Rosary A. Morelli and Matthew E. Kelly
Rosary A. Morelli and Matthew E. Kelly ()

The enactment of the Medical Indemnity Fund in New York State in 2011 has had an impact upon medical malpractice insurance carriers, hospitals, medical professionals and the legal system. Because of yet another insurance crisis in New York in the years preceding 2011, including the possibility of hospitals closing their obstetrical departments, the fund was enacted to give relief to hospitals and insurance carriers by shifting the cost of future medical damages in cases of alleged negligence during the birth admission, to the state, through shared payment by hospitals with obstetrical units.

Although the fund has had the intended effect of reducing the amount of cash paid by hospitals through settlement or trial, some unintended consequences have come to light in cases where one or more defendants settle, but other defendants choose to go to trial. An analysis of the interaction of the provisions of the fund with existing statutes will highlight the unintended consequences of substantially altering the amount of the cash owed by non-settling defendants after a verdict. This anomaly results from varying the sequence between the application of the fund and GOL §15-108; and whether the agreed to percentage attributed to the fund by the settling defendants takes precedence over a jury determination for the non-settling defendants. In order to preserve the legislative intent of the fund, legislative clarification is required.

Before addressing the mechanics of this anomaly with two hypothetical cases with two different jury awards, we will review the fund’s provisions and those of the other applicable statutes.

The fund was enacted pursuant to Public Health Law §2999, which provides that where a court or jury has made an award for future medical expenses, upon a finding by the court that the applicant made a prima facie showing that the infant-plaintiff is a “qualified plaintiff,”1 all future medical expenses will be paid for by the fund. Next, a fund administrator must approve the application2 required to enter the fund, ensuring the infant sustained an eligible injury. Thus far, there have been few disagreements about infants being qualified plaintiffs after they submit their applications to the fund. When a claim is placed in the fund, the infant’s qualifying health expenses are paid as they are incurred regardless of the amount of money assigned to the fund. Id. at 739, 934 N.Y.S.2d 662; Public Health Law §2999-j; Joyner-Pack ex rel. Joyner v. State of New York, 38 Misc.3d 903, 907 (Ct Cl 2012).

According to the Public Health Law, the amount of qualifying health care costs to be paid from the fund shall be calculated: (a) with respect to services provided in private physician practices on the basis of 100 percent of the usual and customary rates, as defined by the commissioner in regulation; or (b) with respect to all other services, on the basis of Medicaid rates of reimbursement or, where no such rates are available, as defined by the commissioner in regulation. Public Health Law §2999-j.

The fund determines the amount to be paid for the infant’s future expenses much like a health insurance carrier. In practice, the money attributed to the fund is only used to assess the plaintiff’s attorney fee and does not determine the future amount the infant receives. See Joyner-Pack, 38 Misc.3d 903, 904-05 (Ct Cl 2012). Courts have commented that the fund “is antithetical to the notion that judges, jurors and lawyers are soothsayers who can predict, at the time of trial or settlement, the actual lifetime cost of the child’s future medical needs.” Mendez ex rel. Mendez v. New York and Presbyt. Hosp., 34 Misc.3d 735, 739 [Sup Ct 2011]. The amount of the plaintiff’s attorney fees attributed to the fund must be paid by the defendants. As for the plaintiffs’ attorney fees for all other damages, this is paid from the plaintiffs’ non-fund damages award.

Set-Off by Settling Defendant

Under General Obligations Law §15-108, the non-settling defendants have the benefit of the judgment against them being reduced by the greater of the following: the settling party’s equitable share of fault or the amount the settling party paid. This applies to both economic and noneconomic damages. See Whalen v. Kawasaki Motors, 92 NY2d 288, 297 (1998). Under CPLR Article 16, if a defendant’s equitable share of liability is 50 percent or less of the total liability for all the defendants, whether or not named, then that defendant shall only be liable to the extent of his degree of culpability and only for “non-economic loss.” However, if the defendant is found to be 51 percent liable, then the entire amount for non-economic damages can be collected from that one defendant.

While Article 16 does not affect joint and several liability for economic losses, meaning regardless of the defendant’s percentage of liability the plaintiff can collect the entire economic loss from any defendant, CPLR §1601(2) expressly states that “[n]othing in this section shall be construed to affect or impair any right of a tortfeasor” under GOL §15-108.

