AGENDA 2005: A GUIDE TO THE ISSUES GEORGIA PUBLIC POLICY FOUNDATION. Legal Reform

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1 Legal Reform Agenda Ensure that Georgia s tort and contract laws do not discourage the development of business in the state Ensure that Georgia s procedural laws are appropriate for the equitable distribution of justice Require any scientific evidence or other expert testimony to meet a minimum threshold of reliability based on verifiable facts, published literature and industry-accepted standards before being presented to a jury Adopt a version of the federal offer of settlement rule to discourage the trial of cases in which there is either little merit to the claims or unreasonable demands for damages Codify the recent U.S. Supreme Court ruling on punitive damages to give Georgia trial court judges greater latitude when reviewing and a stronger mandate to review the award of punitive damages Monitor the proliferation of state class action filings in Georgia Implement mandatory malpractice review panels Facts General Civil Litigation The U.S. tort system cost $205 billion in 2001, or $721 per U.S. citizen, representing a 14.3 percent increase in tort costs since the year The U.S. tort system is a tremendously inefficient compensation mechanism, returning only 50 cents on the dollar to the plaintiff in the form of compensation, and only 22 cents on the dollar in reimbursement for economic losses. 2 Medical Liability and Litigation Medical malpractice costs have risen an average of 11.6 percent a year since 1975 in contrast to an average annual increase of 9.4 percent for overall tort costs. 3 Median malpractice awards (including both jury awards and settlements) per paid claim have doubled in real terms between 1990 and In Georgia, the number of medical malpractice claims of $500,000 or more have doubled since 1995, and claims of $1 million and $2 million or more have tripled. 5 Program administration defense and underwriting costs accounts for approximately 60 percent of total malpractice costs, and only 50 percent of total malpractice costs are returned to patients. These costs are high even when compared with other tort-based systems, such as automobile litigation or airplane crashes, that determine fault and compensate victims. 6 Losses on medical malpractice claims which make up the largest part of insurers costs appear to be the primary driver of medical malpractice rate increases in the long run. 7 The Georgia Trial Lawyers Association argues that caps on non-economic damages do not reduce malpractice premiums. 8 Emory health care expert Ken Thorpe studied data from 1985 to 2001 and found that premiums in states with a cap on awards were 17.1 percent lower than in states without such caps. 9 Negligent adverse events occur much more frequently than malpractice claims; however, physicians are more likely to be sued for rendering non-negligent care. Most of the individuals who are injured due to negligence (malpractice) do not sue. In fact, 97 percent of the patients who suffered negligent injury did not sue

2 Less than one quarter of the patients who filed a malpractice claim were found to have injuries caused by negligence. 11 Of MAG Mutual s cases that have gone to trial since 1982 in Georgia, 82 percent have resulted in verdicts in favor of the physician. 12 The average cost to defend a malpractice case in Georgia is $178, Repeated studies over time and across several states show a consistent rate of adverse medical events due to negligence. In 1974, a study of California hospitalizations found adverse events occurred in 4.65 percent of the cases, with 1 percent due to negligence. Ten years later, a study of 1984 hospital discharges in New York State found an adverse event rate of 3.7 percent with 1 percent due to negligence. Eight years later, two studies reviewed 1992 hospital discharges in Utah and Colorado. Both studies found adverse event rates of 2.9 percent and negligence rates of 1 percent. 14 Agenda Ensure that Georgia s tort and contract laws do not discourage the development of business in the state In dealing with tort and contract issues affecting business, policy-makers must provide access to the courts while at the same time not allowing business to be exposed to undue liability. When confronted with a proposal to reform the civil litigation system, legislators should ask themselves the following questions: Will this law ensure that individuals have access to the court system? Will this law discourage the development of business in Georgia? What are possible unintended consequences of adopting this law? Will this law encourage unwanted forum shopping that will make Georgia more appealing for frivolous lawsuits? Will this law unfairly bias one party versus another? Businesses should be responsible for reckless or negligent acts, but Georgia legal