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How Are Malpractice Settlements Calculated?

The formula for the settlement value of medical malpractice claims is quite simple. The settlement calculation that victims, doctors, and hospitals use in medical malpractice lawsuits is the expected average jury verdict multiplied by the likelihood of the plaintiff prevailing at trial.

The costs of litigation and the pain of adverse publicity complicate the calculation of the formula. But, as we explain below, the costs of bringing litigation are of more significant concern to the doctor’s insurance company or the hospital than the victim because most malpractice lawyers advance all of the litigation costs and bear the risk of an adverse outcome.

Publicity concerns are very real to a hospital and can add to the value of a case. Last year, we had a $10 million verdict against a hospital that is undoubtedly even more sorry that it let that case go to trial because newspapers picked up the verdict. But if no hospital is involved and the claim is against an unknown doctor, the insurance company is unlikely to consider adverse publicity in their settlement calculations significantly.

How Do Medical Malpractice Insurance Companies Value Claims?

The medical malpractice insurance company covering the doctor who made a mistake spends considerable effort assessing and reassessing the value of the case as the lawsuit evolves.

The money a victim receives by settlement or verdict is only part of the total expense incurred by the insurer. The malpractice insurer also pays for the attorney and expert fees – no small chunk of change – and other costs associated with preparing and moving forward with litigation.

While the value of a case may be an absolute dollar settlement amount for the victim, the insurer often has a larger figure in mind that combines the settlement and the costs involved in getting to that settlement. This is the most influential factor in how a malpractice insurer approaches a medical malpractice claim. Because what hospitals and insurance companies care about is how much the claim will cost them when all is said and done. Period.

Initial Assessment

When a claim arises, the insurer will estimate how much the case is worth based on their evaluation of the strength of the victim’s claim and the amount of damages potentially available. No doubt, the adjuster is working off limited information at this point. But insurance companies are on an endless treadmill of figuring out how much the outstanding value of claims are because that is the key to their profitability (and how much of their cash they can invest).

Are you frustrated trying to estimate the value of your potential malpractice case? You can get information about the value of different types of medical malpractice claims here.

“Damages” are the amount paid to a victim following a settlement or successful lawsuit. It consists of economic damages (past and future lost wages and past and future medical expenses. Total damages include non-economic damages, the dollar value placed on a victim’s pain and suffering and emotional distress.

While the damages are often summarized—though not quantified—in a summons and complaint, an insurer can still make a guestimate of the potential damages earlier in the claims process based on the medical record, additional information provided by the victim, and by comparing the claim to similar past cases. They are also aided, in most cases, by having most of the medical records to make that call.

Even at this early stage, the insurer will even set aside (place on reserve) an actual dollar amount in anticipation of a payout. Depending on how the claim evolves, the insurer may adjust the reserve.

Attorneys Fees

Although payment to the victim will not be awarded until after a successful trial or settlement is reached, a medical malpractice insurance company will begin spending money on a claim well before either of these events.

If the claim has merit and the victim is likely to pursue litigation, the insurer will hire an attorney to represent the doctor and communicate with the other parties to the case on the physician’s behalf. At that point, the attorney can start billing the insurer for time spent reviewing the facts of the claim with the doctor and advising him/her going forward, as well as the time and expense involved in gathering and reviewing records.

The malpractice insurance company itself may devote its personnel to the matter, gathering and reviewing records and interviewing the insured doctor (and other involved physicians) to assess the strength of the claim and the extent of damages. The defense attorney and medical malpractice insurance company are in frequent contact with each other and the doctor to formulate a strategy moving forward, and this adds up to many hours of personal time and attorneys’ fees—even before the filing of a lawsuit. Like plaintiffs’ lawyers, the doctors’ attorneys want to get ahead of the curve on how the case will break.

Expert Fees

Expert fees are another significant expense to the medical malpractice insurance company that arises long before damages are paid out. Again, if the insurer feels a negligence claim is likely to result in a lawsuit, the insurer may contact other doctors in the same specialty to get their opinions. The insurer seeks these opinions for two purposes.

