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Defense Costs in Medical Malpractice and Other Personal Injury Cases

The latest Black/Hyman/Silver/Sage paper is available on SSRN. The abstract:

We study litigation costs for personal injury tort claims in Texas over 1988-2004, relying on a detailed source of case-level data on defense legal fees and expenses, and Texas state bar data on lawyers' hourly rates. We study costs in medical malpractice cases in detail, and costs in other types of cases in less detail. Controlling for payouts (which are roughly flat), real defense costs in medical malpractice cases rise an estimated 4.6% per year, roughly doubling over this period; the rate of increase is similar for legal fees and for other expenses. Real hourly rates for personal injury defense counsel are flat, so rising rates cannot explain this increase. Costs correlate strongly with payouts. Medical malpractice insurers predominantly used outside counsel, occasionally used inside counsel, and rarely used both in the same case. Surprisingly, medical malpractice insurers did not react to the sustained rise in defense costs by adjusting their expense reserves, which did not increase either in real dollars or relative to reserves for indemnity payouts, and declined substantially as a percentage of defense costs.

In other types of commercially insured tort litigation (auto, general commercial, multi-peril, and other professional liability), defense costs rose more moderately by an estimated 2.2% per year. Defense costs are predicted by the same factors as in medical malpractice cases. However, insurers in these other lines of coverage responded to increasing defense costs by adjusting their expense reserves.

Rising defense costs imply a decline in the ´┐Żefficiency´┐Ż of litigation, at least as measured by transaction costs - with the steepest declines in medical malpractice cases. However, the time needed to resolve claims also declined in medical malpractice, other professional liability, and general commercial cases; on this measure, tort system performance improved.

This paper will be one of three presented at an event on economic research on medical malpractice insurance at AEI the morning of June 29. I'll have a post with more information about that event next week.



Rafael Mangual
Project Manager,
Legal Policy

Katherine Lazarski
Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.