TEXAS STATUTORY CAPS - FROM THE BEGINNING TO NOW

TEXAS STATUTORY CAPS - FROM THE BEGINNING TO NOW BENJAMIN H. DAVIDSON, II JEANNIE N. MARROW McCleskey, Harriger, Brazill & Graf, L.L.P. P.O. Box 6170 Lubbock, Texas 79493-6170 (806) 796-7306 bdavidson@mhbg.com jmarrow@mhbg.com State Bar of Texas 12 TH ANNUAL ADVANCED MEDICAL MALPRACTICE COURSE March 17-18, 2005 Santa Fe, NM CHAPTER 2.1

JEANNIE N. MARROW McCLESKEY, HARRIGER, BRAZILL & GRAF, L.L.P. P.O. Box 6170 Lubbock, Texas 79493-6170 (806) 771-4541 Fax: (806) 796-7365 jmarrow@mhbg.com Resume Jeannie Marrow is an associate at the Lubbock law firm of McCleskey, Harriger, Brazill & Graf, L.L.P. Her practice involves appellate, civil defense, guardianship, estate planning, and intellectual property work. She graduated magna cum laude from Texas Tech University in 1999 with a B.S. in Agricultural and Applied Economics and a B.M. in Music Performance. She also received a M.S. in Agricultural and Applied Economics in 2001. In 2003, she received her J.D. from Texas Tech University School of Law, graduating cum laude. She is admitted to practice before the courts of the State of Texas and the United States District Court for the Northern District of Texas. She is a member of the Lubbock County Bar Association and the Lubbock County Young Lawyers Association.

TABLE OF CONTENTS I. INTRODUCTION... 1 II. BACKGROUND AND DEBATE OF HB4... 1 A. The First Liability Caps Under Article 4590i... 1 1. Common Law Injury Actions Are Not Capped... 1 2. Non-Common Law Claims, Including Wrongful Death Actions, Are Capped... 1 3. Punitive Damages are Not Capped, but Pre-Judgment Interest is Capped... 2 4. Liability Caps Apply to a Single Defendant Who is Jointly and Severally Liable... 2 5. Effect of Liability Cap on Stowers Doctrine... 2 B. Computation of Death Cap Pursuant to Article 4590i... 3 C. Recent Medical Care Crisis and Arguments For or Against Liability Caps... 3 1. View of Proponents of Liability Caps... 3 2. View of Opponents of Liability Caps... 3 III. TEXAS CIVIL PRACTICE & REMEDIES CODE AS REVISED... 4 A. Wrongful Death and Survival Actions... 4 B. Personal Injury Actions... 5 C. Offer of Settlement... 5 D. Other Changes Resulting from HB4... 5 1. Limits on Medical Expenses... 5 2. Volunteer Healthcare Provider Liability... 6 3. Charitable Immunity and Liability Act... 6 4. Governmental Unit Liability... 6 IV. CALCULATION OF TOTAL DAMAGES RECOVERABLE PER CLAIMANT... 6 V. PROPOSITION 12... 6 A. Proponents Views... 6 B. Opponents Views... 7 C. Voters Response... 7 VI. THE FEDERAL PUSH... 7 APPENDIX A... 9 i

TEXAS STATUTORY CAPS - FROM THE BEGINNING TO NOW I. INTRODUCTION Issues that have become an increasing interest in recent medical malpractice lawsuits include liability caps and settlement credits. The recent enactment of House Bill 4 repealed article 4590i and imposed various statutory liability caps on healthcare liability claims. The bill also imposed new law regarding settlement credits. House Bill 4 was filed in the Texas House of Representatives on February 17, 2003, during the 78th Regular Session. After heated debates and much attention from the public, both houses signed the bill on June 2, 2003. Governor Rick Perry signed the bill into law on June 11, 2003, and the revisions became effective September 1, 2003. In an attempt to avoid the impact of the new statutory liability caps of House Bill 4, many plaintiffs filed healthcare liability lawsuits before September 1, 2003. Thus, it is important to understand both the old and new law, as many attorneys have cases involving article 4590i and other cases involving the new laws imposed by House Bill 4. In a close election, voters also recently adopted Proposition 12, thereby amending the Texas Constitution to enable the Legislature to enact limitations on noneconomic damages. II. BACKGROUND AND DEBATE OF HB4 A. The First Liability Caps Under Article 4590i House Bill 4 is not the first time the Texas Legislature attempted to alleviate a perceived medical malpractice crisis through the use of liability caps. In the mid-1970s, the Texas Legislature relied on the Texas Medical Professional Liability Study Commission to determine whether there was a correlation between damage caps and medical liability insurance rates. Based on recommendations from this commission, the legislature put the first liability caps into place by enacting the Medical Liability Act of 1977, including sections 11.02 and 11.03 of article 4590i of the Texas Revised Civil Statutes. Under section 11.02, artic le 4590i, when final judgment is rendered against a physician or health care provider, the civil liability for damages is limited to $500,000. Tex. Rev. Civ. Stat. Ann. art. 4590i, 11.02(a) (Vernon Supp. 1999). However, the liability caps imposed by section 11.02(a) do not apply to damage awards for past or future medical, hospital, or custodial care received for the treatment of the injury. Id. 11.02(b). These limits varied slightly from year to year depending on the consumer price index. Id. 11.01. 