TO PAY OR NOT TO PAY - THE INSURANCE ADJUSTER SPEAKS by Robert Blasio, J.D. Western Litigation, Inc.

I. INTRODUCTION
Wrestling with whether a medical negligence case should be settled is a situation which confronts insurance professionals on a daily basis. Initially, this paper was intended to be an analysis of the factors which the insurance professional considers when trying to decide whether to settle a medical negligence case. From my perspective, having practiced for several years as an attorney defending healthcare providers before moving on to a career in insurance claims management, the subject matter, as originally planned, was too simplistic.

Greater than 90% of all medical negligence claims are ultimately settled. Given this high settlement percentage, one would expect that the parties in a medical negligence case would explore the inevitable topic of settlement from the onset. Yet, this approach does not occur and medical negligence cases are defended very aggressively and produce high litigation costs on both sides of the docket. This contradiction between the high percentage of cases which are ultimately settled and the protracted discovery raises the more challenging topic: how can the parties to a medical negligence claim posture that case for settlement more quickly and what are the obstacles that prevent prompt resolution?

II. WHO ARE THE REAL PARTIES AT INTEREST IN MEDICAL NEGLIGENCE CASES?
Despite all the hard fought discovery that exists in medical negligence litigation, the real parties at interest (the insurance carriers for the defendants and the plaintiffs and their attorneys) are usually secretly searching for the answer to the question of when the topic of settlement should be broached. One only needs to examine the true motivations of these real parties at interest to verify the accuracy of this statement.

A. The Plaintiffs and Their Attorneys.

The motivation of the plaintiffs and their attorneys is clearly set forth from the outset. Our system of civil justice for redressing medical negligence allows for only one type of recovery: monetary damages. Although there are no doubt some plaintiffs who enter the litigation arena with more altruistic goals, there are few plaintiffs' attorneys who are willing to take a contingency fee case when the stated objective is to obtain a written apology or to have the involved physician's privileges revoked.
The door to the court house has been opened by the contingency fee, and the better plaintiffs' attorneys advise their clients at the outset that ownership of the case becomes jointly held once work begins on the case. Thus, the serving of a petition is the plaintiff's first attempt at settlement, because the petition sets forth the plaintiff's factual position regarding the case and the amount of the damages requested.

B. The Insurance Carriers for the Healthcare Providers.

As a trial attorney retained by insurance carriers to defend their insureds, I operated upon the notion that insurers were best served by delaying settlements. Years later, when I learned how insurance companies actually make money, I realized how my earlier thought process was grossly mistaken.
In fact, insurers are best served by the prompt closure of claims and the corresponding reduction in loss reserves. As claims are closed, an insurer is able to utilize funds previously committed as loss reserves for funding new underwriting ventures. If claims stay open, the loss reserves on those claims create frozen assets which are likely to be actuarially increased by industry applied, adverse development factors, thereby further depleting the insurer's statutory surplus.

In addition, insurers specializing in healthcare professional liability have recently observed that the jury values of cases have significantly outdistanced their internal rate of return on loss reserves. Finally, the cost of defending a medical negligence case increases dramatically the longer the case remains open. This is especially true on the defense side, where expert discovery is generally initiated later in the case.

For the above stated reasons, insurers have a strong motivation to settle medical negligence claims at the earliest possible opportunity.

III. WHAT ARE THE OBSTACLES TO THE EARLIER RESOLUTION OF MEDICAL NEGLIGENCE CASES AND HOW MAY THEY BE AVOIDED?

Assuming the truth of the above assertions, the real parties at interest in a medical negligence case are all motivated to obtain the same goal, that being a prompt resolution of the case. Why then are so many cases settled only after protracted discovery and only after the parties have incurred substantial costs? The answer to this question is really very simple: the real parties at interest rarely meet to discuss their motivations and the litigation process contains major roadblocks which prevent such a dialogue. It is no small coincidence that the advent of mediation, where the real parties at interest are able to personally confer, has resulted in the exponential increase in the settlement of medical negligence cases.
If the real parties at interest can meet at mediation and resolve their cases, what are the obstacles that preclude those cases from being resolved at an earlier time? I will now analyze what I perceive to be the three main obstacles to the prompt and equitable resolution of medical negligence cases and will provide my views as to how the practitioner may overcome those obstacles in the future.

