One of the first states to impose caps on damages is Texas. In 2003, the Texas legislature imposed a cap of $250,000 on non-economic damages (all damages not including lost wages and medical bills). The rationale was that doctors were ordering unnecessary tests because of concerns about litigation. The insurance companies also claimed that they were forced to charge higher prices for malpractice insurance to offset high jury awards.

Unfortunately for the citizens of Texas, the caps on damages haven’t worked. A recent study by the Centers for Medicare and Medicaid Services (get the report here) shows that Texas now has the second highest per-enrollee Medicare spending in the country. This is an increase of 4% from 2003 when Texas was seventh in the nation. In 2009, Per-enrollee Medicare Part A and B costs were 14% higher than the national average (up from 10% higher in 2003). This means that there was NO decrease in the numbers of procedures performed as a result of the caps on liability. So the arguments about defensive medicine have been proven false.

If defensive medicine isn’t caused by litigation, what about the increases in malpractice premiums? Obviously, if plaintiffs you take away or severely limit someone’s ability to file a lawsuit, the payouts on those suits will decrease. This is what happened. From 2003 to 2010, medical liabilty insurers malpractice payouts decreased by 74%. But somehow, strangely, the medical liability premiums decreased only 50%. That means the insurance companies increased their profits by nearly 25%.

If the insurers benefited, who paid for those benefits? The people of Texas. Average family health insurance premiums increased 13% faster in Texas than the national average. That’s a net increase of over 50% from 2003 to 2010. As a result, the number of families forced to go without any health insurance at all increased to nearly a quarter of all families (24.6% as opposed to a national average of 16.2%).

So what do damages caps mean, increased profits for insurance companies, no changes in the number of procedures doctors perform and increased costs for the people of Texas. Insurers are the only ones who win.

My partner recently received a form from an insurance company. Despite the fact that our client hadn’t had any of her bills paid by Medicare and wasn’t eligible for medicare until after her treatment for the accident was finished, the insurance company was worried. They wanted to make sure that Medicare wasn’t going to come back later asking for money, so they authored a “Claims Settlement Allocation Agreement.” The strange part is the way it was written… The agreement is because “The parties recognize and agree that there may be Medicare interests that need to be considered and protected…” They go on to “agree” that “$0″ of the settlement “shall be allocated to release all liability for future Medicare covered medical expenses.”

Where it gets weird is in Paragraph 12. “Should Medicare make a claim for conditional payments, Claimant shall not use any of the CSA funds to pay for said conditional payments.” OK, so the agreement says that we’re establishing a fund of $0 for the possibility that Medicare may make a claim in the future, but if Medicare makes a claim, you are not to use these funds to pay Medicare?!?!

Fear seems to drive insurance companies, at least when it comes to the possibility of parting them from their precious stash of money.

Two to three years ago, there were some sub-standard insurance companies that were well known for their delaying tactics.  When you saw the insurance company and the law firm on a letter you knew that they would not negotiate, or return your phone calls, before the day the case was assigned for trial.  No matter what you did or how many phone calls you made, no offer.

Why? So they can delay the payout and make the plaintiff’s lawyer spend more time and money along the way.  After all, if we can make them spend more time and money, maybe they’ll just give up and walk away (and we can keep the money).  See my posts on why the insurance companies delay here and here.)

Now even the larger insurance companies are starting to use these tactics.  My partner recently had a mediation involving two defendants who shared a piece of property where our client was injured. It was a good case involving severe fractures of our client’s ankle with about $15,000 in medical expenses. One insurance company came to the mediation with their negotiation hat on and made a decent offer, expecting that Allstate, the insurance company for the other defendant would be willing to negotiate and pay their share of the damages.  Allstate offered $2000.  Were they willing to negotiate? No, $2000, take it or leave it.  It cost about $500 each for the mediator’s fee and Allstate wasn’t the least bit interested in even having a conversation… everyone’s time and money wasted by one insurance company who thinks being a “junkyard dog” is a way to make money.

For auto accidents and medical malpractice cases, the Supreme Court of Illinois has drafted standard interrogatories.  These are often used in auto cases.  But often the attorneys involved will draft different ones or modify the standard questions depending on the case.  In most of our cases, we will draft proposed answers based on the information we have from our pre-suit investigation and other information we may have compiled.  Then we will meet with our clients to go over the draft answers to identify and correct any errors or omissions.

In the first post, here, we discussed the main reason that your claim takes a long time to resolve. The insurance company delays the process because it’s playing the odds that the injured person won’t stick the process out to the end.  Then it wins.

The second reason it takes a long time to resolve your claim is a little more obscure. Most of the time, the attorneys for the insurance company are paid by the hour. More time = More money.   A great description of how this delays the process was written by Alan Crede at the Boston Personal Injury Lawyer Blog.

“Litigation tends to be drawn out not by the personal injury lawyer looking for his contingency fee but by the “taxi meter” defense lawyer who is billing his client. It is the billable hour lawyer who has every incentive to drag out the litigation, to file frivolous and harassing motions. Every young plaintiff’s lawyer in a case of clear-cut liability and damages has had the experience of turning to another lawyer and asking the question, “Why are they dragging this thing out? Why don’t they just pay up and settle? It would be cheaper.” And the reply, always the same, is, “They have to get their billables. They need to bill to the case.”

