Why Insurance Companies Love Tort Reform, part 437.

The insurance industry has spent the better part of the last 50 years scaring Americans into believing that lawsuits are driving doctors out of business, shutting down Little League, and generally making life miserable for any decent business. One of the many results of this campaign is that Americans now buy lots of insurance to protect themselves against all these looming lawsuits--probably in most cases, far more insurance than they really need, thanks to caps on damages won by those very same insurance companies.

Consider this case: Not long ago, a county government in Nebraska spent $300,000 on a $5 million liability insurance policy. In Nebraska, it's impossible to win more than $1 million in a lawsuit thanks to a hard cap on damages, but apparently the insurance company didn't see fit to remind county officials of this.

The policy recently came to light after a speeding deputy sheriff slammed into a man taking his fiancee out to breakfast. The accident killed the woman and left Manuel Salazar a paraplegic. Salazar's medical bills alone before the lawsuit went to trial were $1.2 million. Even though the county had a $5 million insurance policy, the Nebraska Supreme Court in July 2005* said that none of it above $1 million could be used to pay Salazar's claim. Salazar is now reliant on public benefits, and the taxpayers of Nebraska are safe in the knowledge that their county has contributed its share to the insurance industry's windfall profits over the past few years by buying a policy that the county can't even use to compensate someone who was wrongly injured by one of its employees...

*I originally misstated the date of this decision and have corrected it. Read more here...

Comments

[Ted]

1. Hard caps aren't hard unless written into the state's constitution or until the courts say they are hard in that particular case, as more than one defendant has found out the hard way. Salazar litigated against the cap all the way to the Nebraska Supreme Court, and no one sanctioned him or his lawyers for doing so, so apparently arguing the cap wasn't "hard" wasn't sanctionably frivolous, and the county faced some legal risk and certainly no small legal expense. Salazar v. Scotts Bluff Cty., 266 Neb. 444, 665 N.W.2d 659 (2003).

2. In this particular case, the cap wasn't even a hard $1 million; a political subdivision's liability could be as high as $5 million in some circumstances, albeit not Salazar's. § 13-926(2). The insurance limit was hardly extraneous.

3. The county thus knew what it was buying, and the price of the insurance reflected those actual legal risks. Do you have any evidence to the contrary other than your snark? Moreover, the insurance company covered the county's legal expenses as the Salazars litigated against application of the cap, and even offered a nuisance settlement above the $1M to end the litigation earlier.

4. Also, I don't know where you get "September" from. The decision was in July 2005.

5. It's funny how Mencimer's book is all about accusing reformers of using the tactics of factually incomplete anecdotes, when that is a far better description of her own style. In a few minutes of Google searches, I discovered that the entire premise of this story was bogus. Lord knows what a full-time fact-checker could determine.

[Maren Chaloupka]

I represent Manuel Salazar - - did in the county case, did in the insurance case, and still do today. Other than the date, Ms. Mencimer's account is accurate.

A few notes:

There is no evidence of whether the county knew what it was buying. I served discovery requests to that effect, and the county refused to answer. Our case against the insurer was dismissed before my motion to compel was heard.

$5 million is available only when there are multiple litigants. It was not available to Manuel Salazar; nor am I aware of any other circumstance in which a single litigant has recovered more than $1 million. If you know of any, please be sure to let us know.

The "nuisance settlement" you reference, by the way, was an exercise in attempted "gotcha." The county offered one dollar more than the amount of the cap, and registered its offer of judgment so that if Mr. Salazar failed to recover more than the cap, then the county could seek taxation of costs against Mr. Salazar for having the hubris to challenge the applicability of the cap (when his medical bills alone exceeded the cap). That kind of compassion from the insurance trust is always nice to see.

And as to sanctions? The county did try to get me sanctioned for challenging the insurance policy. It lost, but in the meantime, I had to hire counsel and invest considerable time in defending the sanctions motion (responding to discovery requests, etc.).

I hope this clears up any misunderstanding.

[Ted]

"$5 million is available only when there are multiple litigants."

Exactly: multiple litigants, one occurrence, $5 million cap. Which is precisely what the statute I cited to said. Which is why Mencimer's snark (and your lawsuit) is utterly baseless: the county had a perfectly good (and perfectly obvious) reason to purchase a policy with limits that tracked the language of the cap. This is either dishonest or ignorant on Mencimer's part, especially since one minute of Googling and two minutes of reading the court opinion could have revealed this.

The two suits challenging the cap and then suing the insurer were both legally baseless and a waste of taxpayer dollars, and it's a shame the court didn't grant sanctions to discourage that behavior: insurance policies would be a lot cheaper and people would be better off if attorneys faced consequences for doing so.

You've said nothing that contradicts me. You do add two interesting new facts.

1) You give a nice example of the need for reform: you complain of the considerable cost of defending against a sanctions motion, but discovery would have been irrelevant if reformers had succeeded in replacing the subjective standard with an objective standard. Because attorneys can avoid sanctions by persuading a court that they were just negligently stupid instead of malicious, discovery is required into the state of mind of the attorney.

2) Your story of the offer of judgment demonstrates that you were willing to put your client's legitimate recovery at risk in the hopes that the court would make a mistake and grant an illegal windfall from which you could take your contingent fee, which is jaw-dropping unless it was something the client insisted upon against your fervent urging against it, and even then is questionable.

The interesting question is whether Mencimer really thinks this is laudable rather than appalling, or did she hypocritically fail to subject her own anecdotes to a modicum of scrutiny?

[David Nieporent]

What Ted doesn't mention (but I'm sure he knows if he googled it) is that Salazar's lawyer managed to waste both taxpayer and insurers' money by litigating the case to the state Supreme Court twice, first by arguing that 'excess' insurance was a waiver of the state law and then by arguing that injured parties were third party beneficiaries of insurance companies citing a California court decision based on a statute that doesn't exist in Nebraska.

When in fact Salazar could have had the money he was statutorily entitled to right away if his attorney had just accepted the offer of judgment instead of trying to creatively violate the law.

[Maren Chaloupka]

$1 million was not enough money to do Mr. Salazar much, if any, good, given that he owed more than that amount to medical creditors and Medicaid. He knew that; and that is why he asked us to research and challenge the applicability of the cap (and we agreed to do so).

I have a hard time feeling like this wasted the insurer's money, given that the trial court sanctioned (and the Supreme Court upheld) the insurer's lawyer for wasting Manuel's money in the end.

You guys need to argue with Ms. Mencimer about a case that was not litigated by one of the readers of this blog. Whatever appears on Google is quite certain to be less than what appears in the eight file boxes in my office. You may not agree with our efforts to challenge this cap; but you've also not been in Mr. Salazar's shoes.