Monday, July 2, 2012

More on Early Offers

I realize we have readers not terribly interested in early offers.  I hope to take a break from them after this.

            Max Kennerly, of the Beasley firm in Philadelphia, posted some comments on my previous early offers posts and, instead of answering them piecemeal, I want to address them comprehensively.  The crux of Kennerly’s opposition to early offers is actually the same as my support for them:  the desire that claimants receive compensation.           

            As I understand Kennerly’s comments, he has two principal objections.  First, the penalty for turning down the offer will exacerbate the amount of claimants who do not recover because it will prevent lawyers from taking their cases.  Second, the amount of  and process to obtain the early offer would be insufficient for a variety of reasons. 

The Penalty for Turning Down the Early Offer Will Lead Attorneys to Turn Down Cases.

            Kennerly notes a 2006 New England Journal of Medicine article finding that approximately one in six claimants with valid claims did not recover.  He believes the addition of the bond and fee-shifting will mean more claimants will not be able to obtain a lawyer (because of the risk involved).

           There are two responses to this concern.  First, New Hampshire’s law has safeguards in place that encourage claimants to have an attorney involved in the initial decision of whether to seek an early offer.  Unrepresented claimants are assigned a neutral advisor whose job is to encourage the claimant to seek an attorney and explain the difference between early offers and traditional tort law.  Thus, many claimants will likely have attorneys before the offer is requested, reducing (but not eliminating) the scenario Kennerly fears.  In this vein, I’m actually more concerned that claimants who would benefit from early offers will fail to request them on the advice of counsel than I am that claimants will request an offer when it is ill-advised. 

            Second, and more significantly, the only way a claimant will have the burden of fee-shifting attached to the claim is if the claimant requested an offer and the offer has been made.  In other words, the claimant has already been assured economic loss (on this issue, see Kennerly’s next objection), a modest amount for pain and suffering, and the payment of her attorney’s fees.  If the concern is that one in six claimants with valid claims recovers nothing, surely this is an improvement.  Especially when one considers the fact that the most egregiously injured claimants often recover only a portion of economic loss pursuant to tort law.  

  

The Amount of and Process to Obtain the Early Offer Would Be Insufficient. 

            Kennerly has a number of objections to the amount of and process to obtain an early offer.  As to the amount, he believes that economic loss is not properly included in the law.  Economic loss is the recovery by the claimant of the actual out-of-pocket expenses caused by the tortfeasor.  The largest categories of economic loss, or “specials,” are medical bills and lost wages.  Past medical bills and lost wages are paid at the time the claim is made and accepted.  Future medical bills are paid as the bills accrue.  Kennerly currently objects to the method of payment of future lost wages.  He thinks:  (1) they should be paid in a lump sum and (2) future economic losses are incomplete because of an exclusion for “earning capacity.”  

            In repaying economic loss for future lost wages, there is nothing necessary about paying a lump sum.  It was generally understood to be a trade off of less accuracy for administrative efficiency.  Making calculations about what someone will earn 30 years from now involves a considerable amount of guess work.  (One of my favorite examples of this comes in the related area of future medical expenses.  In Seffert v. Los Angeles Transit Lines, “Drugs for 34 years” was estimated at $1,000.  The plaintiff likely paid more!).  Paying the wage losses as they accrue, with increases for inflation, seems acceptable for an alternative compensation program like early offers.

            The issue of whether a claimant would receive complete economic loss because of the exclusion for “earning capacity” has been discussed at length.  Kennerly is concerned that the exclusion will cause any number of claimants, such as college students, to receive essentially nothing for future wage loss.  I think the statute as written should be interpreted differently.  The statute provides for payment of future lost wages and it includes in economic loss “100% of the claimant’s salary, wages, or income from self-employment or contract work lost as a result of the medical injury.”  It also makes clear that in the analogous situation of a minor injured prior to the age of majority who is unable to work, payment for future lost wages will be based on a particular wage index.  Perhaps not the individuation Kennerly wants, but substantial.    

            Still, I wondered about the meaning of “earning capacity,” which was not defined in the statute.  Jeffrey O’Connell advised on the drafting of the statute, and it turns out that language is his and was not changed during the course of negotiations.  He explained the intent of the phrase.  Loss of earning capacity is to be distinguished from loss of actually expected earnings.  It covers, for example, the spouse of a wealthy individual who is not working now, and is not necessarily expecting to be employed, for the loss or lessening of the potential to earn money.  Apparently, this is recoverable in some jurisdictions.  That clarification is being sought, which should remove any doubt about the matter. 

