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The Medical Malpractice Insurance "Crisis" Is Caused By Insurance Companies, Not the Legal System


For years, insurance companies who wish to justify raising their premiums have used the "need for tort reform" as a handy excuse upon which to base their rate hikes. In the area of medical malpractice insurance, insurance companies have succeeded in convincing health care providers that the lawyers and the legal system are causing physician malpractice rates to climb.

However, many studies and statements totally disprove this bogus claim. For instance, the Wall Street Journal reported in a front page investigative story on June 24,2002, "a price war that began in the early 1990's led insurers to sell malpractice coverage to obstetrician-gynecologists at rates that proved inadequate to cover claims....Some of these carriers had rushed into malpractice coverage because an accounting practice widely used in the industry made the area seem more profitable in teh early 1990's than it really was. A decade of short-sighted price slashing led to industry losses of nearly $3 billion last year." In this article, the Wall Street Journal specifically referenced St Paul Co., one of the country's then largest medical malpractice insurers for mismanaging their underwriting and reserve policies.

Multiple other credible sources from inside the insurance industry echo these sentiments. Charles Kolodkin, of Gallagher Healthcare Insurance Services is quoted as reporting "The [medical malpractice insurance] market is in chaos...Throughout the 1990's... insurers were... driven by a desire to accumulate large amounts of capital with which to turn into investment income. Regardless of the level of ...tort reform, the fact remains that if insurance policies are consistently underpriced, the insurer will lose money."

Donald J. Zuk, chief executive of a leading malpractice insurer in California has been quotes as saying "I don't like to hear insurance-company executives say it's the tort[injury-law] system-it's self-inflicted."

In June 2002, Reliance Insurance , a major provider of medical malpractice insurance to physicians was sued by the Pennsylvania Insurance Commissioner alleging a breach of fiduciary duty for allowing more than half a billion dollars in dividends to be paid to holding companies of which the Reliance directors were major shareholders.

In Mississippi, which waged a successful battle in the Mississippi legislature over medical malpractice "tort reform," Medical Assurance Co. of Mississippi notified doctors that it would raise its rates by 45% in 2003 "regardless of the special session outcome" since "tort reform" does "not provide a magical 'silver bullet' that will immediately affect medical malpractice insurance rates."

In August 2002, less than a month after the passage of a bill enacting severe caps on medical malpractice awards, two major insurance companies in Nevada proclaimed that they would not reduce insurance rates this year or next.

In West Virginia, a group of Charleston surgeons have sued St. Paul for "grossly poor management" that led St. Paul to drop malpractice coverage there. In Louisiana, St. Paul has stopped writing medical malpractice premiums notwithstanding the fact that Louisiana has had a cap on medical malpractice claims in effect since 1975.

Sherman Joyce, president of the American Tort Reform Association has been quoted as saying "We wouldn't tell you or anyone that the reason to pass tort reform would be to reduce insurance rates." In a March 13, 2002 press release Debra Ballen executive vice president of the American Insurance Association was quoted " Insurers never promised that tort reform would achieve specific premium savings."

According to the Center for Justice & Democracy in its paper "A Short Guide to Understanding Today's Medical Malpractice Insurance "Crisis", "during years of high interest rates insurance companies engaged in fierce competition for premium dollars to invest for maximum return. When investment income decreases because of the drop in interest rates, the industry must respond by sharply increasing premiums."

All of this information readily illustrates that the insurance companies, not the tort system, are to blame for the rising cost of medical malpractice insurance. Rather than accept responsibility for their poor underwriting and under reserving of claims, they blame the trial lawyers. Do not be fooled by the propaganda. The research points to the insurers as the sole problem.

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