New Yorkers pay a high price for liability litigation

High taxes help make New York an expensive place to do business. A new report argues convincingly that costly malpractice litigation and insurance also kill jobs and drive away business.

The report from the conservative Pacific Research Institute notes that from an economic perspective, New York state ranks near the bottom in its liability laws. Liability defense costs have risen 485 percent since 1977, adjusted for inflation. Jury awards generally are 600 percent above the national norm and include 10 of the nation’s top payouts in 2006. “Defensive medicine” — physicians’ over-reliance on tests and medications as a hedge against litigation — add up to 9 percent to medical bills, PRI claims.

The daunting cost of medical malpractice insurance — up to $200,000 or more per year for surgeons and obstetricians — is driving doctors away. More than half the young doctors educated in New York leave, according to Gerry Hoffman of the Onondaga County Medical Society. Society President Dr. Gregory Threatte notes that while New York receives a paltry 150 license applications from physicians per month, there are 2,500 applications in Texas, where malpractice reforms took effect four years ago.

Insurance costs have a more direct effect on New York taxpayers. To cushion rate shock, the state froze doctors’ malpractice premiums two years ago and now pays insurers $140 million yearly to make up the difference.

Then there’s the state’s unique “scaffolding law,” which holds employers liable for certain construction accidents even when the victim was largely at fault. The law, dating to the 1880s, when there were few job protections and no worker compensation or federal workplace safety rules, push liability premiums as much as 1,000 percent above the norm, according to PRI.

PRI argues that lowering the cost of liability litigation and insurance premiums would create thousands of new jobs, increase productivity, expand the economy, even increase stock prices — at no cost to taxpayers.

PRI’s claims run smack into the counterarguments of trial lawyers — including Assembly Speaker Sheldon Silver, D-Manhattan. The trial lawyers argue that their clients deserve compensation not just for their economic losses, but for hard-to-quantify “pain and suffering.”

Yet 46 states have enacted some kind of tort reform, 36 of them imposing a cap on pain and suffering awards. PRI reports that after caps were put in place in Texas, physicians’ premiums dropped sharply and doctors began returning to underserved areas.

PRI calculates that reforms like a cap on non-economic damages and adoption of a comparative negligence standard in place of the scaffolding law would bring rate relief and economic benefits. Other reform proposals include setting up “health courts” to streamline and standardize proceedings, and one favored by former New York Insurance Commissioner Eric Dinallo: non-binding arbitration to settle cases out of the courtroom.

Nearly two years ago, a task force headed by Dinallo nearly produced historic liability reforms — before the abrupt resignation of former Gov. Eliot Spitzer. Dinallo’s successor, James T. Wrynn, says insurance reform is a top priority for him. It’s time to get back to work — and this time, finish the job.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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