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Charles Silver on haircuts

I've previously discussed the Hyman/Black/Zeiler/Silver/Sage "Haircuts" study, but Charles Silver has a new post on the DMI blog that merits discussion.

What disappoints me is that Professor Silver draws conclusions that outrun his data, and not for the first time. Silver takes reasonable empirical research that discusses one question, and then proceeds to draw conclusions such as "the connection between verdicts and premiums is weak" that the study either says nothing about (there's no attempt to relate haircuts to premiums in the study; and there's no attempt in the study to relate jury verdict sizes to pre-trial settlement amounts, which far and away exceed post-trial settlement amounts) or contradicts (as Silver himself acknowledges, the study finds that ultimate payment by insurers in a given case is highly correlated with jury verdict size).

There's sloppiness elsewhere: there's no acknowledgement in the post that haircuts in part reflect the risk that the jury verdict will be overturned. There's also no evidence in this study that low insurance limits reflect attempts by doctors to evade liability, though I understand Hyman et al. are looking at the question of insurance limits in another study.

Silver also misstates the results of the study when he says "A Texan would be right to say that when a jury awards more money than a doctor�s insurance policy covers, the portion of the verdict above the policy limits ain�t worth diddly-squat." I lived in Texas for half my childhood, and Silver's definition of "diddly-squat" differs from mine: as the study itself states, insurance limits are not an absolute cap on settlement amounts because of the risk of Stowers bad-faith awards—and there is great reason to believe that the study's data source failed to fully account for the full amount of settlement payments made. It is especially surprising such a definitive overstatement comes from Silver, an academic who makes a point of stating that politicians are making "false claims" when he can pick nits with a sound bite issued by an interest group. I have no objection to Professor Silver adopting the rhetoric of advocacy, but I do object when he cloaks it with academic veneer or holds those he disagrees with to a higher standard of precision than he holds himself. (Update: Silver has an addendum to his post suggesting a "truth clause for insurers" in their public statements on malpractice issues (with "truth" presumably to be determined by Silver's standards) stating "sauce for the goose = sauce for the gander" because attorneys' advertising is regulated. The irony is thick, even aside from the fact that lawyers are not precluded from making false statements about public policy issues, which is the correct analogy.)

I will reserve discussion of the problems I have with the methodology of the study for a later date, but there's much in the study and post that I agree with Professor Silver about. In particular, I agree with Silver's point in the post that one should be looking at "insurers' actual costs."

If one does look at "insurers' actual costs" (the readily available data of which Martin Grace and I reprinted in the AEI Liability Outlook in 2006), one does find that premium increases earlier this decade reflected costs rising faster than premiums. Recent reforms and premium increases stemmed the tide such that we seem to have reached a new equilibrium in the malpractice insurance market. But the problems with malpractice litigation are such that damages caps are not a long-term viable solution, and aggressive rethinking of the status quo is needed to resolve both medical safety issues and the perverse and wasteful effects of modern-day malpractice litigation. As Silver has written elsewhere, "It's the incentives, stupid."



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.