policy should not encourage frivolous lawsuits or forum shopping nor perpetuate the lottery mentality that has crept into the jury system nationally in recent years. Ensure that Georgia s procedural laws are appropriate for the equitable distribution of justice The goal of procedural laws is to balance the playing field for both parties and ensure the fair and equitable distribution of justice. Require any scientific evidence or other expert testimony to meet a minimum threshold of reliability based on verifiable facts, published literature and industry-accepted standards before being presented to a jury In complex lawsuits, expert testimony is often admitted to assist the jury in deciding issues that require specialized knowledge that the jury simply does not have. Such witnesses have great power to sway the jury, as they come with special qualifications that are expressly accepted by the court, and they are authorized by law to proclaim their opinions, even on the ultimate issues in the case. The law s historically broad admission of expert testimony has been questioned in recent years because it seems to grant equal weight to the opinions of hired gun testifiers and principled men and women of science, with only a jury to distinguish between the two. The dangers of admitting such junk science in the courtroom are now well documented and are a threat to just and equitable outcomes. 68

3 While Georgia courts have done almost nothing to assure that admitted expert testimony is indeed principled, the federal courts have imposed gate-keeping responsibilities on the trial judge, requiring him to test the reliability of expert testimony. In Georgia, however, O.C.G.A. Section provides that expert testimony will virtually always be admitted as long as the expert has appropriate degrees, training or experience. Thus, for instance, under Georgia law, a pediatrician could conceivably be allowed to testify about the link between power lines and brain tumors in adults a topic well outside of the pediatrician s field. The state must adopt a rule that ensures that, before being presented to a jury, any scientific evidence or other expert testimony must meet a minimum threshold of reliability based on verifiable facts, published literature and industry-accepted standards. The trial courts must act as gatekeepers of the evidence to exclude any unreliable opinions or questionable methodologies. Although there will always be areas of doubt and debate in this arena, Georgia should consider adopting a variation of the U.S. Supreme Court s interpretation of Federal Rule of Evidence 702 (Testimony by Experts), 15 particularly as it was applied in a 1993 U.S. Supreme Court case, Daubert v. Merrill Pharmaceuticals, 16 and subsequent federal cases that extend such an interpretation not only to purely scientific issues but also to disputes involving business. Simply adopting such a rule would immediately put Georgia on a level playing field with most of its counterparts, would limit forum shopping in Georgia and would provide an existing body of law that would provide guidance on these increasingly important topics. Adopt a version of the federal offer of settlement rule to discourage the trial of cases in which there is either little merit to the claims or unreasonable demands for damages Rule 68 of the Federal Rules of Civil Procedure provides for cost shifting when an offer of settlement is refused. Under the rule, if a defendant makes an offer of settlement that is refused by the plaintiff, and the plaintiff, upon trial of the case, gets a result less favorable than the defendant s offer, then the plaintiff must pay certain court costs incurred by the defendant. Georgia s Civil Practice Act, which governs the procedure for bringing civil suits in Georgia, does not currently have an offer of settlement rule. Georgia should adopt a version of Federal Rule 68. Although attorneys fees are not included in the federal rule, policy-makers should seriously consider including them in any proposed legislation. Such a rule would encourage a defendant to make a full and rational assessment of liability as early as possible after a lawsuit is filed. If the defendant determines any liability, then the rule makes it in the defendant s best interest to make an early and full settlement offer to the plaintiff or risking, among other things, accumulating unnecessary legal fees. The following example illustrates how such a rule would work in Georgia. Within a prescribed time period (e.g., no less than 10 days before trial), a defendant would make an offer to the plaintiff. If the plaintiff rejects the defendant s offer, then the plaintiff is free to proceed to trial. If, however, the jury makes an award that is less favorable to the plaintiff than was the defendant s offer, then the plaintiff will be required to pay for the defendant s costs, including attorneys fees, incurred from the time the plaintiff rejected the offer. By imposing this risk of cost shifting on the plaintiff, the plantiff has an incentive to accept reasonable and fair offers by the defendant. Consequently, such a rule would discourage the trial of cases in which there is either little merit to the claims or unreasonable demands for damages. Codify the recent U.S. Supreme Court ruling on punitive damages to give Georgia trial court judges greater latitude when reviewing and a stronger mandate to review the award of punitive damages 69

