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The Auto Liability Insurance System and Medical Malpractice
The Liability System and
Medical Malpractice Insurance Issues
Litigiousness has become a societal problem in the United States. The tort sys-
tem cost $254.7 billion in 2008 in direct costs, which translates into $838 per
person, and many billions of dollars more in indirect costs, according to Towers
Perrin’s most recent tort costs study. U.S. consumers pay directly for the high
cost of going to court through higher liability insurance premiums because liability
insurance rates reflect what insurance companies pay out for their policyholders’
legal defense and any judgments against them. And they pay indirectly
in higher prices for goods and services since businesses pass on to consumers
the expenses they incur in protecting themselves against lawsuits, including the
cost of commercial liability insurance.
Beginning in the 1980s, in an effort to reduce litigation costs, business
groups and others mounted a campaign to reform tort law. Tort law is the basis
for the U.S. liability system. Most reforms have taken place on the state level
and during the last decade all but a handful of states passed significant tort law
reforms. However, some have been overturned by the courts.
Many reform efforts have focused on medical malpractice issues. Medical
malpractice insurance covers doctors and other professionals in the medical
field for liability claims arising from their treatment of patients.
The cost of medical malpractice insurance began to rise in the early 2000s
after a period of essentially flat prices. Rate increases were precipitated in part by
the growing size of claims, particularly in urban areas. Among the other factors
driving up prices was a reduced supply of available coverage as several major
insurers exited the medical malpractice business because of the difficulty of
making a profit.
New research suggests that premium increases may be moderating but, for
any significant turnaround to take root, major reforms in the delivery of medical
care that focus on patient safety need to occur, industry observers say.
State Tort Reform Issues
Caps in Noneconomic Damages: According to the National Conference of
State Legislatures, 30 states, the Virgin Islands and Puerto Rico limit jury awards
in malpractice cases. In the past few years, a number court have ruled against
such limits. In Georgia, the Supreme Court ruled that a 2005 state law that limited
jury awards for pain and suffering in malpractice cases to $350,000 improperly
interfered with a jury’s duty to determine damages in a civil lawsuit. In the
decision Chief Justice Carol Hunstein said that limits in any amount violate the
52 I.I.I. Insurance Handbook www.iii.org/insurancehandbook