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The Fallacy of Tort Reform and the Need for Real Insurance Reform
Posted by: Eric Helmy
March 11, 2008
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Spend time with almost any physician these days and you're likely to hear shocking stories about how their liability insurance premiums are squeezing their practice. There is undeniable truth in these stories, and the murderous premiums that doctors have to pay often cause them visibly deep emotional pain and strife. I have seen it even in the many doctors among my friends and family. There can be no doubt that such problems are very real for the medical community. In turn, they have prompted nationwide calls for a massive overhaul of a civil justice system that many see as having run amok and believe is crippling the medical system on which we all depend.

By framing the situation in this way, the proponents of such "tort reform" have succeeded spectacularly in presenting the civil justice system as a threat to the very survival of the community, in the eyes of medical professionals and lay citizens alike. Through this device, tort reform advocates have created an atmosphere of primal fear that overwhelms the human capacity for reason. As a result, the only true beneficiaries of this illusion sit back and watch two sides who should be allies war with one another - reaping massive profits from one while reducing their exposure by fostering the destruction of the other.

The Silent 3rd Player

The debate has long been framed as Doctors v. "Trial Lawyers." This frame, however, is incomplete, as it conveniently omits the third party that stands to benefit the most from it. One does not hear doctors complaining about how the costs of paying high verdicts or settlements is driving them out of business - it is their malpractice insurance premiums that are squeezing them. Likewise, whenever a medical malpractice case results in a verdict or settlement, the check usually does not bear the name of the physician. The true dynamic is not Doctors v. "Trial Lawyers" - there is a third, silent, and very powerful player on the field.

That third player is the insurance industry. Insurance companies face very little regulation in terms of what they can charge in premiums. They are also generally free to do whatever they can to help reduce their exposure through payments of verdicts or settlements. Long aware of these facts, insurance companies have invested hundreds of millions of dollars to demonize the civil justice system (making it less likely that members of the public would order them to compensate injured persons at trial), and they have simultaneously invested vast sums to determine the breaking point to which they can keep increasing insurance premiums. Both of these tactics, of course, serve to increase profits for the insurance industry.

The Power of Emotion over Rationale

Particularly when the mind perceives survival to be at stake, emotion often takes the upper hand on reasoning and judgment, even among the most highly educated and intellectually gifted members of society. To a significant degree, the insurance industry seems to have relied upon this phenomenon in its interactions with the medical community. They have exploited the emotional gravity of their premiums to convince legions of medical professionals that a civil justice run rampant is to blame for their troubles. Presented with such an apparently obvious and predatory adversary as the cause of their suffering, even these brilliant and dedicated professionals can be blinded by emotion and take leave of their judgment. They take the insurance companies at their word, often without conducting any independent query as to whether their risk of exposure is rising or falling, and even without asking how much more money the insurance company has made in the current year than the last. I have seen it many times, regardless of whether the doctor in question is family, friend, or social acquaintance.

By portraying a threat to the economic survival of medical professionals, the insurance industry is able to recruit thousands of them as their allies in a systematic political campaign to erode the rights of ordinary Americans. These hardworking doctors, nurses, and PAs often donate thousands of dollars to "tort reform" ballot measures, unwittingly saving their insurers considerable funds and enhancing insurance corporation profits in the process. These efforts also sap the resources of the Plaintiffs' attorneys, who must fight to preserve the rights of their most deserving and needy clients, making it all the more difficult for them to prevail in future cases for those who need justice most.

The False Logic of Tort Reform

Tort reform efforts often take the form of ballot measures that are entirely devoid of reason and based upon false pretenses. For instance, in 2004, tort reform advocates pressed Measure 35, a draconian measure that would have capped non-economic (quality-of-life) damages in all medical malpractice cases to $500,000. In an era where baseball pitchers who may or may not have taken steroids can make over $1 million per game, Measure 35 would effectively have said if a 2-year-old child were to sustain a serious brain injury due to preventable medical negligence, all of the joy and all of the pleasures that a 2-year-old child could ever have experienced for the rest of her life could not be worth more than a total of $500,000, even if massive pain and disability were substituted in their place.

