How the MICRA cap violates Californians’ rights to equal protection, jury trial and due process
Monday, August 26, 2013
MICRA’s $250,000 cap: Three constitutional violations for Supreme Court review
By Daniel U. Smith and Christopher B. Dolan
To prove the unconstitutionality of the $250,000 non-economic damages cap in the Medical Injury Compensation Reform Act of 1975 (MICRA) (Civ. Code § 3333.2), consumer attorneys should present in the superior court the evidence and case law discussed below. This evidence and case law establish that MICRA’s $250,000 cap violates three constitutional principles – equal protection, right to jury trial and due process.
Equal protection – The cap has no rational basis today
The cap’s equal protection violation arises because the “rational basis” that existed in 1975 for the cap’s discrimination against the most severely injured medical malpractice plaintiffs no longer exists.
In 1975, the “rational basis” for the cap was a crisis in the availability of healthcare caused by “skyrocketing” medical malpractice insurance rates. This insurance-caused “crisis in healthcare” was cited as the statute’s “rational basis” by Gov. Brown, by the Legislature, and by the Supreme Court. (See American Bank & Trust Co. v. Community Hospital (1984) 36 Cal.3d 359, and Fein v. Permanente Medical Group (1985) 38 Cal.3d 137)
But today, conditions in medical malpractice insurance are significantly different from the “facts … before” American Bank and Fein. (People v. Banks (1993) 6 Cal.4th 926, 945) Hence, the cap no longer has a rational basis.
First, as noted in Stinnett v. Tam (2011) 198 Cal.App.4th 1412, the evidence presented by the plaintiff’s insurance expert proves that in “2008 malpractice insurance rates were declining,…claims payments were decreasing and malpractice insurance profits had been excessive for at least a decade.” (Id. at 1419, emphasis added.)
Second, “eliminating the cap should not have a material effect on rates, since California malpractice insurers would still have been able to earn at least an adequate profit for the last ten years had the cap not existed, and would continue to be able to earn such a profit if the cap were eliminated today.” (Ibid.)
Third, “data from states that have not limited non-economic damages indicate that malpractice insurers have been able to prosper in such states.” (Ibid.)
Although Stinnett upheld the cap, its reasoning is flawed because Stinnett never showed that the conditions proved by Mrs. Stinnett’s expert – the lack of a rational basis for the cap – do not exist. Stinnett simply ignored current conditions to reach an insupportable result.
For example, Stinnett erroneously rejected as “not relevant” Mrs. Stinnett’s request for judicial notice of (1) a Department of Insurance ruling in 2003 reducing a medical malpractice insurer’s rate application and (2) an insurance profitability report proving that medical malpractice insurance rates are declining and medical malpractice insurers are profitable, and demonstrating that conditions in 2013 no longer provide a rational basis for the cap’s discrimination. (Id. at p. 1428, fn. 2) What Stinnett ignored is data from the National Association of Insurance Commissioners (NAIC) showing that California medical malpractice insurers in 2008 were highly profitable because: (1) incurred losses were 18.2% of premiums earned (compared to 34.8% for medical malpractice insurers nationally); (2) underwriting profit was 39.5% (compared to 22.1% nationally); (3) the ratio of earned premium to net worth of 65.9% (compared to 48.2% nationally); and (4) the return on net worth was 21.4% (compared to 12.3% nationally). (NAIC Report on Profitability By Line By State in 2008 (2009) Medical Malpractice, p. 123, available for purchase here)
In addition, plaintiff’s insurance expert can prove that California medical malpractice insurers are highly profitable – and therefore would not need to raise rates that would threaten healthcare – by the following evidence:
(1) Loss ratios are declining – the ratio between the insurer’s projected claims payments (“incurred losses”) and earned premiums; the lower the ratio, the greater the profit.
(2) Reserves are excessive – reserves (based on insurer estimates of “incurred losses” in the year of the claim) exceed the “reported incurred loss” nine years later.
(3) Surpluses are increasing – claims paid are less than the reserves.
