Medical Professional Liability Insurance Indemnity Payments, Expenses and Claim Disposition, 2006-2015

Policy Research Perspectives

Medical Professional Liability Insurance Indemnity Payments, Expenses and

Claim Disposition, 2006-2015

By José R. Guardado, PhD

Introduction

This Policy Research Perspective (PRP) presents new information on indemnity payments and

expenses for medical professional liability (MPL) claims that closed between 2006 and 2015. An

indemnity payment is money paid to a claimant/plaintiff for adjudicated damages. Expenses are

defense and cost containment expenses incurred in the process of administering or adjudicating a

claim, such as for defense attorneys and expert witnesses. The PRP also describes how claims are

disposed, such as whether they are settled or dropped, and how indemnity payments and expenses

vary by claim disposition.

The information contained in this report comes from the 2016 edition of the PIAA’s Closed Claim

Comparative (CCC).

PIAA is an insurance industry trade association that represents entities doing

business in the MPL arena. Its members insure more than two-thirds of America's private practicing

physicians as well as dentists, nurses, nurse practitioners, and other health care providers.

better evaluate trends in liability claims, in 1985 the PIAA began to share and aggregate individual

member data through the Data Sharing Project (DSP). Participating PIAA members report MPL

claims data to the DSP, and national trends in that data are reported in the CCC. The 2016 CCC is

based on data from 90,473 health care professional liability claims that closed between 2006 and

2015.

Indemnity Payments and Expenses on Closed Claims, 2006-2015

Indemnity Payments

Data on average and median indemnity payments are presented in Table 1. Those data are based

on claims that closed between 2006 and 2015 and for which indemnity payments were made to the

claimants (hereafter paid claims). The averages and medians are also reported in “real” terms. This

adjusts each year's values for inflation to make them comparable with those in 2015.

Figure 1

shows the same information graphically.

Earlier data (from 1985) came from a previous edition of the CCC. Editions of PIAA's reports that were

published prior to 2013 were titled Claim Trends Analysis.

PIAA Closed Claim Comparative, 2016 Edition.

Values that are not adjusted for inflation are called “nominal.”

In 2015, the average indemnity payment was $365,503—a 10.7 percent increase from 2006. Much

of that increase occurred during the end of that period. In fact, average indemnity payments

increased by 11.5 percent between 2013 and 2015. However, after accounting for inflation, average

indemnity payments were actually 5.9 percent lower in 2015 than in 2006. This indicates that

average payments were not rising as fast as inflation.

The trends in median payments were generally similar to the trends in the averages. However,

because some indemnity payments are relatively very high, the averages are higher than the

medians. The median payment was $200,000 for most of the 2006-2015 period.

Table 2 shows how paid claims are distributed over different ranges of payment, and provides

context for why average payments are higher than median payments. Thirty-three percent of paid

claims involved payments that were less than $100,000. However, they accounted for only 3.6

percent of indemnity payments in total. In contrast, although only 11.2 percent of paid claims

involved payments of $1 million or more, those large claims accounted for 41.9 percent of total

indemnity payments.

There was a relative increase in claims with large payments between 2013 and 2015 (results not

shown), which explains part of the recent increase in the average payment noted above. The 41.9

percent share of total indemnity that results from payments of at least $1 million is up from 33.9

percent in 2013.

Expenses

Table 3 and Figure 2 show that average expenses have increased substantially between 2006 and

2015.

In 2015, the average expense was $54,165—3.8 percent higher than in the previous year. It

increased by 46 percent from 2006 to 2009, and by another 10.6 percent between 2013 and 2015.

Over the ten-year study period, average expenses rose by 64.5 percent, and even after accounting

for inflation, the increase was almost 40 percent.

Indemnity, Expenses and Distribution by Claim Disposition, 2015

Indemnity Payments

Table 4 reports indemnity payments for claims that closed in 2015 according to how they were

disposed. Similar to all paid claims, average payments were higher than the medians for all types of

disposition.

Trial awards were much larger than indemnity payments from other disposition types. The average

trial award was $1,121,815, compared to $341,015 for settlements and $256,596 for claims resolved

by an alternate dispute resolution (ADR) or contract agreement.