1. Common Law Injury Actions Are Not Capped More than ten years after the legislature enacted the Medical Liability Act (artic le 4590i), the Texas Supreme Court struck a hefty blow to the liability caps by holding that sections 11.02 and 11.03 were unconstitutional. Lucas v. United States, 757 S.W.2d 687 (Tex. 1988). Specifically, the supreme court held that the liability caps violated article 1, section 13 of the Texas Constitution, which guarantees meaningful access to the courts whether or not liability rates are high. Id. at 691. In reaching its conclusion, the supreme court found that the two criteria of article 1, section 13 were satisfied in that victims of medical negligence have a well-defined common law cause of action and article 4590i imposes unreasonable and arbitrary restrictions to a victim s right of access to the courts. Id. at 690. In the context of persons catastrophically injured by medical negligence, the court found it unreasonable and arbitrary to limit their recovery in a speculative experiment to determine whether liability insurance rates [would] decrease. Id. at 691 (emphasis in original). Additionally, the court found that sections 11.02 and 11.03 of article 4590i could not be supported by general societal benefits and found no quid pro quo, such as an alternative remedy or a patient compensation fund, to support the statute. Id. at 690. The court also noted that the legislature could not have been striking at frivolous malpractice suits because the legislation was based on findings that legitimate claims were causing medical professional liability rates to escalate. Id. at 691. Thus, the court found that the restrictions imposed by sections 11.02 and 11.03 of article 4590i were not reasonable when balanced against the legislature s purpose and bases of the liability caps. Id. 2. Non-Common Law Claims, Including Wrongful Death Actions, Are Capped Two years later, the Texas Supreme Court reaffirmed its holding in Lucas as to common law medical malpractice actions, but also limited it by holding that the liability caps statute may be severed from the unconstitutional portion identified in Lucas and validly applied to all but common law claims. Rose v. Doctors Hosp. Facilities, 801 S.W.2d 841, 845 (Tex. 1990). The court specifically held that sections 11.02 and 11.03 were not unconstitutional as applied to wrongful death actions, which was conferred by statute and not common law. Id. Thus, the legislature could constitutionally limit damages in wrongful death actions as long as they did not 1

include common law claims. Id. The court reasoned that because a wrongful death action is a statutory remedy, the open courts provision of the Texas Constitution does not apply. Id. at 845. 3. Punitive Damages are Not Capped, but Pre- Judgment Interest is Capped In 2000, because article 4590i does not expressly define damages, the Texas Supreme Court looked to the statute s legislative history to hold that article 4590i does not cap punitive damages awarded in a health care liability claim. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896 (Tex. 2000). The court reasoned that because the Texas Insurance Code made punitive damages uninsurable and the underlying purpose of article 4590i was to make insurance coverage affordable, defining damages in the statutory cap to include punitive damages would not have the effect of lowering insurance rates or increasing the availability of medical care in Texas since insurers cannot insure against punitive damages anyway. Id. at 895. In Horizon/CMS Healthcare Corp., the supreme court also held that a plaintiff may recover prejudgment interest on those damages specifically excluded from the cap by section 11.02(b), but may recover prejudgment interest on damages subject to the cap only up to the amount of the cap. Id. at 901. The court reached its decision by reasoning that section 11.02(a) of article 4590i mandates that the liability cap applies to a health care provider s civil liability for damages and prejudgment interest falls within the common law meaning of damages. Id. at 898. Thus, the court held that pursuant to section 11.02(a), prejudgment interest is subject to the liability cap. Id. 