556. Kenneth S. Reinker & David Rosenberg, Improving Medical Malpractice Liability by Allowing Insurers to Take Charge, 08/2006. subsequently published as “Unlimited Subrogation: Improving Medical Malpractice Liability by Allowing Insurers to Take Charge,” in Journal of Legal Studies, Vol. 36, June 2007, S261-S289.
Abstract: This paper proposes a solution to many of the basic problems with the current system of medical malpractice liability. By all accounts, despite consuming more than $20 billion annually, this system has proven ineffective and probably counterproductive as a means of deterrence and source of insurance. High litigation cost precludes or suppresses vigorous prosecution of most meritorious claims, while it motivates filing of unmeritorious claims for nuisance value payoffs. Patients are compelled to buy “tort insurance” that not only doubles the coverage for economic loss they already have and can cheaply supplement from commercial and governmental suppliers of first-party insurance, but also mandates coverage for non-pecuniary harm that no one wants if they have to pay higher premiums and taxes to get it. The solution is simply to change the law of insurance subrogation as it applies to insurers acquiring their insureds’ tort claims. Currently the rule limits subrogation to the amount an insurer paid in covering its insured’s loss. The proposed change would allow insurers to acquire their insureds’ potential malpractice claims without limitation, including recovery of all damages, non-pecuniary as well as economic. In short, the paper proposes unlimited insurance subrogation (UIS) as a natural and efficient vehicle for patients to assign their entire potential malpractice claims to their first-party insurers. UIS will thereby improve both deterrence and insurance results of medical malpractice liability. By making first-party insurers plaintiffs and placing them on the same footing as their defense-side counterparts, liability insurers, UIS should increase the rate at and effectiveness with which meritorious claims are prosecuted and also reduce meritless litigation, as these large-scale, long-term repeat players will possess the needed means of mutual deterrence and motive for mutual cooperation. At the same time, as first-party insurers lower premiums (and taxes) in anticipation of subrogated claim recoveries, UIS will operate to convert expensive, risky, dilatory, and to a large extent unwanted tort insurance into a greater amount of more optimal first-party insurance. In addition to these direct benefits, UIS should encourage first-party and liability insurers to establish by contract a “private” system for more efficaciously resolving medical malpractice claims. The paper addresses possible costs of UIS, notably loss of patient cooperation in subrogation suits and jury sympathy for plaintiffs; none is found to pose a substantial problem.