The defense attorneys need to eat.  They have to make mortgage and BMW payments.  Thus, they have to bill the insurance company for hours spent on cases.  If they resolve the case quickly for a fair value, they will have problems making their billables. They would also look bad to their (insurance company) client because they weren’t a “bulldog” who fought hard (i.e. long, exhausting all available defenses) for his client.

The defense lawyer has NO motive to resolve the case quickly.  It’s unfortunate, but the system is set up not to encourage the quick resolution of claims.

First, the insurance companies have a strong motive to delay the process.  An insurance company takes in premiums (money) to cover claims. Once it has that money, it plays the stock market, invests in commodities and basically uses that money to make more money.  When a claim is made, money is set aside as a “reserve” to cover the loss.  This money is still earning interest, which the insurance company can keep.  More importantly, if an injured person doesn’t comply with procedural deadlines or the insurance company can get the case dismissed along the way, they get to keep the money.  The longer they delay the process, the more likely it is that the injured person will give up, accept less money for their claim or otherwise drop out of the claim.  Thus giving the insurance company free money.  The insurance company is playing the odds, and the longer the process takes, the better the odds are for the insurance company.

We’ll talk about the second reason your case takes so long, in the next post.

What does State Farm do? Accuse a local contractor of fraud.  After all, it has to protect it’s clients from fraudulent claims, right.  State Farm sent information to the Indianapolis Police Department which led to felony charges being filed against Joseph Radcliff and CPM Construction.  Those charges were quickly dropped, but the damage to Mr. Radcliff’s business had been done.

Thanks to the work of Will Riley and other attorneys at both Price, Waicukauski & Riley, LLC and Riley, Bennett and Egloff, Mr. Radcliff was vindicated when a jury awarded him $14.5 million for defamation.  That’s right, the claim that Mr. Radcliff had committed fraud were FALSE.  Apparently, he had never committed fraud at all but was simply a hard-working contractor swept up in State Farm’s campaign to increase it’s profit margins and create another “example” of how “fraudulent” claims are destroying businesses.

So next time you hear an insurance company talking about how it works hard to avoid “frivalous claims” and “fights fraud.”  Think of Joe Radcliff.

h/t to Ron Miller.

Finally, someone has investigated the truth about what really happened in New Mexico in 1994.  HBO is premiering the Documentary “Hot Coffee” on June 27, 2011 at 8:00pm central.  Here is a link to HBO’s trailer for the film.

The director’s website is here.

If you’re interested in how the justice system works.  You shouldn’t miss this.

Basically, you must arrange to have a copy of the lawsuit delivered, by hand, to the defendants.  This means that it must be physically handed to the defendant, or someone in their household over the age of 13. As you can see, this can cause some pretty long delays. A summons is issued by the Court to go along with the complaint. The summons requires the defendant to appear and respond to the lawsuit. The summons expires 30 days after it is issued.  So one “cycle” of service takes about six to eight weeks.

In our experience, it is not uncommon that more than one cycle is required before the job is done.  For example, the address on their driver’s license may not be correct or they may have moved.  Typically, attempts to serve by the Sheriff will simply be returned “Not Served” without information why service could not be completed.

Typically, our firm will attempt once with the sheriff then hire a private investigator to serve the defendant. Often our investigator will discover after an unsuccessful attempt at service that the defendant has moved.  It’s not uncommon for this aspect of the case to take six months.

Once you’ve “served” the defendant, he or she may not report that fact to their insurance company, who hires the lawyers to defend them.  These delays add up and it can often take several months between the time a lawsuit is filed and the time lawyers show up in court to begin the real work of preparing the case for trial.

We did not discuss the most important aspect of the decision of the Supreme Court, what effect does it have on real people?

Under the lien statute, the total recoverable liens can only be a maximum of 40% of the settlement. After the 40% threshold is reached, the full amount of the liens must be paid. Under the common fund, the lienholders were required to pay 1/3 of the lien amount as legal fees for recovery of the settlement. This reduces the lien amount by 1/3 regardless of the amount recovered in the settlement.

I generated the following chart to demonstrate the practical effect of the Wendling decision on the amount an injured person takes home after prosecuting a personal injury case.

The chart assumes $5000 in medical expenses and does not take into account any attorneys fees or expenses (for simplicity’s sake). The bottom axis is the amount of the settlement. The Blue line represents the settlement amount, the yellow line is the lien amount payable under the lien statute. The important lines for our discussion are the red line, which is the net paid to the injured person after the common fund reduction, and the green line, the net paid to the injured person under the lien statute.

As you can see, if the settlement is less than the medical expenses, the application of the lien statute can result in a better recovery for the injured person. However, once that point is passed, the net recovery is always less for the client than the application of the common fund doctrine. So the practical effect of the Wendling decision is that injured people will recieve a smaller portion of any settlement they can extract from the insurance companies.

Does this seem fair? Let us know in the comments section.