4 State legislatures enjoy broad discretion in authorizing and limiting permissible punitive damages awards. 17 Despite this broad discretion, the Due Process Clause of the Fourteenth Amendment to the federal Constitution imposes substantive limits on that discretion. 18 That clause makes the Eighth Amendment s prohibition against excessive fines and cruel and unusual punishments applicable to the states. 19 The Due Process Clause itself also prohibits the states from imposing grossly excessive punishments in tort cases. 20 Thus, the award of punitive damages is subject to constitutional review. With that background in mind, the United States Supreme Court recently ruled that because the level of punitive damages is not really a fact tried by the jury, the application of punitive damages is an issue of law for the court. 21 In addition, the Supreme Court held that federal courts of appeal should apply a de novo review (i.e., independent review of the record) of district court determinations of the constitutionality of punitive damages awards. 22 Georgia should consider codifying a variation of the Supreme Court ruling concerning judicial review of punitive damages. At the trial court level, judges, who have a broader scope of experience and should have a better ability than juries to distinguish between egregious behavior and mere accident, should have greater latitude when reviewing and a stronger mandate to review the award of punitive damages. 23 In addition, trial court judges should be required to enter an Order of Findings to justify the award that can be reviewed by appellate courts. Furthermore, courts of appeal should be authorized to review any award of punitive damages de novo. Monitor the proliferation of state class action filings in Georgia Over the past several years, the filing of class actions in state courts has become more prevalent around the country. Consequently, some of the larger, and more high-profile, class action settlements have resulted from the increased popularity of using state courts as the venue of choice for such lawsuits. Georgia s class action statute is essentially a truncated and less rigorous version of the federal rule governing class actions. 24 Georgia policy-makers would be wise to monitor the number and outcome of class action lawsuits filed in state courts in Georgia to ensure that the system does not fall prey to abuse. Should problems arise with Georgia s class action statute, policy-makers should consider adopting the more thorough federal rule. Implement mandatory malpractice review panels There are clear shortcomings in our current tort-based system of promoting patient safety. Although medical tort costs have clearly increased over the last 30 years, multiple studies indicate that malpractice rates have remained constant. With all the advances in medicine in that period, it is inexcusable that individuals being admitted to the hospital today are just as likely to be victims of medical malpractice as they were in The system is also very inefficient. Ninety-seven percent of the patients who suffer from negligent care do not sue. Most of the individuals who do sue end up losing. In Georgia, doctors are found innocent of malpractice more than 80 percent of the time. Several assumptions can be made from these findings. It may be that the threat of litigation, as opposed to its intended purpose of providing incentives for better care, may actually hinder health care providers from admitting and learning from mistakes. A better system would encourage information sharing and a focus on investigating and reducing medical errors. A model such as that utilized by the Federal Aviation Administration to investigate and prevent airline crashes is much more effective. It may be that the majority of those injured by negligent care do not sue in some instances because, upon examination by an attorney, their award in a winning case would not be sufficient to cover legal 70