Based on the 2012 edition of the PIAA report, by far the largest share of expenses is for defense

attorneys (approximately 70 percent). About 17 percent is for expert witnesses, and 14 percent for "other"

expenses. This distribution of expenses by category is no longer provided in recent editions of the PIAA

reports.

Indemnity payments made on all paid claims resemble those from settlements rather than those

from trial awards. This is because the vast majority of paid claims (93.6 percent) are settled,

whereas only 3.5 percent result from plaintiff verdicts.

Expenses

Table 5 reports average expenses and the share of total expenses for each type of claim disposition.

By far, the highest average expense was for tried claims that resulted in plaintiff verdicts ($262,141).

The next highest was for those resulting in defendant verdicts ($191,341). That was almost 2½ times

the average expense incurred on settled claims ($78,906). The smallest average expense was for

claims that were dropped, dismissed or withdrawn ($30,475). Despite being the smallest, however,

because such a large fraction of claims (68.2 percent) fall into that category, those claims accounted

for 38.4 percent of total expenses.

Claim Disposition

Table 6 shows the distribution of claims that closed in 2015 according to the type of disposition and

whether indemnity was paid. Most claims (68.2 percent) were dropped, dismissed or withdrawn, and

23.3 percent were settled. In contrast, relatively few claims (7.0 percent) were decided by trial

verdict, and the vast majority of those (87.5 percent) were won by the defendant. In fact, less than 1

percent of claims resulted in plaintiff verdicts. Finally, just above 1 percent of claims were decided by

an ADR or contract agreement, 55 percent of which involved an indemnity payment. Thus, indemnity

payments were made to claimants in only about a quarter (24.8 percent) of claims—a share that was

generally stable over the 2006-2015 period.

Conclusion

This PRP presents new data on claim disposition, indemnity payments, and expenses for MPL

claims that closed between 2006 and 2015. As in previous years, it finds that in 2015 most claims

(68.2 percent) were dropped, dismissed or withdrawn (DDW). However, those claims do not come

without a cost. Although their average expense is much lower than for settled and tried claims, DDW

claims account for the highest share (38.4 percent) of total expenses.

In contrast to the prevalence of DDW claims, only 7.0 percent of claims were decided by a trial

verdict. Of those, the vast majority (87.5 percent) were won by the defendant.

In about 25 percent of claims, an indemnity payment was paid to the claimant. The average payment

was $365,503 in 2015—a notable increase (11.5 percent) from two years prior. Among the types of

claim disposition, plaintiff verdicts were the lowest in frequency, but had the highest indemnity

payments, with an average of $1,121,815.

A relatively small fraction of claims contributed to a disproportionate share of total indemnity

payments. Although only 11.2 percent of paid claims involved payouts of at least $1 million, they

accounted for 41.9 percent of indemnity payments in total. There was a notable increase in this

share in recent years, likely explaining part of the recent increase in average indemnity.

Expenses incurred on claims have risen over time. From 2006 to 2015, average expenses increased

by almost 65 percent. In fact, total expenses have been rising much faster than total indemnity

payments. Whereas total indemnity was 3 times higher in 2015 than in 1985, the increase in total

expenses was more than seven-fold.

Consequently, the share of total costs (indemnity plus

expenses) incurred on expenses increased from 19 percent to 37 percent. Although most medical

liability claims continue to be dropped, dismissed or withdrawn and involve no indemnity payments,

they have become increasingly costly to defend.

AMA Economic and Health Policy Research, January 2018 2018-1

The earliest year for which PIAA provided data is 1985.

Table 1. Indemnity Payments for Paid Claims, 2006-2015

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Change

‘06-‘15

Avg.

