N. H. med-mal: “early offers,” with a side of loser-pays

by Walter Olson on June 29, 2012

Overriding a veto from Gov. John Lynch, the New Hampshire legislature on June 27 enacted SB 406, establishing the nation’s first “early offer” system for medical malpractice claims. The law establishes incentives for defendants to make offers early in the litigation process that cover plaintiff’s economic losses such as medical bills and lost wages. The early-offer process is at claimants’ option only; claimants are free not to request such an offer. [Kevin Pho; supportive website; trial lawyers' opposition website]

Importantly, the new procedure also contains pioneering elements of loser-pays in both directions. If a claimant chooses to accept a defendant’s early offer of economic-loss expenses, the defendant will pay an additional sum to reflect a scheduled assessment of pain and suffering, plus the reasonable costs of attorney representation. However, if the claimant invokes the early-offer process but then turns down the offer as inadequate, there is a real risk of a fee shift in the opposite direction:

XII. A claimant who rejects an early offer and who does not prevail in an action for medical injury against the medical care provider by being awarded at least 125 percent of the early offer amount, shall be responsible for paying the medical care provider’s reasonable attorney’s fees and costs incurred in the proceedings under this chapter. The claimant shall certify to the court that bond or other suitable security for payment of the medical care provider’s reasonable attorney’s fees and costs has been posted before the court shall consider the case.

At TortsProf, Christopher Robinette explains in some detail (contrary to an error-filled screed in a Litigation Lobby outlet) why this adds up to a generally good deal for claimants (who, of course, are free not to trigger the process if they disagree) as well as making the system fairer. “Early-offer” proposals have been championed over the years by Jeffrey O’Connell, the distinguished University of Virginia torts scholar, and by Philip K. Howard of Common Good, among others. More on loser-pays here.

[Research assistance: Cato Institute intern Byron Crowe; cross-posted at Cato at Liberty]

More from John Steele Gordon at Commentary: “This looks like a big step in the right direction.”

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{ 12 comments }

1 Walter Olson 06.29.12 at 2:51 pm

Prof. Lester Brickman of Cardozo Law School, who has devoted much thought to the “early offers” concept and is the author of the recent and acclaimed Lawyer Barons: What Their Contingency Fees Really Cost America, writes to advise:

“An interesting issue is whether the P’s atty can agree to reimburse the P (“hold harmless”) if the P becomes responsible for reimbursing the D’s lawyer fee. If it is a juicy case, the P’s atty can counsel rejection and back that up with a hold harmless promise. (There may be an ethical issue as to whether the P’s atty can do so.) As I indicate, this means that in at least some cases, the P will not be at risk in deciding to turn down the offer. I cover this issue at pp. 448-451 of Lawyer Barons.

“In addition, I discuss the more general Brickman-Horowitz-O’Connell ‘early offer’ proposal at pp. 451-455.”

2 M. Sean Fosmire 06.29.12 at 6:17 pm

Michigan has a similar “loser pays” rule in its case evaluation process, a form of ADR. The case evaluation hearing takes place before a panel of three attorneys after discovery has been done, and results in a recommended settlement figure. If the figure is unanimous, a party who rejects it must pay the actual costs and attorneys fees of taking the case the rest of the way through trial if he does not “improve his position” by 10%. A plaintiff who does not recover more than 110% of the CE figure has to pay the opponent’s costs. A defendant which does not keep the verdict below 90% must pay the costs of the plaintiff.

This is in most cases a one-way sanction. The typical plaintiff who rolls the dice and loses will not be able to pay the costs to the defense. The defendant’s costs, by contrast, are paid by the insurer.

3 Max Kennerly 06.29.12 at 7:59 pm

I can tell you exactly how I’d react if I practiced in NH:

(1) I would reject every client who already got the early offer regardless of the strength of their case because they wouldn’t be able to post the bond, because they’d expose themselves to fees if they lost (as most claims do), et cetera.

(2) I would have a paralegal dump every weak claim I was going to reject into the early offer system, because there’s no downside and maybe I can scrounge up some change on an otherwise worthless case.

(3) I would advise clients with meritorious claims to stay away, and then would proceed as normal.

In the end, NH has just bought itself a system that will only do two things: first, cause misinformed patients — some of them deliberately misinformed by hospitals and doctors — to forfeit what were meritorious cases by going through a horrible system that, e.g., values permanent paralysis at $140,000 (including both pain and suffering and lost earning capacity); and, second, give plaintiff’s lawyers an incentive to dump weak cases into the system and then grab whatever offer is thrown at them.

I find neither of these outcomes to be of any value to society.

Lagniappe factoid: I’m pretty sure I was in the first Torts class that Christopher Robinette ever taught.

4 Vern Dennis 06.30.12 at 1:44 pm

paraphrasing Kennerly’s comment on Obamacare

Watching a bunch of personal injury attorneys cry about tort reform is, shall we say, amusing.

5 Max Kennerly 06.30.12 at 2:36 pm

I’ll find other areas to practice in, so it’s funny to think of me being frustrated and nervous and looking for other work.

For the malpractice victims, they’re just out of luck. When you think about the 100,000 preventable malpractice deaths every year, and the $20 billion in economic damage alone caused by malpractice, well, it just isn’t nearly as funny.

