By Senator Dave Thomas
We have a problem with “lawsuit abuse” in Utah, but you wouldn’t know it if you talked to the Utah Trial Lawyers Association. I am the Chairman of the Judiciary Interim Committee and I recently had representatives of the Trial Lawyers appear before my committee. To a man, each stated that there was no problem with the Utah tort system. In fact, I was told that a frivolous lawsuit had not been filed in Utah in many years. Do you believe that? I don’t. Here's why.
In 2002, according to one actuarial study, the United States civil liability system cost $246 billion dollars or around 2.2% of the United States GDP. In 1950, the cost of our tort system was approximately $12 per person per year. Today, its $845 per person per year. More specifically, medical malpractice claim costs were $5 per person per year in 1975, while today they are $91.
Health insurance premiums rose 11.2% in 2004; the year before, it was a 13.9% increase. This while our rate of inflation has been at around 2.3%. We can see that premiums are rising at a rate 5 times greater than inflation. This is killing our health care industry.
What is causing the sky rocketing increases in premiums? Business says its litigation costs. Trial attorneys say its greedy insurance companies. Let’s explore who is right.
Since 1990, the direct insurance premiums written have gone up by $2 billion dollars or about 28%. The direct loss payout during the same time frame has gone up by $3 billion dollars or about 56%. No rocket scientist is needed to do the math -- lawsuit payouts are outdistancing premiums two to one. To be fair, the insurance industry continues to make a healthy profit, but the increase in insurance premiums is not due to insurance company greed. The numbers point to something else. I believe it is our tort system.
Utah’s senior Senator, Orrin Hatch, certainly thinks it is too. On April 6, 2004, on the floor of the United States Senate, Senator Hatch talked about, “the exploding medical liability and litigation crisis.”
Let me quote from Senator Hatch’s eloquent speech:
Many physician groups are no longer able to be “on call” for hospital emergency departments. As medical care to trauma victims, especially children, is by its nature “high risk,” many doctors can no longer afford to treat pediatric trauma patients. The problem is also acute for women who need obstetrical and gynecological care because OB/GYN is among the top three specialties with the highest professional liability insurance premiums. This has led to many doctors leaving practice and to a shortage of doctors in many states, including my home state of Utah.
For example, Utah physician Dr. Catherine Wheeler would have to deliver more than 60 babies each year just to pay for her medical liability insurance, which is over $70,000. Although she works 80 hours per week, after she pays her malpractice premiums and other costs, she takes home money for only 2 ½ months of the year.
The Utah Medical Association data show that medical liability insurance premiums continue to increase rapidly, creating pressure on doctors to restrict service in Utah. In 2002, there was a 30% rise, last year premiums rose 20% and this year they are projected to increase 15% in Utah.
Studies by both the Utah Medical Association and the Utah Chapter of the American College of Obstetricians and Gynecologists underscore the problem in my state. Utah Medical Association data show that over half of family practitioners in Utah have already given up obstetrical services or never practiced obstetrics. Of the remaining practitioners who still deliver babies, nearly one third say they plan to stop providing OB services within the next decade, most within 5 years. A Utah Obstetrics Survey found that 15 of the 106 members polled had already stopped practicing obstetrics and 21 of the remaining 91 plan to stop within 5 years.
These changes in practice, such as retiring, relocating or dropping obstetrics because of the medical liability reform crisis, leaves almost 1,500 pregnant Utahns without OB/GYN care.
The problem appears to be getting worse. If you don’t think so, consider the $145 million punitive damage award made in a Utah court in State Farm v. Campbell, which would have been ultimately paid for by increased premiums to Utah policyholders.
The Trial Lawyers have insisted that we don’t need a legislative fix because we already have laws in place which prohibit frivolous lawsuits. Of course, it was then that I was told that no one has used these laws because no one in Utah has filed a frivolous lawsuit in many years. So I suppose it all depends upon your defination of frivolous lawsuit – is a claim frivolous if the plaintiff has a 1% chance of winning? What about a 2% chance? 5%? 20%? Given the fact that the Buckeye Institute found that 70 - 80% of defendants prevail in these lawsuits, is it fair to force defendants to incur litigation costs where plaintiffs’ file a claim with only a 20% probability of winning? What does that do to insurance premium costs?
Sometimes we forget that the concept of insurance is to spread the risk among many so that injured persons can be made whole. The system hardly works if someone causes an injury and then does not have the assets to make the injured party whole. By everyone paying into an insurer, the insured protects himself against losing his assets and it protects the injured from having no one to make her whole. So what happens to the system where the premiums become so high, no one is insured? We talk about societal ills – the tort system is sick. If the participants cannot cure the patient, then the Legislature, as doctor, must do it.So what should Utah be thinking about doing?
Two ideas that the Judiciary Committee have begun to discuss are (1) Loser Pays, and (2) caps on noneconomic damages.
Last year, the United States Health and Human Services Department released a report showing that in states with caps on noneconomic damages premiums increased at half the rate as other states without caps. In California, their Medical Injury Compensation Act has been in place since the 1970s and reports that increases in premiums are at 20% of the national rate. 23 States have enacted caps on noneconomic damages, but Utah is not one of them.
I have heard from plaintiffs’ attorneys who believe that such caps would hamper injured persons from receiving fair compensation for their injuries. But lets understand two things: these are noneconomic pain and suffering damages, which are subjective to begin with, and second, by enacting caps, we can make insurance more affordable for all. Is it better to preserve the option of a multi-million dollar judgment for one person or to ensure medical coverage for a million people – which is the greater public good?
With respect to Loser Pays, where the losing party pays the winning party’s reasonable attorney fees, every attorney that I have talked to is opposed to it – plaintiffs counsel, defense attorneys, all. Why all the fear? The rest of the world has had loser pays for centuries. Loser Pays is inherently fair. Why is it that attorneys claim the importance of making the injured party whole for everything, but attorney fees. What is so mystical about attorney fees? Or is it that Loser Pays makes attorneys really do the due diligence that they are supposed to be doing, but don’t do. Loser Pays makes everyone take a good strong second look at the claim. How many attorneys would be including 25 claims in a simple contract dispute if Loser Pays was the law in Utah? How much time and money would be saved in judicial resources, in discovery costs?
For every story about the person who will not assert a claim because of fear over paying the other party’s attorney fees, let me share with you a real life story of those who are injured without it. Once upon a time in my community, there was a couple who saved for years to build their dream home. Finally the time had come, all of the hard work paid off. They bought an empty lot in an established subdivision and pulled a building permit. As they built their dream home, the neighbor next to them was upset that they were building in and blocking his view of the mountains. How dare they build in that empty lot and obstruct his view. So he sued them. A couple of years later and thousands of dollars, the couple with the dream house won. Problem is, that the cost of paying their attorney took all of their money and more. They had to sell their dream house to pay the legal costs. Where is their justice? As I said, for every one person who decides that Loser Pays will dissuade them from filing a meritorious lawsuit, there are dozens who will be made whole by Loser Pays. In the process, the number of tort claims will go down – as they did in Illinois where tort reform saved $150 million and decreased case loads by 30%.
It is time to look seriously at beneficial tort reform in Utah.