Annual

Change

‘06-‘15

($)

Average 330,213 333,308 340,712 324,371 326,450 323,004 334,026 327,895 361,108 365,503 10.7% 1.1%

Average

(2015$) 388,330 380,972 375,124 358,430 354,851 340,446 344,715 333,469 361,469 365,503 -5.9% -0.7%

Median 200,000 200,000 200,000 200,000 200,000 187,500 200,000 180,000 200,000 200,000 0.0% 0.0%

Median

(2015$) 235,200 228,600 220,200 221,000 217,400 197,625 206,400 183,060 200,200 200,000 -15.0% -1.8%

# Paid

Claims 2,146 2,339 2,291 2,534 2,765 2,798 2,613 2,392 2,325 1,903

Source: PIAA Closed Claim Comparative, 2016 Edition.

Note: Paid claims are closed claims in which an indemnity payment was made.

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

$450,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Close Year

Figure 1. Indemnity Payments for Paid Claims, 2006-2015

Average (2015$) Average Median (2015$) Median

Source: PIAA Closed Claim Comparative, 2016 Edition

Table 2. Distribution of Paid Claims and Total Indemnity Payments by Range of Indemnity Payment, 2015

Indemnity Payment Range

Proportion of

Paid Claims

Proportion of

Total Indemnity Payments

Less than $100,000 32.5% 3.6%

$100,000 < = Payment < $250,000 22.5% 10.2%

$250,000 < = Payment < $500,000 19.9% 17.8%

$500,000 < = Payment < $1,000,000 13.8% 26.5%

$1,000,000 or more 11.2% 41.9%

Total 100.0% 100.0%

Source: PIAA Closed Claim Comparative, 2016 Edition.

Notes: Paid claims are closed claims in which an indemnity payment was made. There were 1903 paid claims that closed in 2015.

Total indemnity payments are the sum of payments across all paid claims.

Table 3. Average Expense Payments for all Closed Claims, 2006-2015

2006

2007

2008

2010

2011

2012

2013

2014

2015

Change

‘06-‘15

Avg.

Annual

Change

‘06-‘15

($)

Average 32,925 37,069 42,622 48,072 47,369 49,987 49,682 48,962 52,195 54,165 64.5% 5.7%

Average

(2015$) 38,720 42,370 46,927 53,120 51,491 52,686 51,271 49,794 52,247 54,165 39.9% 3.8%

Closed

Claims 8,619 8,901 8,267 8,698 9,812 10,434 10,294 9,218 8,842 7,658

Source: PIAA Closed Claim Comparative, 2016 Edition.

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Close Year

Figure 2. Expense Payments for All Closed Claims

Average (2015$) Average

Source: PIAA Closed Claim Comparative, 2016 Edition

Table 4. Indemnity Payments by Claim Disposition, 2015

All Paid Claims

Settlements

Plaintiff Verdicts

ADR/Contract

Agreement

Average Payment $365,503 $341,015 $1,121,815 $256,596

Median Payment $200,000 $200,000 $799,250 $108,417

N 1903 1781 67 50

Source: PIAA Closed Claim Comparative, 2016 Edition. Medians are from a special data request provided by

Any other use requires prior permission of the PIAA.

Notes: ADR represents an alternative dispute resolution. There were 5 paid claims whose disposition is

unknown.

Table 5. Average Expenses by Claim Disposition, 2015

Claim Disposition

Average

Expense

Expenses as

% of Total

Expenses

Dropped, Dismissed, or Withdrawn

$30,475

38.4%

5,223

Settlements $78,906 33.9% 1,781

Defendant Verdicts $191,341 21.7% 470

Plaintiff Verdicts $262,141 4.2% 67

ADR or Contract Agreement $72,968 1.6% 90

Unknown $38,088 0.2% 27

100.0% 7,658

Source: PIAA Closed Claim Comparative, 2016 Edition

Table 6. Distribution of Claims by Claim Disposition, 2015

Claim Disposition

Percentage of All Closed Claims

Dropped, Dismissed or Withdrawn

68.2%

Settlements 23.3%

Defendant Verdicts 6.1%

Plaintiff Verdicts 0.9%

ADR or Contract Agreement

1.2%

Unknown

Total

0.4%

100.0%

Paid 24.8%

Unpaid 75.2%

Total 100.0%

Closed Claims

7,658

Source: PIAA Closed Claim Comparative, 2016 Edition