4. Liability Caps Apply to a Single Defendant Who is Jointly and Severally Liable The Rose court held that the statutory liability caps are to be applied on a per defendant basis because section 11.02(a) clearly applies to the recovery against the individual defendant, not the award to the individual plaintiff. Id. at 847. The court explained that in multiple-defendant lawsuits under article 4590i, it was possible for a plaintiff to recover a judgment in excess of the liability caps as long as it did not exceed the combined statutory liability of all defendants. Id. The court in Columbia Hospital Corporation of Houston v. Moore later addressed the issue of whether a court may multiply the damages cap that is applicable to a single defendant who is jointly and severally liable by the number of culpable defendants. 43 S.W.3d 553 (Tex. App. Houston[1st Dist.] 2001), judgment modified and remanded on other grounds by 92 S.W.3d 470 (Tex. 2002). In Moore, the jury found three defendants negligent and assessed causal negligence at 60% to Dr. Columbia, 30% to Dr. Mushin, and 10% to Dr. Train, with collective actual damages to plaintiffs in the amount of $3 million. Id. at 554. The trial court rendered judgment on the jury verdict against the three defendants without capping their liability pursuant to article 4590i plus adding pre- and post-judgment interest, medical expenses, and funeral expenses. Of the total $3 million award, the trial court imposed $2,139,398.02 against Dr. Columbia, w ho the trial court also found to be jointly and severally liable for all damages awarded to plaintiffs, $1,152,308.24 against Dr. Mushin, and $384,102.74 against Dr. Train. Id. Dr. Columbia s damage cap at the time was $1,305,691. Id. Thus, Dr. Columbia moved to have the judgment modified on the basis that the trial court erred in holding him jointly and severally liable for an amount over his single damage cap. Id. After attempting to harmonize the comparative responsibility statute with section 11.02(a) of article 4590i, the court found that in section 11.02(a) of article 4590i, there is no mention of other culpable health care providers, much less of multiplying the cap by the total number of defendants. Id. at 563. The court ultimately held that the damages cap applicable to a single defendant who is jointly and severally liable may not be multiplied by the number of culpable defendants. Id. at 566. As a result, the court reversed and remanded with instructions for the trial court to cap the damage award against Dr. Columbia at the single damage cap of $1,305,691. Id. at 566. 5. Effect of Liability Cap on Stowers Doctrine The caps under article 4590i do not limit liability under the common law theory of recovery commonly known in Texas as the Stowers Doctrine. One senator who served on the senate committee that considered the 4590i caps characterized the legislation as a carrot and stic k approach. Mark D. Clore, Medical Malpractice Death Actions: Understanding Caps, Stowers, and Credits, 41 S. Tex. L. Rev. 467, 494, app. at 514-15 (2000), citing Letter from A.R. Babe Schwartz, Nov. 25, 1998. In his analysis, the liability cap was a carrot for the health care provider and his insurer and a stick for an injured party. Id. at 515. To even things out, the legislation incorporated Stowers, resulting in a carrot for the injured party and a stick for the health care provider and his insurer. Id. The purpose of the carrots and sticks was to encourage both sides to enter settlement negotiations with good faith. Id. at 514. 2

Although the article 4590i caps specifically excluded the amount of recovery available under a Stowers action, research revealed very little reported case law discussing the effect of the article 4590i caps on a Stowers action. In fact, only one reported opinion was found in which a plaintiff in an underlying suit asserted that the Stowers doctrine made the statutory caps inapplicable. Spohn Hosp. v. Mayer, 104 S.W.3d 878, 879 (Tex. 2003), reversing 72 S.W.3d 52 (Tex. App. Corpus Christi 2001). Because the plaintiff failed to establish a Stowers claim, the court of appeals, however, never even reached the question. On further appeal, the Supreme Court s opinion dealt only with discovery issues. This lack of case law in the twenty-five year history of the liability caps may or may not be an indication of how the recently enacted caps will affect Stowers. B. Computation of Death Cap Pursuant to Article 4590i Section 11.04 of article 4590i provides the statutory formula for calculating the liability caps, which depends on the consumer price index. Tex. Rev. Civ. Stat. Ann. art. 4590i, 11.01, 11.04 (Vernon Supp. 1999). Section 11.04 provides as follows: When there is an increase or decrease in the consumer price index with respect to the amount of that index on the effective date of this subchapter, each of the liability limits prescribed in Section 11.02(a) or in Section 11.03 of this subchapter, as applicable, shall be increased or decreased, as applicable, by a sum equal to the amount of such limit multiplied by the percentage increase or decreas e in the consumer price index between the effective date of this subchapter and the time at which damages subject to such limits are awarded by final judgment or settlement. 