Crisis in liability insurance coverage

August 2002
Paul A. Raslavicus, MD

There is a wonderful scene in the 1965 film, "A Thousand Clowns," in which Jason Robards strolls the bustling streets of New York City and approaches random strangers to declare, "I’m sorry!"

Robards’ character, unemployed writer Murray Burns, explains that all of us, at some time in our lives, have suffered an insult or injury that nobody ever acknowledged. And while it might have been years ago, and the attendant unhappiness has long since been forgotten, we might still wish that somebody would offer the courtesy of a simple apology.

Murray has a point. We can blame many different people (starting with the trial lawyers) for the constant rise in the cost of medical malpractice insurance premiums. Some of us who work part time are wondering whether premium costs will drive us prematurely into full retirement. A number of us are facing malpractice allegations, which we feel are, and probably will be found to be, groundless. Some suddenly find themselves without coverage and are desperately searching for an insurance carrier. Every one of us is wondering how soon and how much we’ll be affected. In the end, it’s just a miserable mess.

If you are one of those affected, searching for coverage, wondering how you will afford the new premium, or sitting through depositions, I hope you know that you have my sympathy and support. I am sorry. Through my years of practice, I myself have been in all of those predicaments, and I know how it feels.

When the St. Paul Company dropped its medical malpractice business last December, a number of you were affected, and some seriously inconvenienced. According to the AMA Council on Medical Practice, this action affected 750 hospitals, 42,000 physicians, 73,000 other health care professionals, and 5,800 other health care facilities nationwide. That’s a lot of people waiting for an apology.

Nearly 300 of you were covered by St. Paul through the College-sponsored group insurance program, and while we were successful in placing many of you with alternative carriers, for others this was a major problem. Since that time we have searched earnestly for a replacement liability insurer that would work with us and JLT Services Corp., our program administrator, to provide an association-sponsored program for pathologists. Despite the diligent work of our Insurance Committee, our staff, and that of JLT, we have not been successful in our efforts.

Our current plight stems from multiple factors:

• Dramatic increase in the severity of all medical liability claims. While earlier professional liability crises have been prompted by increased frequency (more lawsuits), this one is all about severity (higher awards). An analysis of numbers generated by A.M. Best Company suggests that eight years from now, when all malpractice claims from 1991 through 2000 have been resolved, the average payout per every claim filed will have risen 47 percent, to $42,473, according to the director for insurance at the Consumer Federation of America, quoted in the June 24 edition of the Wall Street Journal. According to Jury Verdict Research, the median award has risen 43 percent. And for the first time in history more than half (52 percent) of trial-by-jury awards exceed $1 million.



• Pathology-specific liability trends. While pathologists are sued less often than members of the so-called high-risk specialties, the judgments tend to be above average in severity. Lawsuits related to gynecologic cytopathology, malignant melanoma, breast cancer, and prostate cancer are a legal growth industry. Million-dollar verdicts are not uncommon in Pap test cases, and melanoma is not that far behind. The perceived increased risk exposure for pathology has prompted some companies to decline to write insurance for pathologists.



• The cyclical nature of the underwriting cycle. Claims of greater severity call for greater reserves, which translates to higher premiums. The bull market of the 1990s boosted insurance company reserves without the need to raise premiums. The increases in severity of claims began to boost rates in 1998, and when the stock market stalled, the current "hard market" (when insurance companies raise premiums and limit availability) began. The medical liability market underwent a correction in January 2001, when capacity was reduced and risk managers began to report rate hikes ranging from 25 percent to 100 percent, according to a May 2002 monograph published by the American Society for Healthcare Risk Management.

Many of us recall earlier hard markets; estimates vary, but these cycles generally run three to 10 years. We could see earlier relief if federal tort reform measures succeed and new insurance alternatives come to light. State-by-state experience could vary widely and will depend to some degree on local legislative and regulatory climates.

• The impact of terrorism. The events of Sept. 11 caused the largest recorded loss in the history of insurance. This will continue to affect the entire property/casualty reinsurance market, where high-end malpractice claims are covered. Reinsurers are being hit severely now for last year’s losses. Most will be cutting back on limits provided, and the premium demanded has already risen substantially.

There is little that we as individuals can do to influence the macroeconomic changes that drive the markets and economic cycles. We must grin and bear the downturns and expect improving climates. But there is much we can do to limit risk. As organizations we must seek political solutions addressing tort reform (see, for example,
www.ama-assn.org/go/liabilityreform). As individual physicians we must strive for excellence in our personal performance, improve the systems that lead to error, and get rid of the culture of culpability that now exists. As pathologists, as the keepers of the gold standard of medicine, we know something about ourselves and where we go from here. The going is tough, and it’s time we got going.