5 expenses. Some have suggested that this amount may be as high as $250,000, but it would vary on a case-by-case basis. Regardless, a better system would give these individuals an opportunity to receive compensation for their injuries. Finally, it may be that some attorneys and/or individuals are not very proficient at projecting success at trial, which would explain why the great majority of malpractice cases are decided in favor of the health care provider. A better system would provide individuals, health care providers and attorneys on both sides with an objective assessment of the case based on factual data and expert opinion. One step toward a more effective system would be to enact a system of mandatory medical malpractice panels based upon successful practices of other states. The first step in a Georgia system would be for litigants in medical malpractice cases to submit their claim to a review panel. That panel should comprise five members: three physicians and two attorneys. The physicians and attorneys can be randomly selected from a pool, and being available to serve on the panels could be a requirement for a professional license. Litigants should be able to strike at least one panel member. Panel members should be compensated for at least one day of service. Once created, the panel should review only written evidence, such as the medical chart, affidavits and depositions. This process would work to focus the inquiry on objective evidence and prevent potentially excessive testimony. Upon completion of its review, the panel would make findings as to liability and damages. Importantly, if either party is dissatisfied with the panel s conclusion, it may move for trial after a 30-day waiting period. As in many other states, the panel s finding regarding liability should be admissible at trial, and fairness dictates that panel members should be available to testify. Fairness would also dictate that at trial the dissatisfied party must obtain a reversal of the award, or an increase or decrease in damages by 15 percent, or be assessed the fees of the panel, court costs and reasonable attorney s fees. The mandatory medical malpractice panel system works. Of the 21 states that enacted such a system, only three (14 percent) are considered crisis states by the AMA. Conversely, 66 percent of the 12 states that repealed their system are listed as crisis states. Moreover, the system is likely to pass constitutional muster. Currently, the Fulton County Superior Court requires litigants in non-medical malpractice cases involving alleged damages of $25,000 or less to submit to nonbinding arbitration. The Georgia Supreme Court has upheld that requirement over claims that it denies a party s access to courts, violates separation of powers and infringes on litigants rights of equal protection. The malpractice crisis is robbing many Georgians of health care options, and it will continue to do so until Georgia returns to the ranks of the crisis-free states. The General Assembly needs to enact a mandatory medical malpractice panel system as a fair and equitable means of reducing the jackpot justice mentality that underlies medical malpractice claims. The panels are just what the doctor ordered: leaving the courts and juries as the final arbiters of medical malpractice claims while inducing cost-cutting settlements. For more information, see The Need for Mandatory Medical Review Panels: The Medical Malpractice Crisis in Georgia, 25 and Major Reforms Needed in the Medical Liability Tort System

6 Endnotes 1. U.S. Tort Costs: 2002 Update, Tillinghast-Towers Perrin. 2. Ibid. 3. Ibid. 4. Kenneth E. Thorpe, The Medical Malpractice Crisis : Recent Trends and the Impact of State Tort Reforms, Health Affairs, January 21, 2004, 5. Alan Plummer, Medical Liability in Georgia: The Crisis Is Now, MOMENTUM 3 (Winter 2003), Kenneth E. Thorpe, The Medical Malpractice Crisis : Recent Trends and the Impact Of State Tort Reforms, Health Affairs, January 21, 2004, 7. GAO study, June Setting the Record Straight: It s a Malpractice Insurance Cycle - Not a Tort Crisis, 14, 9. Kenneth E. Thorpe, The Medical Malpractice Crisis : Recent Trends and the Impact Of State Tort Reforms, Health Affairs, January 21, 2004, Harvard School of Public Health, Brigham and Women s Hospital, newsdetails.asp?dept_id=&news_id=18231&rso_abbrev=bwh. 11. Harvard School of Public Health. 12. MAG Mutual Insurance Company. 13. Ibid. 14. Harvard School of Public Health. 15. Federal Rule of Evidence 702 states [i]f 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 U.S. 579 (1993). 17. Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 433 (2001). Compare BMW of North America, Inc. v. Gore, 517 U.S. 559, 568 (1996) (States necessarily have considerable flexibility in determining the level of punitive damages that they will allow in different classes of cases and in any particular case). 18. Leatherman, 532 U.S. at Ibid. at Ibid. at Ibid. at Ibid. at In addition, because judges are elected in this state, Georgians have an opportunity to hold them accountable for their rulings on, among other things, appropriate punitive damages awards. 24. See O.C.G.A For the federal rule, see Federal Rule of Civil Procedure