New York Codes, Rules and Regulations
Title 11 - INSURANCE
Chapter III - Policy and Certificate Provisions
Subchapter B - Property and Casualty Insurance
Part 70 - Medical Malpractice Insurance Rate Modifications, Provisional Rates, Required Policy Provisions And Availability Of Additional Coverages
Section 70.5 - Reduction of 1984-1985 physicians medical malpractice insurance rate levels, pursuant to 1985 medical malpractice reform act (chapter 294)

Universal Citation: 11 NY Comp Codes Rules and Regs § 70.5

Current through Register Vol. 46, No. 39, September 25, 2024

(a) Declaration of purpose, legislative authority and findings.

(1) Enactment by the Legislature of chapter 294 of the Laws of 1985, introduced at the request of the Governor, is intended to be significant action in the necessary reform of the medical malpractice system. The Legislature intended that the provisions of the statute would result in reduced costs of medical malpractice settlements and judgments and their related loss adjustment expenses, in the following manner:

"By expediting case resolution, discouraging frivolous claims and defenses, moderating attorney contingency fees, limiting the opportunity for double recoveries, and requiring the periodic payment of large future awards. . ." [L. 1985, ch. 294, section 1.]

(2) Section 2343 (a) of the Insurance Law, added by chapter 294 (section 16) directs the superintendent to evaluate these changes in the medical malpractice system:

"Whereas the provisions of a chapter of the Laws of 1985 regarding medical and dental malpractice will have both a prospective and retrospective effect upon the loss experience of physicians, dentists and hospitals professional liability insurers, including the medical malpractice insurance association, the superintendent is directed forthwith to review rates previously in effect for the period commencing July 1, 1984 and ending June 30, 1985, and, where appropriate, require modification of such rates for such period."

(3) The superintendent has reviewed the probable retrospective effects of this statute and has concluded that a reduction of 15 percent from the rates that were previously approved for physicians medical malpractice policies issued from July 1, 1984 through June 30, 1985 will result in an appropriate and necessary modification of such rates. The basis for this determination is set forth below.

(b) Basis for conclusion.

(1) The basis for the superintendent's conclusion that a 15-percent reduction in medical malpractice insurance rates is appropriate for policies issued from July 1, 1984 through June 30, 1985, is that chapter 294 contains a number of important cost-saving provisions that should have a retrospective effect, in that they apply to all actions for medical malpractice commenced on and after July 1, 1985, regardless of the date of occurrence of the alleged malpractice. The superintendent is also aware that the overwhelming number of medical malpractice actions covered under 1984-1985 policies have probably not yet been commenced.

(2) The superintendent has drawn upon casualty actuarial studies of similar legislative proposals, consulted with attorneys and other persons expert in medical malpractice litigation, and conferred on the implications of chapter 294 with the professional staffs of the Insurance Department, the Legislature and the Governor.

(3) While rate determination for medical malpractice is a particularly difficult task that is fraught with uncertainty, predicting the future effect of legislation that changes the system in fundamental and uncharted ways is even more problematic and less subject to measurement. Although section 2343 of the Insurance Law requires the superintendent to determine the retrospective value of the new law, it would not be appropriate to assign a percentage value to each item of the legislation and then total all of the values. Nevertheless, the superintendent has concluded that a series of changes of the type enacted in chapter 294 creates a climate which should result in substantial overall savings in medical malpractice insurance costs.

(4) The substantive provisions of chapter 294 that can be expected to have a salutary effect (by operation of section 25 of the new law), and that require the superintendent to conclude that a 15 percent retroactive rate reduction for policy year 1984-1985 is appropriate and necessary, include:

(i) Periodic payment of judgments (sections 6, 7 and 9 of chapter 294). The statute amended the Civil Practice Law and Rules (rule 4111[d], section 4213[b], and article 50-A) to require that court judgments provide for periodic payment of future damages in excess of $250,000 and for termination of most payments upon the death of the claimant. Savings are achieved through:

(a) limiting periodic payments to the lifetime of the claimant (except that wage-loss will continue to be paid to a claimant's dependents, and a claimant's pain and suffering damages will be subject to a maximum 10-year structuring); and

(b) the ability of the insurer to obtain an annuity that earns a significantly greater rate of interest than the four-percent annual index factor mandated over the period payment term. Although periodic payments are required only for judgments, this requirement should set a new standard which will have an important reductive effect on comparable cases that are resolved through settlement by the parties. In addition, attorneys' fees on claims with periodic payment of future damages will first be reduced in accordance with the revised contingent fee schedule discussed below and then further reduced to their present value. This compounding should have a synergistic effect in reducing overall costs of judgments and settlements.