This, without question, would have been the legacy of Measure 35 had it become law. It would have punished primarily those people who had been most severely injured due to medical malpractice in order to reduce the exposure of insurance companies, even though such corporations contract to assume the risk of that exposure and are generally free to charge whatever that want for insurance premiums. However, Measure 35 would have had no effect on relatively minor cases - often dismissed as "nuisance" or "frivolous" cases - involving non-economic damages far less than $500,000. In spite of this, the proponents of Measure 35 had the gumption to use "Stop Frivolous Lawsuits" as the motto of their campaign.

Query what could possibly be "frivolous" about a medical malpractice case that goes to verdict for more than $500,000 in non-economic damages. Any such case would have to surmount all of the many obstacles that the civil justice system wields to aggressively deter cases that are meritless. It could never get to verdict without several critical ingredients, including (i) a doctor's testimony that there has been a breach in the standard of care and that such a breach caused the plaintiff's damages, as well as (ii) the investment of large sums of money - sometimes amounting to hundreds of thousands of dollars by the Plaintiff and/or the Plaintiff's counsel. Typically, any case must survive up to three different motions to dismiss (on the pleadings, on summary judgment, and on motion for directed verdict) before seeing the Plaintiff prevail at trial. All the while, the Plaintiff must bear the burden of proof, and in the final analysis, the bulk of medical malpractice cases end in a defense verdict.

In spite of such complete lack of logical foundation, tort reform measures often carry great emotional power. That is because the insurance industry has succeeded in portraying the Plaintiff's trial bar as a threat to the community's survival, and such measures cater to the common man's desire to stomp out this perceived threat. Accordingly, the insurance companies keep pressing new tort reform measures, each more nefarious than the last. The insurance industry know they have much to gain even if their measures fail, for merely bringing them weakens the ability of the Plaintiff's trial bar to stand for ordinary citizens who have sustained life-changing injury.

The Latest Attack on Your Rights

And so tort-reformers' efforts to destroy the civil justice system continue, and indeed they escalate. The latest demon on the scene is the proposed Measure 51, to appear on the Oregon ballot this fall. This measure would all but destroy the ability of hard-working and honest Oregonians to secure meaningful compensation for any life-changing injuries they may sustain by making it virtually impossible for any attorney to assume the economic risks and burden of the case. Seriously injured persons will often have suffered economic catastrophe as a result of their injuries, and they will be unable to pay a competent attorney out of pocket even a sum that is minimally adequate to pay for that attorney's basic needs. In the face of the very real chance that the defense will prevail, the only way that almost any attorney can justify assuming the tremendous risks necessary to advance the case (in terms of investment of both time and money needed) is to contract for a respectable contingency fee between 30% and 40% (before appeal).

Measure 51 would slash the size of the allowable contingent fee while doing nothing to reduce the risks of proceeding with the case. Should this measure become law, the bulk of the Plaintiff's bar would have to cease helping injured people, and anyone unable to pay an attorney upwards of $200/hour for hundreds of hours of work will find it virtually impossible to seek redress for serious injuries. This would be especially true in the case of the most serious injuries, because insurance companies vigorously defend such cases and the Plaintiff's attorney must usually risk more (in terms of time and money) to achieve a meaningful recovery.

The Choice

Let's take it as a given for purposes of this discussion that many people, especially physicians, are paying too much for liability insurance and that is causing them real economic hardship. Let us also agree that some solution to this problem should be found. This produces a choice among possible solutions, including:

(a) Tort Reform : Diminishing the rights of injured people to recover for injuries caused by other persons or corporations.
• This is done in hopes that the resulting diminishment of exposure will cause premiums to drop. However, tort reform typically contemplates no limits on the ability of insurers to charge whatever the think the market will bear in terms of premiums, regardless of whether the actual exposure to risk is rising or falling. Tort reform measures also typically do nothing to restrict an insurance company's rights to defend itself in litigation.