A. The Plaintiffs' Bar's Failure to Provide Adequate Information.

Successful sales people know how to market their product. They create literature describing the uses and benefits of the product and are intimately familiar with its cost of production, method of distribution, and profit margin. Attorneys, whether representing plaintiffs or defendants, are equally adept at marketing their services. On a daily basis, I receive very expensive brochures from attorneys on both sides of the docket outlining their capabilities and their track records of success.

Despite an apparent sensitivity to the need to market their services, attorneys have a disconnect when it comes to applying those same principles to individual cases. Instead, secrecy abounds when it comes time to talk about the particulars of an individual case.
Information sells, and the free flow of information must begin with the plaintiff and his or her attorney. As stated previously, the filing of a petition constitutes the first offer to resolve any case. This offer to "sell a release" must be accompanied by information which allows the buyer the ability to evaluate the release in the context of its benefits, as he or she would with any other product.

I am repeatedly frustrated with the plaintiffs' bar's refusal to share pertinent information about a case at its earliest stages. Without pertinent medical records, patient demographic information, an economic damage analysis, and expert reviews setting forth the criticisms of the insured healthcare provider, how may I realistically evaluate whether I wish to buy the release being offered?

The plaintiffs' bar frequently misses huge opportunities to resolve medical negligence cases more rapidly by its failure to provide quality information. Although there are exceptions to any rule, a plaintiff's attorney will have a significant head start on the evaluation of any case because he or she will have been living with that case for many months before filing it. Presumably, there are strengths to the case and that is why it is being asserted. The information must be shared.

The plaintiffs' bar's standard response to this complaint is a litany of examples where it has worked with defendant healthcare providers and their insurers, only to be frustrated by a lack of movement towards settlement. I have no doubt that those examples are true. My response, however, is "so what?" If you have a product worth selling, you should be proud to talk about it and should be willing to provide information about it to the buying public. The primary goal of every negotiator should be to place his or her adversary in a position where career changing decisions must be made. In medical negligence litigation, this task can not be effectively accomplished without the adequate flow of information.

B. The Lack of Intellectual Honesty by the Attorneys Representing the Real Parties at Interest.

Although we all like to fancy the prosecution and defense of medical negligence cases as the crème-de-la-crème of tort litigation, the reality is that this business is not rocket science. Professionals in this arena should be able to adequately evaluate the strengths and weaknesses of a case quickly and should be able to place a value on the same which intersects at some realistic level. In a perfect world, this analysis would occur sooner rather than later.

The evaluation process does not occur quickly because there is a lack of intellectual honesty which occurs during the litigation process. The plaintiffs' bar will say that this phenomenon stems from the fact that the defense bar, synonymous with the slogan from The Gallo Winery, "will settle no case before its time." The defense bar will contend that ATLA must have a commandment which mandates that every opening settlement demand in a medical negligence case be five times the case's value just because some insurance adjuster might be just stupid enough to pay it.

In my experience, the lack of intellectual honesty which precludes the early and effective resolution of a case is caused by the trial attorneys' lack of sensitivity to the mutual desire for resolution held by the real parties at interest and by the inherent conflict of interest which exists in the contingency fee arrangement and the tripartite insurance relationship.
From the plaintiffs' bar's perspective, client development is predicated upon past results obtained and the representation of an expected result in the case at hand. Referrals of plaintiffs' cases from other attorneys who do not specialize in medical negligence cases constitute a large part of most plaintiffs' attorneys' practices. Plaintiffs' attorneys will candidly admit in private that the clients' expectations (and clients here may be both the referring attorneys and the injured parties) often drive the initial settlement posture of a case.
Unrealistic expectations, whether harbored by the clients or the plaintiffs' attorney, will frequently destroy an opportunity for early resolution of a case. For example, I am frequently provided with an opening settlement demand which mirrors our insured's available insurance limits, but does not mirror the exposure of the case. Generally, a policy limits demand reflects a lack of analysis by the plaintiff's attorney and requires the defendant's insurer and retained counsel to justify a Cadillac defense in order to ensure that the insurer has satisfied its contractual obligations to its insured. This posturing occurs almost daily and constitutes a classic example of where the plaintiffs' attorney's lack of intellectual honesty prevents the real parties at interest from achieving their mutually stated goal of resolution.
From the defendant's perspective, the real party at interest is the insurance carrier for the involved healthcare provider; however, the defense attorney's primary obligation is to his or her client, the healthcare provider. Although there are certain defense firms that guild the lily in order to increase fees, I believe it is the conflict inherent in the tripartite insurance relationship, rather than dishonesty, which creates the lack of intellectual honesty in the defense bar.