CPLR Article 50-A

CPLR Article 50-A specifies how damages are to be computed in medical malpractice cases. Article 50-A and CPLR §4111 form the basis for the jury’s assessment of damages for past and future pain and suffering and past and future economic damages. CPLR §4111(d) expressly provides that the jury shall specify the amount assigned to each element of damages “including but not limited to medical expenses…loss of earnings, impairment of earning ability, and pain and suffering.” The statutes require the jury to find the annual costs of care and future economic damages, the timing of payments, whether the conditions are permanent, and the rate of inflation applicable to future care.

The judge then applies this inflation rate to the annual cost of care, and arrives at a total, which, for purposes of entering a judgment and computing attorney fees and interest, is discounted to present value. Pragmatically, the jury’s determination of future care costs serves as a basis for qualifying the infant for fund payment, determining the percentage attributed to the fund and determining the amount of the plaintiffs’ attorney fees.

Analysis

We will examine the monetary consequences of the interaction of the fund and the other mentioned statutes with two hypothetical cases. Both hypotheticals involve settling and non-settling defendants. For the non-settling defendants we will use two different jury awards. Then we will vary the order of the application of the fund and GOL; and then vary the percentage attributed to the fund first by the settlement and then the jury verdict. We assume the following for both cases.

• The private attending obstetricians, who delivered the infant, settled prior to jury selection for a total sum of $4 million.

• It was agreed by the parties and approved by the court, that 50 percent of the damages be assigned to the fund and 50 percent to non-fund damages. Therefore, the cash payment by the settling defendant was approximately $2 million.3

• The hospital and anesthesiologist chose not to settle. The hospital is well insured and the private attending anesthesiologist had primary coverage of $1 million but no excess coverage. The hospital is vicariously liable for the anesthesiologist.

Hypothetical 1: The jury found the obstetricians 70 percent liable with 10 percent liability attributed to the hospital and 20 percent to the anesthesiologist. The jury awarded $6 million with $1.5 million for non-fund damages, and $4.5 million for future medical expenses, which equals a 75 percent allocation to the fund.

As demonstrated below, the amount owed by the non-settling defendants differs per the sequence of the application of the GOL and the controlling percentage for the fund. In this first hypothetical, when the GOL set-off is applied before the damages are reduced by the fund, the hospital will owe either $150,000 or $300,000, depending on which fund allocation governs: the jury’s findings of 75 percent or the prior settlement figure of 50 percent, respectively.

In contrast, if the fund damages are reduced before the GOL set-off then the hospital will not be liable for anything as the fund reduction will leave the potential award below the settlement amount, allowing the non-settling defendant to set-off the entire amount of the damages per the GOL. That is $6 million reduced by the jury’s finding of 75 percent for the fund leaves the non-settling defendant owing $1.5 million. But the settling defendant paid $4 million which is greater than $1.5 million. On the other hand, if the $6 million is reduced by the agreed to 50 percent by the settling defendants, then the non-settling defendants still owe nothing since the settling defendants paid $4 million which is greater than 50 percent of $6 million. Therefore the hospital can owe $150,000, $300,000 or zero.

If the GOL is applied first:

• Per the GOL, the defendants would elect to reduce the verdict by the jury’s determination because the settlement amount of $4 million is less than the 70 percent the jury attributed to the settling defendants’ share as 70 percent of $6 million is $4.2 million. Therefore the award is reduced to $1.8 million ($6 million minus the jury’s $4.2 million.)

• The jury awarded $4.5 million of fund damages making the fund’s share 75 percent. If the award next is reduced by 75 percent, the total owed by the non-settling defendants is 25 percent of $1.8 million, or $450,000.

• Therefore, given the non-settling defendants’ liabilities of 10 percent for the hospital and 20 percent for the anesthesiologist, the hospital owes $150,000 (1/3 of $450,000) and the anesthesiologist, $300,000 (2/3 of $450,000). These ratios were arrived at by taking the hospital’s 10 percent (1/3) share of the 30 percent total negligence and the anesthesiologist taking 20 percent (2/3) of 30 percent of the total negligence.

• If we use the agreed to settlement apportionment of 50 percent to the fund rather than the jury’s determination of 75 percent, then the non-settling defendants’ share is 50 percent of $1.8 million or $900,000.

• Therefore, when the settlement apportionment is controlling the hospital would owe $300,000 (1/3) and the anesthesiologist $600,000 (2/3).

Hypothetical 2: The second hypothetical assumes the obstetricians are 30 percent liable, the hospital 10 percent and the anesthesiologist 60 percent. The total jury verdict is $20 million, consisting of $13 million for pain and suffering and $7 million for future medical expenses which means the apportionment to the fund is 35 percent. Like the first hypothetical, there are disparate outcomes depending on whether the fund or GOL set-off is applied first.