• The result is virtually guaranteed increased profitability for multinational insurance corporations at the expense of ordinary Americans who have suffered serious injury at the hands of a third party, without any requirement or guarantee that insurance carriers will actually reduce premiums instead of reaping extra profits from their lack of exposure in litigation.

- or -

(b) Real Insurance Reform - Common sense measures to prevent insurance carriers from gouging doctors and members of the general public.
• Real insurance reform would require that the cost of insurance premiums bear a logical relationship to the actual risk of exposure. For instance, if verdicts and settlements in medical malpractice cases do not rise in average number and/or magnitude during a given year, premiums should not be permitted to increase beyond the level dictated by inflation. By contrast, in almost all forms of litigation across the country, verdicts and settlements have fallen steadily in number and average size during the last 15 years, yet premiums have often increased in almost geometric fashion.

• Real insurance reform would:
• ...deny massive insurance companies their current "right" to gouge doctors and ordinary Americans through exorbitant premiums;
• ...protect and value the rights of innocent people to meaningful compensation when they are seriously injured; and
•  ...permit wrongdoers to be held fully accountable for the consequences of their poor choices.

The bottom line:

• Tort reform usually requires no reduction in premiums and values corporate profits over the rights of innocent people to get meaningful compensation for life-changing injuries.

• Real insurance reform would value the rights of injured persons over massive corporate profits that are unjustified by market realities.

Which is the right solution? Unless you run a multi-national insurance conglomerate or are a large-scale shareholder of such a corporation, you will probably find that the answer is obvious.

Ask Yourself.

You need not take my word for any of the above if you don't want to. After all, I am a civil justice attorney representing plaintiffs in litigation, so it is natural that one would question my motives. I obviously have an economic interest in preserving the current system of justice, including the contingent fee structure that Measure 51 would abolish. I derive great satisfaction from helping people get meaningful justice for their serious injuries, and Measure 51 would make it exceedingly difficult for me to continue doing so.

This, however, is not about me or any of my colleagues. By and large, we are highly educated and resourceful people. The practice of law has taught us a range of business and technical skills that can have application elsewhere, and we have developed meaningful relationships with influential people over the course of our careers. If Measure 51 becomes law, we can start new enterprises, move out of state, or join established businesses. We'll be fine. The seriously injured and deserving people we represent will not.

So please feel free not to put your stock into the words I've written here. Instead, trust your own intellect and gut. Do your own research, then ask yourself the hard questions that are at stake. Questions like these:

• Is it logical that insurance carriers should be allowed to charge whatever they want for premiums even if the risks presented by litigation have been falling for over 10 years?
  • Should doctors be made to pay whatever an insurance company demands under such circumstances?
  • How about everyone else? (People who buy car insurance, umbrella policies, and the like)?
• When people get injured, is it fair to shift the burden from super-rich international corporations to the often desperate and incapacitated people whose lives have been devastated?
• Can you afford upward of $100,000 out-of pocket for the services of a competent attorney?
  • If not, who will help you if the current contingent fee system is abolished, you or your loved ones have been seriously injured, and you need compensation for your injuries?
  • How will you cope without such recovery?
  • Will you be able to simply accept that someone else's stupid and reckless choices will mean the destruction of your quality of life as you knew it? 
    •  Is that OK with you even if the insurance companies who would otherwise be responsible to compensate you make record profits?

Please consider all of the above as you reflect on your rights as an American and as an individual with God-given rights to your freedom and your dignity. They are the real questions that will define the future of your access to justice, should you ever need it. Remember your own answers, discuss them with your friends and family, and please keep them in mind when you vote or serve on a jury.

Yours in Compassion and Justice,
- Eric Helmy, Esq.

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