January 9, 2013

162017_132140396847214_292624_nMedical malpractice insurance companies are responsible to pay not only the amount of settlements reached in medical malpractice cases and the amount of judgments entered against their insureds, but also the expenses in defending the medical malpractice claims made against their insureds. The so-called defense expenses are incurred by the medical malpractice insurance companies whether the medical malpractice claims alleged against their insureds are successful or unsuccessful. Medical malpractice insurance companies refer to defense expenses incurred in medical malpractice claims as allocated loss adjustment expenses (“ALAE”). A recent study funded in part by the Agency for Healthcare Research and Quality found that ALAE are a growing percentage of the average indemnity (the amount paid to medical malpractice claimants) for malpractice claims paid over a 23-year period.

The researchers found that the percentage of closed claims resulting in paid claims was 33% of 8,136 closed claims in 1985. From 1994 to 1998, the paid claims fell below 30%. Since 2003, paid claims have remained below 30%. While the average indemnity (in 2008 dollars) rose almost in a straight line from $174,260 in 1985 to $342,670 in 2008, the average ALAE rose (in 2008 dollars) from $13,395 to $43,258 (from $0.24 to $0.45 for each “indemnity dollar” paid). As expected, medical malpractice claims resulting in plaintiff verdicts had the highest average ALAE. For medical malpractice claims that were dropped, withdrawn, or dismissed, 64% of the claims averaged ALAE of only $15,056.

The researchers found that 74% of the ALAE represented defense attorney expenses. Expert witnesses and other expenses split the remaining 26% evenly. It is suggested that possible explanations for the increase in ALAE include the use of technology advancements during jury trials, use of mock trials and jury consultants, increased court reporter costs, and increased hourly rates and use of expert witnesses. Since the overwhelming majority of medical malpractice claims are dropped, withdrawn, or dismissed but ALAE are still incurred, the total amount spent to defend them surpasses that spent by medical malpractice insurance companies on the medical malpractice claims that go to trial. Therefore, it is important that defense expenses be further studied and addressed in order to see if controlling them can have a significant effect on medical malpractice insurance premiums.


Medical malpractice insurance premiums are determined not only by the amounts of indemnity payouts made and ALAE, but also the return on investments experienced by the medical malpractice insurance companies (bad investments by medical malpractice insurance companies result in higher medical malpractice premiums charged to their insureds), reinsurance costs (medical malpractice insurance companies typically do not retain the full exposure for medical malpractice claims but spread the risks of large medical malpractice payouts), and administrative costs such as underwriting expenses. The existing evidence supports the conclusion that each of these factors plays a role in the increasing cost of medical malpractice liability insurance premiums.

If you, a family member, a loved one, or a friend may be the victim of medical malpractice, you should promptly seek the advice of a local medical malpractice attorney who may be willing to investigate your medical malpractice claim for you and file a medical malpractice case on your behalf, if appropriate.

Click here to visit our website to be connected with medical malpractice lawyers in your state who may be willing to assist you with your medical malpractice claim, or call us toll-free at 800-295-3959.

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