have entered into somewhat of a "Faustiaff' pact in which each group agrees to support significant benefits to the other group, in return for joint support of the whole bill.

The trial lawyers benefit from significant changes to the civil practice laws and rules as they related to injury actions. The bill contains an entirely new Section 15-108 of the General Obligations Law governing "Settlements in tort actions". The new statute would change decades old law in this state which provides that a release against one of several tortfeasors reduces the claim of the releaser against the other torfeasors by either the stipulated amount, the consideration paid or the released tortfeasor's equitable share of the damages under article fourteen of the CPLR, whichever is greater. (1) The proposed addition allows the remaining tortfeasors to "choose" to reduce their liability by any of the three amounts described above. The proposal would omit the whichever is greater language. The ultimate effect of the new bill is to benefit plaintiffs in civil injury actions and could even result in a situation where a plaintiff received an amount greater that 100% of the amount of damages owed. Other changes to the bill would grant additional advantages to plaintiffs in personal injury litigation.

On the medical liability insurance side of the deal, the bill reduces the requirement that physicians purchase a primary layer of insurance in the amount of $1.3 million to $1 million for the years 2011 through 2015, in order to qualify for the free $1 million excess layer of coverage. This provision will reduce physician's insurance costs.

The bill also provides for significant additional financial benefits for physicians. The Insurance Department will determine the cost of medical liability coverage for the first $300,000 for individual claimants and $900,000 for all claimants, and shall work with the Commissioner of Health to determine the costs of grants to defray this cost to physicians in certain "high risk" classes. When those costs are determined, the Insurance Department shall assess each insurer, authorized to write insurance in this state, to fund those grants to physicians to assist them in paying for medical malpractice insurance. These assessments shall be deposited into the "hospital excess liability pool" to be used by the Commissioner of Health to award the grants to physicians, and to pay the administrative costs of the pool, including costs associated with a risk management program. The end result of these provisions will be that physicians in the high risk classes will get the first $300,000/$900,000 of coverage, as well as the $1 million excess layer for free.

The legislation also provides for another assessment on the insurance industry. The bill requires the Superintendent of Insurance to determine whether the "medical malpractice insurance pool" (MMIP) has sufficient monies to pay its aggregate actual and estimated liabilities for policy years from 2000 to 2009. If the Superintendent determines that there are insufficient monies, he shall assess each insurance company authorized to write liability insurance an amount not to exceed one-half percent of its net direct premiums written in New York. An insurer subject to this assessment shall include a surcharge on premiums for liability policies on properties or risks located in this state to offset the assessments paid. This assessment must be made by the Superintendent before he would order any surcharge on premiums for medical malpractice coverage. The monies raised by this assessment are to be deposited into the "medical malpractice insurance fund" and shall be used to offset any insufficiencies in the MMIP for the policy years described.

I don't know if anyone has priced this financial impact, but some industry representatives have told me that the financial impact of these assessments could be over $100 million dollars. As may be expected, the bill does nothing to limit malpractice damage awards or other tort law changes being sought by insurers.

The hits just keep coming for the insurance industry in New York.

This appears to be another example of the New York insurance industry being used as a "piggy bank" to fund a purported solution to another difficult public problem. This industry has been forced to endure drastic increases in Section 332 assessments to fund a myriad of state programs in the recently enacted state budget. Many other assessments and taxes on the industry have been increased as well. After I read this proposal I can't imagine that the New York insurance industry has been consulted in its drafting. I believe it is time for the New York insurance industry to make itself heard, and loudly.

However, I have also heard a persistent rumor that some representatives of the industry have indicated that they will not oppose the bill. If this is true it would be a mistake.

The bill attempts to come full circle to bring New York's liability carriers back to funding obligations made in the medical malpractice residual market. The old Medical Malpractice Insurance Association was dissolved in 1999-2000 partly on the basis that New York's liability carriers no longer wished to fund medical malpractice liabilities. The argument then was that the medical malpractice insurers should fund their own residual market. Reaching back out to the whole liability insurance industry seems to indicate that the state government has run out of new and creative solutions to this stubborn problem.

It just happens that the New York State Senate Standing Committees on Insurance and Health have scheduled a public hearing on "Medical Malpractice Reform" for Tuesday, December 1, 2009 at 10:00 am in the Hamilton Hearing Room B, Legislative Office Building, 2nd Floor, and Albany, NY. The hearing notice provides "Oral Testimony by Invitation Only". It may be advisable to obtain and invite.

I may attend just to see if anyone has the courage to recommend an assessment on the trial lawyer industry to solve the problem.

By Peter Molinaro

Former Senior Deputy Superintendent of the New York State Insurance Department and Attorney at Law

(1) New York Civil Practice Laws and Rules Section 15-108.
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Title Annotation:AROUND NEW YORK
Author:Molinaro, Peter
Publication:Insurance Advocate
Date:Nov 16, 2009
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