11.04. The statute defines consumer price index as the index published by the Bureau of Labor Statistics of the United States Department of Labor that measures the average change in prices of goods and services purchased by urban wage earners and clerical workers families and single workers living alone. 11.01. The statute does not specify whether the seasonally adjusted or non-seasonally adjusted CPI-W should be used. Id. The following liability caps calculation is based on the CPI-W: Seasonally Adjusted U.S. City Average All Items, for December 2004. The Bureau of Labor Statistics of the United States Department of Labor will release the CPI for January 2005 on February 23, 2005, at 8:30 a.m. This information may be found on the Bureau s website at <http://stats.bls.gov>. The current damage cap can be calculated by following these steps: (a) Obtain the current CPI; (b) Obtain the CPI for August 1977; (c) Divide the current CPI by the CPI for August 1977 to determine the multiplier; (d) Multiply the multiplier obtained in (c) by the cap. The damage cap for December 2004 is $1,514,657.98. The following is an application of the previously described steps to determine the damage cap for December 2004. (a) The CPI for December 2004 is 186. (b) The CPI for August 1977 is 61.40. (c) Dividing 186 by 61.4 results in a multiplier of 3.029315961. (d) Multiplying the multiplier by $500,000 results in a cap of $1,514,657.98. C. Recent Medical Care Crisis and Arguments For or Against Liability Caps By all accounts, premium rates for medical liability insurance coverage have increased by leaps and bounds in recent years. Proponents of tort reform have suggested that these increasing rates have caused many Texas health care providers to limit their services, discontinue all services, or leave Texas. The possibility of a medical care crisis alarmed Texans, causing a majority of them to vote in support of liability caps. 1. View of Proponents of Liability Caps Proponents of the liability caps argued that, in the face of the impending medical malpractice crisis, the caps are needed to ensure that Texans have access to health care. House Research Organization, Focus Report: Major Issues of the 78 th Legislature, Regular Session, No. 78-12, Aug. 6, 2003, at 9. Describing the caps as a balance of common-sense tort reform and protection of injured parties rights, proponents referred to the caps as a cornerstone of the effort to reduce medical malpractice liability insurance premium rates. Id. Proponents also argued that noneconomic damages do not make a malpractice victim whole, but only weigh down the medical system. Id. at 10. 2. View of Opponents of Liability Caps Many opponents felt that the tort system was not the primary cause of the medical malpractice crisis. House 3

Research Organization, Focus Report: Major Issues of the 78 th Legislature, Regular Session, No. 78-12, Aug. 6, 2003, at 10. They felt the increase in malpractice liability insurance premiums was due to other factors, such as recent stock market trends. Id. These opponents also asserted that premium rates were kept artificially low by competition in the 1990's. Id. As insurers left the market during the economic downturn, the argument continued and premium rates rose to more realistic levels. Id. These opponents felt that the medical malpractice crisis would be better served by insurance rate regulation. Id. They thought that the legislation should at least require a guarantee from insurance companies that the caps would lower premiums, making certain that any reduction in tort costs would be applied to reducing premium rates. A common theme in the opposition to the liability caps was a concern that they were an unfair limit on an injured party s right to redress for intangible losses, such as becoming homebound, being unable to care for family, and disfigurement. Id. Also of concern to many, the limits were not tied to any type of price index in order to counter the