Applying the GOL set-off first:

• Since the obstetricians are 30 percent liable, the amount of the set-off per the verdict is $6 million which is greater than the $4 million paid for the settlement. Therefore $6 million is subtracted from $20 million reducing the award to $14 million.

• Reducing the award further by the fund per the jury determination of 35 percent, the total amount owed by the non-settling defendants is $9.1 million.

• The hospital is 10 percent liable and the anesthesiologist 60 percent. The hospital’s 1/7 share is $1.3 million and the anesthesiologist’s 6/7 is $7.8 million . These ratios were arrived at assuming the 70 percent total negligence between the hospital and the anesthesiologist, with 1/7 (10 percent) of 70 percent for the hospital, and 6/7 (60 percent of 70 percent liability) for the anesthesiologist. Since the anesthesiologist has a $1 million policy, the hospital faces $8.1 million of exposure ($9.1 million minus $1 million.)

• If the fund’s prior settlement allocation of 50 percent governs and the GOL is applied first, then the non-settling defendants would choose the amount of the set-off per the verdict as $6 million is greater than the $4 million settlement, leaving $14 million. Next the fund apportionment of 50 percent is applied to the $14 million and the non-settling defendants’ total share is $7 million.

• The hospital is 10 percent liable and the anesthesiologist is 60 percent. The hospital owes $1 million (1/7 of 70 percent) and the anesthesiologist $6 million (6/7 of 70 percent). Since the anesthesiologist only has a $1 million policy, the hospital faces $6 million of exposure ($7 million minus $1 million.)

In contrast, if the damages are first reduced by the fund per the jury’s 35 percent finding, the non-settling defendants owe $13 million because 35 percent of $20 million is $7 million and that $7 million is deducted from the $20 million verdict leaving $13 million. If the GOL set-off is applied next, the non-settling defendants owe the following:

• Since 30 percent of $13 million is $3.9 million the non-settling defendants would choose the settlement amount of $4 million as their set-off. This would reduce the amount owed to $9 million.

• Since the hospital was 10 percent liable it owes $1.286 million (1/7 of $9 million) and the anesthesiologist $7.7 million (6/7 of $9 million). But, the hospital faces $8 million in exposure given the anesthesiologist’s $1 million policy.

• If the 50 percent fund settlement is applied instead before the GOL set-off, the non-settling defendants owe $10 million, which is 50 percent of $20 million. The non-settling defendants would have $6 million in exposure, as the $4 million settlement is the greater deduction than $3 million (30 percent of $10 million). The hospital owes $1,857,142 (1/7) and the anesthesiologist $5,142,857 (6/7), though the hospital would owe $5 million given the anesthesiologist’s $1 million policy.

Therefore, depending on whether the fund or GOL is applied first and which percent attributed to the fund is used, the hospital could face exposure of $8.1 million, $6 million, $8 million or $5 million.

A final comment is we assumed the amount of the settlement is the full monetary value and not the cash paid by the settling defendant. This too could be a point of contention and requires legislative clarification.

These hypotheticals demonstrate the dramatic effect of the fund’s application highlighting the issues of the choice of percentage applicable to the fund and the order of the GOL’s application. While there are no post-fund cases addressing the former issue, our recommendation, in the spirit of the fund and GOL §15-108, is the non-settling defendant should be able to choose whichever is higher as a deduction: the percentage attributed to the fund from the settlement or the percentage per the jury award.

In the first hypothetical the choice would be the jury’s 75 percent attributed to the fund and in the second hypothetical it would be the agreed to 50 percent from the settlement. As for the latter issue, it seems the intent of the law is to first apply the GOL, and we recommend that continue. Based upon our recommendations, in the first hypothetical the hospital would owe $150,000 and in the second $6 million because the anesthesiologist had inadequate insurance. These recommendations require appropriate legislation which should be addressed so that the intended societal benefit of the fund can be maintained.

Rosary A. Morelli is a partner at Morelli, Gerrard & Lassalle. Matthew E. Kelly is an associate in the firm.

Endnotes:

1. A Qualified Plaintiff is a claimant who has been found by a jury or court to have sustained a birth-related neurological injury as the result of medical malpractice, or who has sustained such an injury and has settled his or her claim.

2. This application requires documentation, including the “specific nature and degree” of the applicant’s injury, names and addresses of medical providers, present sources of health care coverage, and information “accurately reflecting the applicant’s condition.”

3. For ease of computation, attorney fees, future interest rate per Article 50-A, and collateral source deductions are not calculated. There is no award for loss of earnings as this would involve a reduction to present value.