Friday, March 25, 2005

More on Malpractice Rates and Defense Costs

At Point of Law, Ted Frank has now responded to Tiberius' reaction to our own post about the notion that defense costs for unpaid claims account for the malpractice "crisis."

Frank raises a point that initially looks hard to contest in the abstract: Malpractice insurers must defend even meritless suits, rather than reflexively settle them for nuisance value, because if all that is needed to elicit a settlement check from an insurer is to file a claim, then members of the plaintiffs' malpractice bar will file against that insurer's policyholders every time they lay their hands on even the weakest of claimants.

There are two ways to argue about these issues, we suppose. One is to study them empirically. The other is to argue from what Theory Predicts. It probably makes sense to pursue both angles. It would be nice, in the end, to reach a considered view that harmonized with both Theory and the empirical facts.

So let us give Theory its due. Why then doesn't Theory Predict that the malpractice plaintiffs' bar will eventually give up filing unremunerative claims? Why, indeed, doesn't Theory Predict that it should already have done so? Yes, there are transaction costs to defending even worthless claims. But there are transaction costs to filing and litigating them too. If insurers never pay the weak claims, shouldn't rational plaintiffs' counsel stop filing them and move on? Why should they respond by filing still more weak claims, incurring still greater expense, and losing still more money? Why, in particular, would we expect them to have done so with such gusto, lately, that malpractice premiums have spiked by 30% to 50% or more?

There may be empirical answers to these questions, or there may be conceptual ones. The best conceptual candidate, we suspect, would be a claim that lawyers cannot determine in advance which claims are strong or weak (in the settlement-value sense), because malpractice litigation is effectively a lottery, with results largely random with respect to the objective attributes of the claim. In such a situation, plaintiffs' lawyers might go on taking turns at the roulette wheel, because their pile of chips would be randomly replenished with sufficient frequency to warrant a continued sojourn in the casino.

We don't want to write the "tort reformers'" rhetorical playbook for them, but if that were indeed the line of argument, there would be at least two things to say about it: (1) It rests on an underlying factual assumption (the "lottery" assumption) that may be amenable to rigorous empirical investigation (e.g., compare samples of verdicts in like cases -- as has already been done, for all we know). (2) If the assumption is not in fact amenable to rigorous empirical investigation (maybe weak medical malpractice claims are like snowflakes, so that assembling them into categories of comparable claims is insuperably difficult), then seemingly it cannot be defended on the alternative ground that Theory Predicts it. Theory may predict some random variation in verdicts, but not (we suspect) any a priori level of variation.


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Fed. R. Evid. 702: If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.