(4) Claims are decreasing – in the past 15 years claims for SCPIE and The Doctors Company (TDC) have decreased by one-third to one-half.
(5) Rates are decreasing – in 2008 the California Insurance Commissioner reduced the rates of TDC and SCPIE by 15 to 21% respectively. In 2012 the Commissioner reduced the rates of six insurance companies between 7% and 19%. These rate reductions show that the availability of healthcare is not threatened by “skyrocketing” insurance rates.
Because of these factual differences from 1975, Fein is no longer controlling because Fein relied on the insurance and healthcare crisis of 1975 – which no longer exists. This “changed circumstance” renders Fein no longer binding precedent because a “classification which once was rational because of a given set of circumstances may lose its rationality if the relevant factual premise is totally altered.” (Brown v. Merlo (1973) 8 Cal.3d 855, 869) Courts review today’s constitutional challenges by testing the statute’s historical factual premise against today’s realities. (e.g., Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805 [striking down a 20% reduction in insurance rates because the initiative’s assumed “temporary” “emergency” did not exist]; Sonoma County Organization of Public Employees v. County of Sonoma (1979) 23 Cal.3d 296 [striking down a statutory salary cap on local public employees because the fiscal crisis that the Legislature asserted did not exist])
What is more, constitutional challenges require courts to conduct a “serious and genuine judicial inquiry” to determine whether the “‘statutory classifications are rationally related to the “realistically conceivable legislative purpose[s]”’” without “‘invent[ing] fictitious purposes that could not have been within the contemplation of the Legislature ….’” (Warden v. State Bar (1999) 21 Cal.4th 628, 648, citations omitted) To justify discrimination, the equal protection clause requires a “reasonably conceivable” “rational basis” that is “plausible.” (Id. at 644, citation and quotations omitte.)
Under Brown, Calfarm, Sonoma County, and Warden, the cap must be deemed to violate equal protection because the insurance and healthcare crisis that supplied the “rational basis” for the cap in 1975 no longer exists.
Though Stinnett erroneously upheld the cap, Stinnett offered some support for future constitutional challenges.
(1) The Stinnett majority honestly summarized plaintiff’s evidence showing no rational basis for the cap’s denial of equal protection. Advocates mounting their own constitutional challenge to MICRA’s cap should present similar evidence from an insurance expert (as discussed below).
(2) The dissenting justice, Hon. Betty L. Dawson, persuasively criticized the majority and the trial court for failing to address the plaintiff’s evidence that the cap has no rational basis today. (Id. at 1434-1436)
(3) Two justices of the Supreme Court – Hon. Kathryn Mickle Werdegar and Hon. Goodwin H. Liu – voted to grant review. (Id. at 1436) Accordingly, one appellate justice and two Supreme Court justices believe that the constitutional challenge to MICRA’s cap may have merit.
Stinnett’s obvious flaw was rejecting the plaintiff’s evidence of today’s conditions, relying instead on the 1975 crisis cited in American Bank and Fein, a crisis that in 1975 posed “special problems with respect to the continued availability of adequate insurance coverage and adequate medical care ….” (Stinnett, at 1421, 1424) As shown above, those 1975 problems with the “availability of adequate insurance coverage and adequate medical care” no longer exist.
Jury trial – The cap violates Jehl
The cap also unconstitutionally interferes with a party’s “inviolate” constitutional right to have damages determined by the jury. (Cal. Const. Art. I, § 16)
The jury trial issue was not addressed in Fein. Defendants attempt to refute the jury trial claim by citing Stinnett. But Stinnett is flawed on this point because it erroneously relied on the cursory and outdated analysis of the jury trial issue in Yates v. Pollock (1987) 194 Cal.App.3d 195. Yates, in turn, was fatally flawed because it failed to mention (let alone follow) the Supreme Court’s constitutional protection of the right to jury trial in Dorsey v. Barba (1952) 38 Cal.2d 350, and Jehl v. Southern Pac. Co. (1967) 66 Cal.2d 821.