By the way, do you think the rest of your working life is worth something? Because under NH’s early offer law, injury to your earning capacity isn’t factored into “economic loss.” If you’re blinded by malpractice and so can’t work, the loss in income to you is valued at $0. I know, funny, right?

6 Walter Olson 06.30.12 at 8:59 pm

Max is simply wrong to assert that a blinded person would recover $0 for injury to earning capacity. When he made the same claim in comments at TortsProf, Christopher Robinette pointed out (see third comment) “Section 519-C:5 requires payment of future economic losses as they accrue. Specifically, II(b) requires future lost wages to be paid weekly and it includes a mechanism for wages to keep up with inflation.”

http://lawprofessors.typepad.com/tortsprof/2012/06/early-offers.html

7 Walter Olson 06.30.12 at 9:45 pm

Robinette has a further post on the distinction between lost future wages (which are covered) and loss of damages based on arguments that one would have held better jobs down the road: http://lawprofessors.typepad.com/tortsprof/2012/06/does-early-offers-cover-future-lost-wages-yes.html

8 Max Kennerly 07.01.12 at 1:13 am

Walter: you are wrong. The NH specifically excludes earning capacity entirely.

What it leaves is “lost wages” that can be sought over and over again — on a weekly basis, talk about being “overlawyered” — until, at the hearing examiner’s discretion, they’re reduced or discontinued. What are the lost wages of a woman on maternity leave? Of a college senior? Of a law student on graduate day? Of a 17 year old? Of someone who just retired? Of a self-employed business person who just founded a new business that’s not yet profitable? Zero, zero, zero, zero, zero, zero.

Sure, plaintiff’s lawyers will fight like hell to cram everything they can into “lost wages as they accrue,” but wait until you see the first appellate court decisions come down pointing to the specific exclusion of “earning capacity.”

Here’s a bigger question: if, as you say, “earning capacity” will be incorporated in lost wages as they accrue, why specifically exclude “earning capacity” at all? Why do you personally think this is a good idea? Why not include loss in “earning capacity” among the economic damages, as all rational people do?

Nonetheless, anyone interested in chasing down the rabbit hole of torts law should read Robinette’s post (and, naturally, my comments there).

9 Walter Olson 07.01.12 at 7:51 am

I agree that readers who want to find out whether Max or I are right should read Robinette’s two posts and the cited comment, and above all read the actual text of the bill and its s. 519-C:5 itself (defendant “shall” pay future wages).

10 Max Kennerly 07.01.12 at 9:46 am

Indeed — and everybody who claimed the early offers include “economic loss” should update their posts to “patients will be offered a settlement for past economic loss, but zero compensation for future losses. They will then be turned into paupers who have to beg weekly for any wage losses that accrue, except for loss to earning capacity, which is specifically excluded by statute and so will never be available. Also, that weekly begging process will at some point fail for reasons completely outside of the patient’s control.”

Doesn’t sound nearly as inviting that way, does it? Not one person advocating for this bill mentioned that “economic loss” in it means something completely different from “economic loss” in the law and in the English language.

11 Walter Olson 07.01.12 at 10:06 am

Max, I know you’re reluctant to concede that you misread the statute at first, and I know you’re eager to tout the advantages of litigation (we’ll get you a lump sum now!”) over the particular package of benefits afforded by the N.H. statute (to pretend that the monthly lost-wage check must be begged for every time is about as realistic as pretending that private disability insurance coverage — which also fails to cover future improvements in earning capacity — requires you to take the insurer to court each month for the check.) As Prof. Robinette explains in his thoughtful exposition, there are individual cases in which he as a former plaintiff’s lawyer would advise claimants to refrain from exercising the early-offer option because of their particular circumstances. But that’s very different from what you wrote above: “If you’re blinded by malpractice and so can’t work, the loss in income to you is valued at $0.” When you wrote that comment, had you read s. 519-C:5?

12 Max Kennerly 07.01.12 at 10:24 am

I had read it: fact is, blinded person receives $0 for loss of “earning capacity.” I know you are reluctant to concede (or to defend) the re-defining of “economic loss” to specifically exclude “earning capacity,” but it’s right there on the face of the bill. Also on the face of the bill is the $0 for future damages in every early offers; what you get after that is a screwy, partial version of workers’ comp that includes all the problems of workers’ comp with few of the benefits. Courts can and do suddenly discontinue lost wages, under reasoning like, for example, “The probability that he would still be working at a given date is constantly diminishing.” Jones & Laughlin Steel Corp. v. Pfeifer, 462 US 523 (1983). That’s why lump-sum is usually preferable for plaintiffs.

It’s not a question of encouraging litigation. It’s of ensuring compensation for seriously injured victims and of discouraging frivolous litigation. The NH bill does the opposite; there’s no circumstance under which a seriously injured person should use it and yet, if one does, they’re effectively precluded from suit; and, the system strongly favors throwing meritless cases at the early offer system. If they had this in PA, I would dump 75% of my medmal intake into it, because the claims are arguably meritorious but not really worth the risk of real litigation. What good does that do anybody?

This argument is what happens when there’s a weekend heat wave in the northeast. Short story is: all you’ve going to get out of NH’s system is cheating a couple good cases bamboozled into the system and then a huge burden for everybody with hundreds of claims with minimal injuries or unprovable negligence. I don’t think that advances the ball for anybody except negligent doctors and troll plaintiff’s lawyers, the two groups none of us want to support.

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