(ii) Contingent fee reduction. Section 474-a (2) (3) and (4) of the Judiciary Law (chapter 294, section 15), requires a significant reduction in contingent fees to attorneys. An important element in the determination of both settlements and jury verdicts has been the amount that claimants must pay in attorneys' fees. Thus, reduction in the contingent fee schedule should have a favorable cost-reducing effect upon the actions of juries, insurers, claimants and their attorneys. Comparisons of the former contingent fees to the new contingent fees show significant reductions. A former judgment of $500,000 yielded a $166,667 contingent fee which will now be $137,500, an 18-percent reduction; a $1,000,000 judgment formerly yielded a $333,333 fee, and now yields a $237,500 fee, a 29-percent reduction; a $2,000,000 judgment formerly yielded a $666,667 fee, and now yields a $350,000 fee, a 48-percent reduction. The $2,000,000 illustration is germane, even though primary coverage of physicians during the 1984-1985 policy period was generally limited to $1,000,000 per claimant, because in many instances multiple defendants increase the amount of insurance available; and the award or settlement in the more severe cases sets the relative standard of value for the lesser injuries. In addition, as noted in this subparagraph, for awards subject to periodic payments, which would include most of the more severe cases, the attorney's fee under the new law is subject to a further reduction to present value.

(iii) Elimination of duplicate recoveries. A significant portion of recoveries is comprised of future medical or wage loss, much of which is already covered by some collateral source. The Civil Practice Law and Rules, section 4545(a) (chapter 294, section 8) is amended to require a reduction of the verdict by an amount equal to the future cost of special damages that will, with reasonable certainty, be replaced by some collateral source, less the premium cost to the claimant of maintaining the benefits from such source. The statute also permits the purchase by the defendant of additional coverage to provide for the claimant's medical and other expenses, which should prove to be less costly than under the prior system and should have a significant impact both on settlements and on jury awards. The purchase of coverage to provide for such economic loss also reduces the possibility that a claimant will misuse or exhaust funds awarded to provide necessary benefits.

(iv) Other provisions. A number of other provisions of chapter 294, which are less amenable to direct evaluation, should also have the effect of reducing medical malpractice insurance costs:

(a) Civil Practice Law and Rules, section 8303-a (section 10 of chapter 294), provides that plaintiffs or defendants and their attorneys shall be liable to pay up to $10,000 to the successful party if it is determined by the court that their actions, claims, cross claims, defenses or counterclaims were frivolous. This provision should discourage unreasonable litigation which lacks merit, avoid wasteful expenditures, and encourage quicker and more efficient resolution of disputes.

(b) Section 3101 (d) of the Civil Practice Law and Rules (section 4 of chapter 294) provides for the advance disclosure of expert witnesses, their qualifications and the subject matter of their testimony, and streamlines other discovery procedures. This should result in an earlier and more equitable resolution of claims, which the superintendent believes will contribute to a reduction in overall costs to the system.

(c) Rule 3406 of the Civil Practice Law and Rules (section 5 of chapter 294) contains procedures which expedite the filing of cases in the courts and provides for selective pre-calendar conferences to encourage settlements, but empowers the Chief Administrator of the Courts to exempt named jurisdictions from such conferences if no demonstrated need exists. This provision should result in more efficient handling of suits, encourage settlements, simplify or limit issues, and establish a timetable for disclosure, future conferences and trial.

(d) Section 14 of chapter 294 (Judiciary Law, section 1 98-a[1]) and section 22 of chapter 294 authorize, as an experiment, the elimination of mandatory medical malpractice panels in the Fifth Judicial District and Suffolk County, areas in which the panels may have contributed to expensive delays.

(e) The previous items relate to provisions of chapter 294 which the superintendent expects will have both a retrospective and prospective impact on rates. Other changes effected by chapter 294, such as the procedures for the prompt resolution of grievances by patients that might otherwise result in claims of malpractice, and closer review by hospitals of physicians' competence, also will apply to policies with anniversary dates after July 1, 1984 whose expiration dates will occur on or after July 1, 1985, when these provisions became effective.

(v) Taken in the aggregate, the provisions of chapter 294 have so changed the environment that existed at the time that the superintendent approved rates for the 1984-1985 policy period, that the superintendent is compelled to conclude that a 15-percent reduction of those rates is appropriate in order that rates for such policy period comply with statutory rating standards.

(1) All insurers writing policies of physicians medical malpractice insurance are directed to reduce the rates charged for all such policies issued from July 1, 1984 through June 30, 1985 by 15 percent, and to return to their policyholders the dollar amount of such rate reductions. These reductions shall apply to all specialty classifications and territories under both "claims-made" and "occurrence" policies.

(2) In lieu of a refund of premium dollars, insurers may issue a credit against a physician's premium for a policy issued from July 1, 1985 through June 30, 1986. If, however, a physician is deceased, or a policy issued from July 1, 1984 through June 30, 1985 is otherwise terminated or not renewed, then the insurers shall promptly issue a cash refund of the amount due.

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