In Dorsey, the Supreme Court ruled that the California Constitution barred any judicial modification of jury awards of damages, except with all parties’ consent. Dorsey stated:
An essential element of [a jury] trial, however, is that issues of fact shall be decided by a jury, and the assessment of damages is ordinarily a question of fact. The jury as a fact-finding body occupies so firm and important a place in our system of jurisprudence that any interference with its function in this respect must be examined with the utmost care. (Dorsey v. Barba (1952) 38 Cal.2d 350, 356)
Fifteen years after Dorsey, Jehl reiterated that the constitutional “guarantee of jury trial” “prohibit[s] improper interference with the jury’s decision.” (Id. at 829, emphasis added)
Jehl allowed a minor “interference” with the jury’s decision via additur and remittitur only because (1) the modification of the jury’s award is based on the evidence and because (2) the aggrieved party must consent or else (3) be awarded a new jury trial.
Specifically, Jehl required the judge to base the amount of the additur on “the evidence”: “If the court decides to order an additur, it should set the amount that it determines from the evidence to be fair and reasonable.” (Id. at 832-833, emphasis added) MICRA’s arbitrary cap is not based on the evidence.
Second, Jehl required the aggrieved party’s consent as a precondition of entering judgment for the increased amount. MICRA’s cap does not require the plaintiff’s consent.
Third, if the aggrieved party refused to consent to the additur, Jehl required a new trial for the aggrieved party. (Id. at 832) MICRA’s cap does not provide the aggrieved plaintiff a new trial.
In sum, the cap violates Jehl because section 3333.2 invalidates the jury’s damages award arbitrarily – the cap is not based on evidence of plaintiffs’ non-economic damages – and section 3333.2 does not require either plaintiff’s consent or a new trial.
Due Process – The cap denies access to justice
A third constitutional violation created by MICRA’s damages cap is the denial of due process by denying access to justice.
For medical malpractice victims whose damages are largely non-economic – without significant medical expenses or wage loss – the $250,000 cap denies them access to justice. The risk of losing the case or not recovering the enormous expenses of medical malpractice litigation discourage attorneys from taking a case involving only non-economic damages. For such plaintiffs, the $250,000 cap closes the courthouse door.
Advocates can document the denial-of-due-process claim by filing declarations on the litigation expenses in medical malpractice cases, the expense of retaining experts, the percentage likelihood of losing a medical malpractice case, the attorney fee limits imposed by Bus. & Prof. Code § 6146 on a recovery of $250,000, and the unwillingness of most consumer attorneys to represent a medical malpractice plaintiff whose primary or sole injuries are non-economic.
This denial of access to the courts, caused by a state-erected barrier (the $250,000 cap) denies these medical malpractice plaintiffs due process of law. (Boddie v. Connecticut (1971) 401 U.S. 371) In Boddie, a class of women on state welfare assistance were barred from obtaining a divorce because they could not pay required court fees and costs. Boddie held that due process of law prohibited states from denying to these women access to its divorce courts. Boddie stated:
[A] statute or a rule may be held constitutionally invalid as applied when it operates to deprive an individual of a protected right although its general validity as a measure enacted in the legitimate exercise of state power is beyond question. (Id. at 379)
[T]he right to a meaningful opportunity to be heard within the limits of practicality, must be protected against denial by particular laws that operate to jeopardize it for particular individuals. (Id. at 379-380)
California courts have followed Boddie to hold that “[d]enial of access to the courts implicates due process.” (Jun v. Myers (2001) 88 Cal.App.4th 117, 125 [due process protects a party’s right to file a separate suit against a receiver], citing Payne v. Superior Court (1976) 17 Cal.3d 908, 914)
In Payne, the Supreme Court ruled that denying a prison inmate access to court to defend against a default judgment was a denial of due process. Payne explained the due process test: If “state action has infringed upon a fundamental right of petitioner…the state action can be upheld only if necessary to effect an overriding governmental interest.” (Id. at 914) Under this test, Payne held that no compelling state interest supported denial of a prisoner’s access to the courts and that this denial of access to the courts constituted a violation of the prisoner’s rights under the due process and equal protection clauses of both the state and federal constitutions.
