Overturn of Caps on noneconomic damages in Georgia

PRESCRIPTION OF THE MONTH

Charles Malmquist, CPCU, ARM, AAI

770.912.1201

Paul Tuggle, CPCU

770.913.1208

John Lowden

770.913.1209

Ron Cuen
770.912.1204

Georgia's Caps Repealed
Under Georgia's Tort Reform Law enacted in 2005, a cap of $350,000 was placed on non-economic damages for claims against physicians and hospitals, subject to a maximum for cases involving multiple defendants, or where two or more medical facilities were involved, of $1,050,000.

On Monday, March 22, the decision of the Georgia Supreme Court's case of Atlanta Oculoplastic Surgery PC v. Nestlehut repealed Georgia's present caps on noneconomic damages. In a unanimous decision, the Court held that a cap in any amount is unconstitutional. Chief Justice Hunstein, writing on behalf of the Court, indicated that the determination of damages was to come from a trial and by the jury, not through the legislature.

Special ER Provision Upheld
This opinion came one week after the Georgia Supreme Court ruled in a split decision of 4/3 to uphold the special standard of care granted to Georgia emergency room physicians under the 2005 Tort Reform Act. In Cousineau v. Gliemmo, the Court upheld the decision that the plaintiff must establish by clear and convincing evidence that an ER physician committed gross negligence. Justice Carley said the Georgia Legislation had a legitimate reason to promote affordable malpractice insurance for hospitals and healthcare providers.

Impact on the Market and Future Premiums
How will these recent court decisions impact the medical malpractice insurance market for Georgia's physicians and hospitals?Certainly the positive ER ruling will help support a continued stability in premiums for the ER physician and hospitals operating an ER Department; however, the repeal of the caps on non- economic damages will, in time, have a negative effect on premiums, as one would expect to see a rise in both loss costs and in costs associated with the defense of medical malpractice claims.

The timing of the premium changes and the amount of the increase will vary by insurance company based upon the following criteria:

1) How much did the insurance company rely on the protection afforded under the caps when setting their current premiums? The more reliance placed on the cap protection, the more quickly an adjustment in premiums may be needed and the possibility of a steeper increase.

2) Did the insurance company adjust their internal loss reserving practices to account for damage limitations afforded by the caps? The repeal of the caps is retroactive and would apply to any open claim. If the insurance company did significantly adjust their reserving practices to account for caps, they may find themselves scurrying to adjust their reserves. This could translate into requiring more premium in the future.

Could Georgia Follow a Similar Path?

The Illinois Supreme Court overturned caps in the state approximately 45 days ago. (Under Illinois' 2005 Tort Reform Law, non-economic damages were capped at $500,000 for physicians and $1,000,000 for hospitals.) Early actuarial studies are suggesting the loss cost in Illinois will increase by 23%, and loss adjustment expenses by 10%, for an average increase of 18%. What remains unclear at this time is how much of the 18% increase will be felt in medical malpractice premiums for physicians and hospitals going forward. Could Georgia follow a similar path?

Tort Reform Did Work
Most Georgia physicians and hospitals have enjoyed premium savings since the passage of the Tort Reform Act in 2005. These savings vary by facility and medical specialty but have a range of 10-20%. Moreover, the improved legal climate in our state following Tort Reform has attracted additional insurance companies writing medical malpractice insurance into the State, increasing choices for physicians and hospitals and fostering rate competitiveness. The repeal of caps will no doubt give the current insurance carriers in the state, or potential new carriers, reason to pause.

"Survival of the Fittest"
When cornered by a predator, a starfish can sacrifice a limb and it will grow back after the danger has passed. A chameleon, even if blinded, can still change colors to camouflage itself in its environment. These two animals are examples of being equipped for danger. By their very nature, animals appear to be built for adaptability, change, and yes, survival. We would submit that the same is required of you to survive in today's challenging and evolving healthcare environment.

For over 90 years Potter Holden & Company has partnered with its clients to provide sound
market intelligence in order to navigate safely through the turbulent times. For more information
about the market, questions, or to review your strategic plan, please don't hesitate to contact us.

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