effects of inflation. Id. Opponents also argued that the liability caps would do nothing to deter frivolous suits and, instead, would take the heart out of significant cases. Mary Alice Robbins, Fallout From the Tort Reform Revolution, Tex. Lawyer, June 16, 2003, at 1. Opponents indicated that plaintiffs attorneys would be more cautious about accepting cases and would take a close look at economic damages when making the decision whether to accept a case. Id. As a result, some injured parties would not be able to find attorneys willing to take their case. Id. Opponents reasoned that the caps would especially harm children, stay at home mothers, and the elderly, all of whom are not likely to have a lot of economic damages. Id. Another concern opponents had was that plaintiffs would attempt to expand the number of defendants in an effort to increase the amount recoverable under the cap. Id. For instance, plaintiffs would sue the nurse as well as the doctor and hospital. Id. III. TEXAS CIVIL PRACTICE & REMEDIES CODE AS REVISED A. Wrongful Death and Survival Actions Liability limits for a wrongful death or survival action on a health care liability claim now appear at Texas Civil Practice and Remedies Code, section 74.303. (Vernon Supp. 2004). The new statutory cap is similar to article 4590i in that it applies to a judgment rendered against a physician or health care provider. 74.303(a). The legislature also made many changes to the damage cap statute. Section 74.303(a) expressly provides that the new damage caps apply to wrongful death or survival action[s]. Id. The legislature incorporated the supreme court s holdings in Lucas and Rose into the new statute. The legislature ignored the supreme court s holding in Horizon/CMS Healthcare Corp., which held that the caps pursuant to article 4590i did not limit punitive damages. In contrast, the legislature expressly stated that the caps limit civil liability for all damages, including exemplary damages. Id. Specifically excluded from the new statutory cap, however, are damages for past or future medical expenses, hospital expenses, and custodial care for treatment of the injury. 74.303(c). Also, the amount of the liability limit, $500,000 per claimant, is tied to the Consumer Price Index from 1977. The liability cap as of December 2004 was $1,514,657.98. 1 Also, while article 4590i remained silent, the new statute expressly specifies that the seasonally adjusted CPI is to be used rather than the non-seasonally adjusted CPI. Thus, the current damage cap under section 74.303(b) can be calculated by following these steps: (a) Obtain the current seasonally adjusted CPI; (b) Obtain the seasonally adjusted CPI for August 1977; (c) Divide the current seasonally adjusted CPI by the seasonally adjusted CPI for August 1977 to determine the multiplier; (d) Multiply the multiplier obtained in (c) by the cap. 74.303(b). Because the seasonally adjusted CPIs were used in the previous calculation under 4590i, the current December 2004 cap under section 74.303 is the same. Additionally, contrary to article 4590i, the new statute provides that the cap is a per claimant cap rather than a per defendant cap. Id. This change limits the previous ambiguity that existed in article 4590i regarding a plaintiff s recovery with jointly and severally liable defendants. The new statute places a $500,000 cap per plaintiff regardless of how many defendants are named in the lawsuit. Id. Finally, section 74.303(d) provides for the Stowers doctrine. The recovery previously available under the Stowers doctrine is the amount the judgment exceeded policy limits. G.A. Stowers Furniture Co. v. Am. 1 This number is obtained by applying the statutory formula provided in section 74.303(b), which is similar to the formula in article 4590i. Also, the December 2004 information is the most recent available as of the date this paper was submitted. 4

Indem. Co., 15 S.W.2d 544 (Tex. 1929). However, the new statute provides that the liability of any insurer under the common law theory of recovery commonly known in Texas as the Stowers doctrine shall not exceed the liability of the insured. 74.303(d). Thus, if the insured s liability is limited by the new statutory cap, then the insurer s liability is also limited to the amount of the statutory cap in the event the insurer unreasonably refuses to settle within the insured s policy limit. This new law certainly cuts into the previous exposure insurers once felt. B. Personal Injury Actions Noneconomic liability limits for other types of health care liability claims appear at Texas Civil Practice & Remedies Code, section 74.301. Each claimant is limited to $250,000 in noneconomic damages for claims against physicians or health care providers other than a health care institution, including any claims under the theory of vicarious liability. 