551-11

When a malpractice claim is made against an individual with malpractice insurance there are two important economic benefits that flow to the policy holder: (1) the insurance company will provide the insured doctor with a defense. This means a lawyer of the insurance company’s choosing will be assigned the job of representing the doctor and that attorney’s fees will be paid for by the insurance company, and (2) if there is a settlement or if the case goes to trial and the doctor loses the insurance company will, so long as the policy limits have not been used up**, pay the loss. This second benefit is referred to as the indemnification clause. Both benefits are important. The cost of defending a case can be a little scary for those that have not been around litigation.

. Recently published data shows the average cost of defending a claim is about $42,000. Complicated cases can be much higher than that. These costs are absorbed by the insurance company whether they win or lose.

Legal fees eat up a large portion of the defense costs, but this is not the only component of defense costs. In addition to paying lawyers retained to defend the accused doctors the insurance company pays for the services of expert witnesses. Virtually every malpractice case has at least one expert witness. These are individuals that come to court to testify. Many cases have multiple expert witnesses. The last malpractice case that I was involved in had six expert witnesses. Experts typically get $7,000 to $15,000 to testify. Both sides want to present experts with brilliant credentials that have the ability to effectively communicate complicated medical issues to a lay jury. In addition to explaining the case the experts are usually called upon to state their opinion about whether or not the defendant physician deviated from the standard of care.

In addition to lawyers and expert witnesses there are other expenses such as travel expenses and deposition expenses. Typically experts are out of town and it is common for them to testify by way of a deposition. A deposition is a meeting where witnesses are sworn in and give testimony outside of the court room. The transcripts of these meetings are transcribed. All of this costs money.

As a general rule the more money that is at stake, (the greater the damages suffered by the plaintiff), the more money the insurance company is willing to spend to defend the case.

**Malpractice policies always have limits. This is the maximum amount that the insurance company has at risk. Most policies have split limits. As an example a split limit policy with limits of $1M/$3M, means that the insurance company will for that year never pay put more than a total of $3 million no matter how many claims are filed; and it also means that they will pay out no more than $1 million on any single claim.

The cost of malpractice insurance varies from place to place and specialty to specialty.

This report from the Government Accounting Office is now several years old and trends have changed, but it remains a useful report for demonstrating the extraordinary variation that there can be between what one doctor pays and what another doctor pays for malpractice insurance. You do not need to read the entire GAO report, but do look at the chart that appears as figure 3 on page 14 of the report. Also read the page that precedes that chart, (p. 13).

Prices for malpractice insurance are lower today than they were in 2003 when this report was written. However, the large variation between the price of insurance in South Florida and the price in Minnesota remains alive and well. Also, alive and well is the spread in cost between what an internal medicine doctor pays and what an ob/gyn pays.

http://www.gao.gov/assets/240/238724.pdf GAO report on malpractice