Each healthcare provider named in a lawsuit has his or her own agenda regarding the handling of the case (e.g., avoid being reported to the National Practitioner Databank). Irrespective of the merits of the case, if the healthcare provider wants the case defended, the defense attorney's obligation is to find it a defense, any defense, to the allegations. In today's litigation marketplace, there are few medical negligence cases where expert support cannot be obtained.

Once a defense attorney has found an expert who will support his client's care, the healthcare provider's confidence is bolstered and the insurer is placed into a false sense of security. The momentum of the case then is directed to discovery and further information gathering. The quality of the supporting expert opinion (or whether it even matters given factors such as the venue, the economic and noneconomic damages, and the available insurance limits) becomes a secondary concern which does not resurface until the plaintiff's experts' depositions have been taken or their reports have been produced, if then.

As discussed previously, delays in getting adequate information about the nature of the plaintiff's case also generate the opportunity for a lack of intellectual honesty by the defense bar. Defense attorneys, without adequate information, tend to understate the exposure presented by a case in order to appear committed to the defense and in order to prevent sounding like an alarmist to the insurer. It is natural for insurers to accept good information without critical analysis. Therefore, these early evaluations of counsel often become a major impediment to settlement when the true nature of the case is later revealed through discovery.

I submit that intellectual honesty in the evaluation of medical negligence cases can be obtained if attorneys on both sides of the docket would attempt to analyze each case with the following approach:

1) fast forward the case to the eve of trial;

2) assume that the jury has just returned a verdict against your client and then ask yourself why you lost; and

3) place yourself in your opponent's shoes and ask yourself at what settlement figure would you tell your client that, although you can not recommend the amount, you could not fault him or her for accepting or paying the amount.

A use of the foregoing approach forces the practitioner to critically analyze the quality of the case at hand and evaluate the economic realities to the real parties at interest, the plaintiffs and their attorneys and the defendants' insurers. I personally believe that if every medical negligence case began with the approach outlined above, cases would be resolved far more quickly and for values mutually satisfactory to the real parties at interest.

C. The Infrastructure of Insurance Companies.

The insurance industry has itself to blame for many of the problems facing the healthcare professional liability market place today, a marketplace which has suffered horrific underwriting losses over the past twenty-four months, has recently experienced the liquidation of two major insurers (Reliance Insurance Company and PHICO Insurance Company), and a few months ago saw former market leader, The St. Paul Companies, withdraw from this line of business.
Although poor underwriting is clearly a factor in the healthcare insurance industry's current crisis, the following systemic factors in the healthcare insurance claims industry have significantly contributed to these losses:

1) insurers' historical treatment of their claims operations as a secondary business component, resulting in the improper training and development of staff;
2) insurers' heightened focus on driving down the hourly rate of retained counsel as a means of controlling the costs of litigation; this pressure has resulted in a system where, at best, the quality defense attorneys are forced to accept cases at below market rates and have them handled by attorneys who lack the appropriate experience or where, at worst, the quality defense attorneys change allegiance and move to the plaintiffs' bar;
3) the creation of an internal, multi-level claims bureaucracy which incentivizes claims handlers to underevaluate cases so as to avoid the performance of additional work on the same; and
4) the virtual lack of claims handling by reinsurers who, although ultimately at risk for the exposure of many cases, are required to "follow the fortunes" of their reinsured.

The infrastructure of the insurance industry, and the complications associated with the same, create obstacles to the resolution of cases at the early stages of litigation. Many of the frustrations aired by attorneys and insurers specializing in medical negligence cases are directly tied to the products of this bureaucratic infrastructure. Astute attorneys on both sides of the docket will learn to develop a mechanism for maneuvering through this bureaucratic morass and will find the ear of the person at the insurance company who has the authority to make decisions regarding settlement. In my experience, this task can only be accomplished by the development of relationships grounded in fair dealing and mutual respect.

IV. CONCLUSION
The real parties at interest in medical negligence cases are all motivated to resolve cases fairly and promptly. The most effective attorneys practicing in this area of the law will appreciate the minefield of obstacles to resolution which exist in the litigation process and will understand that his or her client's goals will be realized only when the real parties at interest are allowed to engage in a free flow of information and are intellectually honest about the merits and value of their respective case.