74.301(a). This limit applies regardless of the number of defendants or separate causes of action. A second cap on noneconomic damages applies to claims against health care institutions. The cap per claimant against a single institution is $250,000. This includes any claims for recovery under the theory of vicarious liability. 74.301(c). When more than one institution is named as a defendant, the damage cap limits each claimant to a total recover of $500,000 against the combined institutions. Therefore, the most a claimant could expect to recover in noneconomic damages is $750,000. To reach the $750,000 limit, the claimant would have to name at least one physician or health care provider and at least two health care institutions as defendants. Contrary to the caps for wrongful death and survival actions, the caps on noneconomic damages are not dependent on the consumer price index. In contrast to article 4590i, the legislature, wary of the supreme court once again finding the statutory caps unconstitutional, included an alternative noneconomic damages cap. 74.302. The alternate cap includes mandatory minimum insurance requirements as a quid pro quo. To further protect the caps from a court finding them unconstitutional, Proposition 12, discussed below, was passed by Texan voters in September 2003. C. Offer of Settlement HB4 also includes an offer of settlement statute, now appearing at Chapter 42 of the Texas Civil Practice & Remedies Code. Section 42.004 shifts litigation costs if a settlement offer made under Chapter 42 is rejected and the judgment ultimately entered is significantly less favorable to the party rejecting the offer. Significantly less favorable is defined as less than 80% for a claimant who rejects an offer and more than 120% for a defendant that rejects an offer. 42.004(b). The amount of litigation costs recoverable are limited to the sum of half of the economic damages, all noneconomic damages, and all exemplary or additional damages awarded to the claimant. 42.004(d). Chapter 42 does not come into play until the defendant files a declaration that the settlement procedure is available in the suit. 42.002(c). Chapter 42 excepts certain types of cases from the offer of settlement procedure, but cases involving liability caps are not one of them. Some opponents to the offer of settlement statute have argued that in cases where liability is clear, insurers handling the defense of their insureds will offer 80% of the statutory cap in order to shift litigation costs. See Transcription of Presentation by Elaine A. Carlson, Offer of Settlement, in State Bar of Tex. Tex. Tort Reform 2003: The Legislative Changes II-9, 8-9 (2003). The offer of settlement procedure is not an independent action and recovery is applied as a credit. Therefore, insurers may not find this option as attractive as opponents to the legislation feared. If, however, the insurer does choose to file a declaration that the Chapter 42 offer of settlement procedure will be available in the suit, the plaintiff can also make offers under the procedure. If judgment is entered for more than 120% of the plaintiff s offer, the plaintiff s litigation costs from the date of the offer will shift to the defendant. Although the statutory caps would make it easy for insurers to estimate the noneconomic damages in a malpractic e action, they would need to be fairly certain of the amount of economic damages. Otherwise, they would risk becoming responsible for the plaintiff s litigation costs. D. Other Changes Resulting from HB4 1. Limits on Medical Expenses Although HB4 excludes medical and health care expenses from the new statutory cap, section 41.0150 of the Texas Civil Practice and Remedies Code limits the recovery of medical expenses to costs actually paid or incurred by or on behalf of the claimant. 41.0150. The scope of medical expenses that the trier of fact may consider is limited to the costs actually paid or incurred by the claimant or on behalf of the claimant. Pattern Jury Charge 10.2,82.2. As a result, a claimant s recovery of medical and health care expenses under her health care policy may be admissible and used to reduce the defendant s liability. Thus, it appears that medical and health care expenses are no longer subject to the 5

