The rise of sky-high jury awards

California defense attorney Peter Bertling knows that taking a medical liability case to trial poses a financial risk for physicians. Lawsuits involving children, in particular, or claims seeking lifelong compensation increase the chance of a high damages award, he said.

But Bertling was shocked when a jury in April issued a $74 million judgment against his client. Jurors found Kurt Haupt, MD, an obstetrician-gynecologist in San Luis Obispo, Calif., liable in the delivery of a baby who developed cerebral palsy after birth. Dr. Haupt denied wrongdoing.

“I think anyone would have been surprised by that large of a verdict,” Bertling said. “I’ve been a practicing attorney for 25 years and certainly I’ve never had anything like this.”

The case is among recent medical liability lawsuits in which jury awards have climbed into the tens of millions:

• In May, a New York City woman won a $120 million award in a lawsuit against three hospitals and a neurologist who allegedly failed to diagnosis her with a rare skin disorder.
• Pennsylvania jurors in May awarded a woman $78.5 million in her case against a medical center that allegedly breached the standard of care in delivering her son, who is now a quadriplegic.
• In January, a jury awarded a patient a $178 million verdict against a Florida medical center. His family said the center failed to properly treat the patient’s complications from gastric bypass surgery.

Medical liability insurers and attorneys say such sky-high verdicts are on the rise. A national review of claims by Hiscox, an international insurer that specializes in professional liability policies, found that more than half of the largest health care claims ever recorded were paid in the last five years.

Between 2010 and 2012, at least six states — California, Connecticut, Florida, Maine, Michigan and Wyoming — had what is believed to be their biggest-ever medical liability jury award, Hiscox said. The cases included such accusations as inadequate staffing at nursing homes and negligence by doctors and hospitals.

The American Health Lawyers Assn. and American Bar Assn. do not track large jury awards. But figures from the Physician Insurers Assn. of America show similar patterns of high jury awards in recent years.

In a 2011 analysis, PIAA found payments made to plaintiffs of $1 million or more increased from less than 1% in 1985 to 9.3% in 2010. Although the study did not specifically analyze multimillion-dollar awards, PIAA President and CEO Brian K. Atchinson said verdicts of more than $10 million have become common.

“There is no doubt that the severity of awards has continued to increase,” he said. “I can tell you anecdotally that awards can often run in the tens of millions of dollars to upwards of 60 or 70 million dollars. & The prevalence of these awards certainly has an impact on the cost of health care.”

Reasons vary as to why high jury awards have become more frequent. One is that poor economic times make jurors more sympathetic to plaintiffs and more prone to grant higher sums, said Robert Francis, chief operating officer of The Doctors Company, a physician-owned liability insurer in Napa, Calif. He said the company has seen an escalation in high jury awards since 2008.

Another theory is that money does not have the same impact on juries as it once did.

“The value of a dollar doesn’t seem to be as much,” Francis said. “Maybe awarding tens of millions of dollars doesn’t seem as high as it used to be.”

But what happens to these huge awards after the newspaper headlines fade and the jurors go home? Are such large sums ever paid out? Legal experts say when a trial ends, another process typically begins, one that involves reductions, settlements and sometimes more legal battles.

“For as many years as we can recall, there have been high awards [and] events that make headlines, but in reality these awards tend to come down through negotiated settlement,” said Mark Horgan, senior vice president for claims at CRICO, a professional medical liability insurer in Massachusetts. “A lot of people see what the jury awarded and figure that’s what’s being paid. What a jury decides and what is paid is actually very different.”

Not all awards stand

In the California case that Bertling handled, a judge will decide whether the jury’s multimillion-dollar award was fair. As in most medical liability cases, the presiding judge has the discretion to reduce the award.

Bertling said San Luis Obispo Superior Court Judge Charles S. Crandall will review whether the hospital’s settlement with the plaintiffs should factor into the award against Dr. Haupt. The judge also will look at the present cash value of the plaintiff’s injuries. Present cash value refers to the current value of the plaintiff’s projected future earnings.