Obviously, with no insurance-related healthcare crisis today, the cap’s denial of access to the courts is not justified by any compelling state interest.
This denial of access to the courts arises because the cap causes attorneys to refuse to represent a medical malpractice plaintiff whose only damages are non-economic – capped at $250,000. “Because of the high cost of medical malpractice investigation and litigation, plaintiffs’ attorneys cannot economically justify taking cases that lack sufficient damages to warrant the litigation expense.” (J. Shepherd, Justice in Crisis: Victim Access to the American Medical Liability System, Legal Research Paper Series, Research Paper No. 12-222 [hereafter “Shepherd”]) This conclusion is echoed by the American Bar Association: “As litigation costs and tort reforms make it economically infeasible for attorneys to accept many medical malpractice cases, many legitimate victims of medical malpractice are left without legal representation.” (Daniels and Martin, “The Juice Simply Isn’t Worth the Squeeze in Those Cases Anymore,” Damage Caps ‘Hidden Victims,’ and the Declining Interest in Medical Malpractice Cases, American Bar Assn. Foundation Research Paper Series 09-01, at 17 (2009), emphasis added)
This denial of access to the courts disproportionately harms females, children, the elderly, and the poor because a much greater proportion of their recovery is non-economic damages. (Shepherd, at 18; see L. Findley, The Hidden Victims of Tort Reform: Women, Children and the Elderly, 53 Emory L.J. 1263 (2004)) The Wall Street Journal has noted this phenomenon: “Caps on damages for pain and suffering [result in lawyers] turning away cases involving victims that don’t represent big economic losses – most notably retired people, children, and housewives.” (Wall Street Journal, October 8, 2004, A1.)
In sum, for a plaintiff who suffered only non-economic damages, the $250,000 cap requires the attorney to reject the case – thus denying the medical malpractice victim due process of law.
Finally, a factor aggravating all three constitutional violations is inflation. Since 1975, inflation has reduced the value of the cap to barely 20% of its original value. Specifically, since 1975 inflation has reduced the cap’s purchasing power from $250,000 to $58,857. Conversely, for the cap to equal its 1975 value in today’s dollars, the cap would have to be $1,061,905. Inflation’s erosion of purchasing power is a matter of judicial notice. (Kircher v. Atchison, T. & S.F. Ry. Co. (1948) 32 Cal.2d 178, 187) A Louisiana court has ruled that inflation rendered a statutory damages cap unconstitutional. (Arrington v. ER Physicians Group, APMC (La.App. 2006) 940 So.2d 777 [medical malpractice cap of $500,000 depreciated to $160,000], rev’d on grounds the constitutional challenge was waived at trial, Arrington v. Galen-Med, Inc. (La. 2007) 947 So.2d 727)
The journey from the superior court to the California Supreme Court can be long, expensive, and uncertain. But in due time a visionary advocate, armed with the law and evidence cited in this article, will elicit two more Supreme Court justices’ votes for review. The Supreme Court will then consider whether, under today’s conditions, the draconian, arbitrary, and outdated $250,000 cap on a medical malpractice plaintiff’s non-economic damages violates the constitutional rights to equal protection, trial by jury, and due process of law.
Daniel U. Smith is a Certified Appellate Specialist (State Bar Bd. of Legal Specialization) who represents plaintiffs in post-trial and appellate proceedings. He represents medical malpractice plaintiffs in two pending appellate challenges to MICRA’s damages cap and recently one of those cases, Gavello v. Millman, A132291 (1st Dist., Div. 1) was argued on June 18, 2013. www.appealsmith.com
Christopher B. Dolan owns the Dolan Law Firm with offices in San Francisco, Oakland and Sacramento. He is a past president of Consumer Attorneys of California, recipient of the Consumer Attorney of the Year Award, San Francisco Trial Lawyer of the Year Award, Civil Justice Award, California Lawyer Attorney of the Year Award (CLAY), Daily Journal Top 100, AV Preeminent and listed as one of the Best Lawyers in America. www.cbdlaw.com