collateral source rule, under which a defendant cannot reduce the damages for which he is liable by proving the plaintiff received compensation from a collateral source. 2. Volunteer Healthcare Provider Liability Section 84.004 of the Texas Civil Practice and Remedies Code provides that a volunteer of a charitable organization is immune from civil liability if the volunteer was acting in the course and scope of his duties or functions and if the patient is a minor or incompetent, the person responsible signs a waiver acknowledging that the volunteer is providing care without expectation for compensation and the limitations on recovery. Tex. Civ. Prac. & Rem. Code Ann. 84.004(a), (b) (Vernon Supp. 2004). 3. Charitable Immunity and Liability Act As a result of HB4, section 84.0065 of the Charitable Immunity and Liability Act limits the liability of qualifying hospitals, hospital systems, or its employees, officers, directors, or volunteers to $500,000. Tex. Civ. Prac. & Rem. Code Ann. 84.0065(a) (Vernon Supp. 2004). However, if the patient is a minor or incompetent, the cap only applies if the person responsible for the patient signs a waiver that acknowledges that care is provided without expectation of compensation and the limitations of recovery of damages. 84.0065(b). 4. Governmental Unit Liability HB4 also impacted the liability on governmental units. For healthcare liability lawsuits filed after September 1, 2003, section 108.002 of the Texas Civil Practice and Remedies Code now provides a liability limit of $100,000 against a health care provider acting as a public servant in the course and scope of the public servant s office, employment, or contractual performance for or service on behalf of a state agency, institution, department, or local government. 108.002(a). For lawsuits filed before September 1, 2003, healthcare providers were exempted from this cap. IV. CALCULATION OF TOTAL DAMAGES RECOVERABLE PER CLAIMANT Appendix A provides a chart of the damages a claimant can potentially recover in a wrongful death and survival lawsuit against physicians or health care providers under the Texas Civil Practice and Remedies Code. First, under section 74.301, a claimant s noneconomic damages are limited to $250,000 against physicians or health care providers. If the claimant also sued a single health care institution, that claimant could recover another $250,000, with a maximum recovery of $500,000 against multiple health care institutions. As of December 2004, the total amount each claimant may recover for all damages is $1,514,657.98. Thus, the amount of economic damages a claimant could recover would be determined by subtracting the non-economic damages awarded from the total damage cap. In addition to and on top of the damage cap of $1,514,657.98, the claimant is also entitled to medical, hospital, and custodial expenses used for the treatment of the injury. V. PROPOSITION 12 A. Proponents Views Proposition 12 was set before Texas voters on the September 2003 ballot. Its purpose was to authorize the legislature to set limits on noneconomic damages. House Research Organization, Focus Report: Constitutional Amendments Proposed for September 2003 Ballot, No. 78-10, July 28, 2003, at 32 [hereinafter Constitutional Amendments Proposed ]. The proposition applies to the medical liability laws enacted by the 78 th Legislature and, beginning in 2005, it also applies to all other types of liability cases. House Research Organization, Focus Report: Major Issues of the 78 th Legislature, Regular Session, No. 78-12, Aug. 6, 2003, at 16 [hereinafter Major Issues of the 78 th Legislature ]. Proposition 12 spurred highly publicized and heated debates. Proponents of the amendment, like proponents of HB4, claimed that the medical malpractice insurance crisis that Texas was facing was caused by increased damage awards in malpractice suits. Constitutional Amendments Proposed, at 32. They also claimed that many physicians were limiting their practice, retiring, or leaving Texas because of the increase in malpractice liability insurance premiums. Id. at 33. According to the proponents, this caused a decrease in Texans access to medical care. Id. Pointing to the Lucas decision, in which the Texas Supreme Court held that the 1977 caps were unconstitutional under the open courts provision, proponents also argued that the voters of Texas, and not the courts, should decide what is appropriate for the legislature. Id. Unlimited noneconomic judgments, they argued, were turning the justice system into a lottery. Id. Proponents also felt that limits on noneconomic damages would allow injured parties to recover the compensation they deserved but, at the same time, encourage insurance companies to do business in Texas. Id. They hoped that competition in the malpractice liability insurance market would cause premiums to decrease. Id. Furthermore, the proponents claimed that 6