Some of the $74 million verdict will be reduced in accordance with California’s $250,000 noneconomic damages cap. About $11 million of the award will be reduced to three $250,000 awards for the patient and her parents, Bertling said. However, the rest of the jury award — some $63 million for loss of future earnings and lifetime care — is not covered by the cap.

The process by which an excessive verdict is reduced by a court is called a remittitur. In some cases, a judge comes up with a new amount and tells plaintiffs to either accept the figure or a new trial will be ordered, Horgan said.

In other instances, defendants may strike their own deal with plaintiffs after a high verdict. For example, defendants can propose to give up their right to appeal if the plaintiff accepts his or her insurance limit as the final award. Physicians’ policy limits usually run between $1 million and $2 million, while hospitals tend to have much higher limits, insurers said.

Physicians can appeal to higher courts if they are unhappy with a verdict, but the process can take months or years.

In New Jersey, for example, a jury in 2004 awarded $75 million to a family who alleged that actions by a hospital and its medical staff caused brain damage to a 4-month-old baby. At the time, the award was cited as the largest medical liability verdict in the state. However, the Supreme Court of New Jersey overturned the verdict in 2009, ruling that improper evidence was used during trial. Amid a new trial in 2011, the defendants settled for $30 million.

In another case, a $60 million medical liability verdict awarded in 2009 was reduced in 2011 to $600,000 by a New York appeals court. Judges called the award “excessive,” and said it deviated “materially from what would be reasonable compensation under the circumstances.”

After the verdict, who pays?

In most cases, it’s the insurance company that writes the check after a large verdict. However, experts say that often depends on the physician’s choices before trial.

In the California case, Dr. Haupt requested his insurance company settle with the plaintiffs for his policy limit, Bertling said. The company refused. Because the physician asked for a settlement but the company took the case to trial instead, the verdict is the insurer’s responsibility.

If an insurer proposes a settlement and a doctor insists on trial, the physician is responsible for any unfavorable verdict above the doctor’s policy limit, said Karen Butler, a nurse and medical liability defense attorney based in New York.

In such cases, plaintiffs may go after the physician’s personal assets if the doctor cannot afford the award. That could potentially bankrupt the physician, Horgan said. However, most states have legal protections against residences and retirement funds being used to satisfy verdicts, he said.

Still, the financial danger of going to trial often forces physicians to settle reluctantly, Butler said.

“Nobody has a medical malpractice policy for $20 million,” she said. “They don’t have anything that would cover these kinds of verdicts. So [doctors] end up consenting to settle because they don’t want to wipe out everything they’ve worked for. They end up settling when they didn’t do anything wrong.”

Effect of large verdicts

Large jury awards impact the health care community in various ways, whether doctors realize it or not, experts say.

When huge verdicts are publicized in the media, it raises fear among physicians, potentially increasing defensive medicine among doctors, said Francis, of The Doctors Company. The high awards also could be cited by plaintiff attorneys to drive up settlement amounts, he said.

Large verdicts can lead to more lawsuits against physicians and health care professionals. Reports of huge jury awards frequently fuel people to make similar claims, Butler said.

She pointed to a recent New York case where a plaintiff sued a physician for nerve damage and won a large award. The next year, another woman sued her physician for the same allegations and used the same expert witness. The suit was thrown out, Butler said, but the case shows the copycat nature of plaintiffs.

“It costs a lot of money to defend these things, and it’s very scary,” she said. “People don’t hear about the cases that go nowhere, and they don’t hear about the cases that get dismissed. All they hear about are the cases in the paper and in the blogs.”

Insurers said high awards also have an impact on insurance premiums, as rates are calculated from past losses. If companies observe a severity trend because of large losses, it can indirectly affect premiums, Francis said.

Atchinson, of PIAA, agrees. The industry can withstand only so many large verdicts before such awards impact pricing and the availability of medical liability coverage, he said.

“Recently, the market for [medical professional liability] insurance has been fairly soft,” he said. “But we have seen a steady rise in both the severity of claims as well as defense costs in recent years. Depending on what happens with trends in the overall frequency of claims, a turn in the market might not be far off.”