            Finally, Kennerly has objections to the procedure of obtaining compensation under early offers.  First, he said there is a danger of discontinuing the accrual payments at any time (a point related to his lump sum argument).  This is unlikely for two reasons.  First, there are the procedural safeguards I’ve mentioned before.  I won’t repeat them now, but they are in this post (under point 2).  Second, reneging on promised compensation is not in the interest of the health care providers who sought this law in the first place.  They wanted an alternative way to compensate injured patients.  If no one uses the alternative, it is worthless.  Reneging on payments will ruin any chance that attorneys will recommend the early offers process.

            His second procedural objection is to the administrative burden of submitting expenses as they accrue.  There is undoubtedly a burden in so doing.  However, it is easy to overemphasize it.  Medical bills are already processed by health insurers.  Claimants earning a salary should be easy to process.  Once the health care provider has the salary, it must be divided into weekly installments and updated annually for inflation.  That’s not difficult.  Hourly earners will undoubtedly be more trouble.  However, there are large administrative burdens to a malpractice case as well.

            Kennerly has 2 final points.  First, he said if you want an early offer system, you don’t need a law.  The insurers and health care providers can simply make their offers earlier.  They could, but they don’t.  And they won’t.  They are doing what makes economic sense to them.  And they will continue to do so unless different incentives are put in place.  (There is also the possibility of a contractual alternative, but new incentives are needed.)           

            Finally, he is concerned that only weak cases will be dumped into the early offer system, meaning that anyone compensated through it will be undeserving.  Unlike many auto cases, med mal cases tend to involve very serious losses.  Serious losses cost serious money.  Insurers may settle weak auto cases for nuisance value, but I don’t see them settling weak med mal cases, even pursuant to early offers.  The incentives aren’t there.  Moreover, there are claimants who would prefer to avoid litigation and receive swift and certain compensation, even if their case is strong.  They should have this opportunity.

--CJR

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Comments

Nice work calling up O’Connell. If the statute is revised to clarify that "economic loss" is really "economic loss," and not "economic loss minus whatever the court construes 'earning capacity' to mean," then my objection there will be limited to the lump sum versus the periodic payments, which is more a policy matter.

On the penalty issue, the reason I bring up the 1-in-6 figure is to show that malpractice cases, even strong ones, are risky. Every plaintiff's firm routinely turns down meritorious cases because, despite the merit, they're just too risky. Once you add fee-shifting for anything less than 125% of the offer, then malpractice cases become far more risky — to the point that no reasonable plaintiff's lawyer would ever take one. The risk of losing, even with a meritorious case, is simply too high.

Thus, "early offer" is not "early offer," because it is not an "offer," it is the final award, because there is no practical way to keep going forward after turning the offer down. Thus, a far better term for it would be "binding arbitration," because it's effectively the same thing: giving up any rights of jury trial or appeal to have a (hopefully) neutral third party determine your compensation.

I see no reason why any plaintiff with a meritorious case would choose that route, unless they were misled into it, whether by the neutral or by an unscrupulous plaintiff's lawyer. What's to stop a lawyer from putting an ad in the phone book and then blindly sending every single malpractice call they get, regardless of merit, into the early offer system? Under the prior system, their incentive is to reject non-meritorious cases and then pursue meritorious cases to a maximum recovery, but under the new system the profit-maximizing approach is to dump everything into the cheap and easy system. That will then clog up the system with meritless cases, plus add a number of meritorious cases that shouldn't be there and wouldn't be there if the plaintiff was properly advised.

Posted by: Max Kennerly | Jul 2, 2012 1:55:21 PM

Max,

Believe it or not, I'll be brief. A claimant with a valid case might prefer early offers precisely because of the large risk of recovering nothing, and having to wait an average of 5 years enduring the pains of litigation to do so. It will only make sense for lawyers to dump weak cases into the early offer system if those claims are paid. I don't think health care providers will have incentives to pay weak claims; these claims are to costly.

Posted by: Chris Robinette | Jul 5, 2012 7:18:55 AM

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