Most commonly, in the early stages of a claim, these experts are asked to review the facts of the case and give their opinion on whether the doctor met the standard of care. This means the doctor acceptably performed his/her duties by the medical community. If the expert feels the doctor met the standard of care, the insurer may choose to defend the claim. They will also try to convince the victim to drop the lawsuit. If the expert feels the doctor did not meet the standard of care, the insurer must decide (along with the advice of the defense attorney and the approval of the insured physician) whether to pursue a settlement or risk going to trial and facing a significant award.

However, a settlement at the early stage of a malpractice case is rare, even when the insurer believes there is liability. Why? Because they want to see the case – the whole case – before assessing the damages. Being responsible for an injury or death differs from how much to pay for the claim.

The median malpractice settlement/verdict in Maryland is approximately $900,000.

The second reason an insurer may hire an expert is to assess potential damages. The final determination of the dollar amount will be made by the jury or determined by an agreed-upon settlement. But the insurer must have an accurate idea of the possible damages. We call it “how much money we can put on the board.” This is a finite number because of the cap on non-economic damages in Maryland.

So the insurer will review the facts of the claim and speculate about the future medical expenses the victim will likely face and the impact of the injury on the victim’s quality of life moving forward. If a significant amount of damages is possible, the defense team may aggressively pursue a settlement to avoid a potentially devastating jury award.

How Value Affects Defense Strategy?

As one can see, a medical malpractice insurance company may spend significant time and money on a claim even before litigation begins, even if a trial never results. This initial legwork prepares the insurer and the defense team to decide whether to pursue a settlement or go to trial. The first question is always whether malpractice occurred; if so, the second question is how much money the insurer might have to pay out in the end.

If the facts of the case do not support the victim’s claim, the lawsuit provides little risk to the insurer beyond those expenses necessary to defend the insured doctor (expert and attorney fees). In these circumstances, the defense team may continue the litigation process on the assumption that the victim will eventually drop the lawsuit, or a jury will find for the doctor, and no damages will be awarded.

 

Of course, the experts may advise the defense lawyers that the doctor did not meet the standard of care, and the claim will likely be successful in court. In this case, the insurer will look at the total amount of expenses it faces (fees, costs, and, most importantly, potential damages) and may direct the defense team, with the approval of the insured doctor, to offer a settlement to avoid an even more substantial payout after a trial.

Obviously, the stronger the case and more significant the potential damages, the greater value a case has from the insurer’s perspective, and the more money the defense team may be willing to come to the settlement table to avoid the risk of an even more significant award at trial.

In the real world, you can always find a doctor who, for a fee, will defend any other physician. The defense lawyers often pick again if their first expert renders an unfavorable report.

It is a shame, but it is what you repeatedly see in virtually every malpractice case. But the insurance company knows that, too. So they are not just listening to their expert’s opinion but getting a handle on how strong it will be and how well it will hold up under the plaintiff’s counsel’s cross-examination at trial.

Conclusion

Although medical malpractice insurance companies are expected to cover the damages awarded to a victim at trial, an insurer also faces significant expenses leading up to that point. In fact, many cases never go to trial but still cost insurers large sums of money. Well before the victim sees a check—in fact, even if the judgment or resolution is in the doctor’s favor—the insurer may have spent a substantial amount of money on attorney and expert fees, as well as considerable employee hours developing a strategy for the case.

Naturally, the driving force behind the strategy is always the value of the case as viewed by the insurer, which includes litigation expenses in addition to the potential damages a victim can claim. The stronger the case and the higher the available damages, the more urgently an insurer will pursue settlement. However a claim may end, the insurer cuts the check—whether for the significant expenses required to defend a doctor against a claim they will ultimately defeat or for the settlement or jury award following a victim’s successful claim of medical malpractice.

Free Maryland Malpractice Claim Consultation

If you live in the Baltimore-Washington area and believe you have been a victim of a medical mistake that has resulted in severe injury or death of a loved one, call 800-553-8082 or get a free online medical malpractice consultation.

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They quite literally worked as hard as if not harder than the doctors to save our lives. Terry Waldron
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Hopefully I won't need it again but if I do, I have definitely found my lawyer for life and I would definitely recommend this office to anyone! Bridget Stevens
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The entire team from the intake Samantha to the lawyer himself (Ron Miller) has been really approachable. Suzette Allen
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The case settled and I got a lot more money than I expected. Ron even fought to reduce how much I owed in medical bills so I could get an even larger settlement. Nchedo Idahosa
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