the amendment would allow future legislatures to deal with other problems in the liability system. Id. B. Opponents Views Opponents resisted the idea of giving such latitude to the legislature and felt that the courts were the more appropriate forum to decide what compensation an injured party should recover. Id. at 34. They argued that although the amendment gives the legislature the right to limit only noneconomic damages, economic damages alone cannot make an injured party whole. This amendment, opponents felt, would destroy Texans right of redress and right of access to the courts. Id. Opponents also felt that the caps placed an arbitrary value on human life, taking away the ability of juries to determine recovery on a case by case basis. Id. at 34-35. Furthermore, opponents of Proposition 12, like opponents of HB4, felt that liability caps would do nothing to lower insurance premiums or assure access to health care because caps did not address other causes of recent increases in rates and would not affect whether physicians did in fact remain in practice in Texas. Id.; Major Issues of the 78 th Legislature, at 17. Even if caps on malpractice liability were justified, opponents felt that the proposed amendment was too broad in that it went beyond medical malpractice cases. Constitutional Amendments Proposed, at 35. Opponents argued that the amendment would remove liability limit legislation from judicial oversight, thus defeating our system of checks and balances. Id. cap existed. Id. This legislation has since stalled in the Senate, but President George W. Bush has indicated that future health care reform will involve continued efforts to implement caps. A study conducted by the U.S. General Accounting Office ( GAO study ) suggests that multiple factors contribute to increases in premium rates for malpractice liability insurance coverage. U.S. General Accounting Office, Medical Malpractice Insurance: Multiple Factors Have Contributed to Increased Premium Rates, GAO-04-128T (October 1, 2003). Texas was one of the sample states in the GAO study. Id. at 7. Factors listed included increasing numbers of medical malpractice claims; insurer s decrease in investment income from 1998 to 2001; reduced competition as a result of some insurers becoming insolvent or leaving the market; and increases in reinsurance rates. Id. at 1-2. Though data was limited, the results of the GAO study indicated that increased losses through paid claims were the largest contributing factor. Furthermore, the results showed that the rate of premium increase was slower in states having caps on non-economic damages. Id. at 3, 5. In states having noneconomic damage caps of $250,000, the average rate of increase in premiums was 9%. In states having caps of $500,000 or less, the average rate of increase was 10%. Finally, in states having more limited tort reform, the rate of increase was 29%. Id. at 11. The GAO study found that the most common policy limits were $1 million per incident and $3 million per year. C. Voters Response On September 13, 2003, Proposition 12 was adopted with 751,896 votes for and 718,547 votes against. The amendment negated the need for the alternate noneconomic damage caps provided by the Texas Legislature in HB4. VI. THE FEDERAL PUSH The federal government has also made a push toward liability limits. On March 13, 2003, the U.S. House of Representatives passed H.R.5, which would limit non-economic damages in medical liability cases. House Research Organization, Bill Analysis-HB4, March 25, 2003, at 55-56. Punitive damages were also limited to the greater of twice the economic damages or $250,000, plus attorneys fees. Id. Under these limits, no punitive damages could be awarded in the absence of a monetary or economic award. Id. The federal legislation would preempt state law in states with fewer liability protections, but not state law caps if some type of 7

APPENDIX A WRONGFUL DEATH AND SURVIVAL DAMAGES FOR EACH CLAIMANT* UNDER 74.303 (a) and (c) NON-ECONOMIC DAMAGES* # $ 250,000 + ECONOMIC/EXEMPLARY DAMAGES Lost Wages/Earning Capacity* + Value of Household Services* + Loss of Inheritance * + Funeral Expenses + Prejudgment Interest * + Exemplary Damages * # $1,264,658 DEATH CAP UNDER 74.303(a) # $1,514,658 2 + MEDICAL, HOSPITAL AND CUSTODIAL EXPENSES* $X,XXX,XXX TOTAL DAMAGES 2 This death cap calculation is as of December 2004, which is the most recent information available as of the date this paper was submitted. 9