Unintended Consequences of Medical Indemnity Fund

, New York Law Journal


Rosary A. Morelli and Matthew E. Kelly
Rosary A. Morelli and Matthew E. Kelly

The enactment of the Medical Indemnity Fund in New York State in 2011 has had an impact upon medical malpractice insurance carriers, hospitals, medical professionals and the legal system. Because of yet another insurance crisis in New York in the years preceding 2011, including the possibility of hospitals closing their obstetrical departments, the fund was enacted to give relief to hospitals and insurance carriers by shifting the cost of future medical damages in cases of alleged negligence during the birth admission, to the state, through shared payment by hospitals with obstetrical units.

Although the fund has had the intended effect of reducing the amount of cash paid by hospitals through settlement or trial, some unintended consequences have come to light in cases where one or more defendants settle, but other defendants choose to go to trial. An analysis of the interaction of the provisions of the fund with existing statutes will highlight the unintended consequences of substantially altering the amount of the cash owed by non-settling defendants after a verdict. This anomaly results from varying the sequence between the application of the fund and GOL §15-108; and whether the agreed to percentage attributed to the fund by the settling defendants takes precedence over a jury determination for the non-settling defendants. In order to preserve the legislative intent of the fund, legislative clarification is required.

Before addressing the mechanics of this anomaly with two hypothetical cases with two different jury awards, we will review the fund's provisions and those of the other applicable statutes.

The fund was enacted pursuant to Public Health Law §2999, which provides that where a court or jury has made an award for future medical expenses, upon a finding by the court that the applicant made a prima facie showing that the infant-plaintiff is a "qualified plaintiff,"1 all future medical expenses will be paid for by the fund. Next, a fund administrator must approve the application2 required to enter the fund, ensuring the infant sustained an eligible injury. Thus far, there have been few disagreements about infants being qualified plaintiffs after they submit their applications to the fund. When a claim is placed in the fund, the infant's qualifying health expenses are paid as they are incurred regardless of the amount of money assigned to the fund. Id. at 739, 934 N.Y.S.2d 662; Public Health Law §2999-j; Joyner-Pack ex rel. Joyner v. State of New York, 38 Misc.3d 903, 907 (Ct Cl 2012).

According to the Public Health Law, the amount of qualifying health care costs to be paid from the fund shall be calculated: (a) with respect to services provided in private physician practices on the basis of 100 percent of the usual and customary rates, as defined by the commissioner in regulation; or (b) with respect to all other services, on the basis of Medicaid rates of reimbursement or, where no such rates are available, as defined by the commissioner in regulation. Public Health Law §2999-j.

The fund determines the amount to be paid for the infant's future expenses much like a health insurance carrier. In practice, the money attributed to the fund is only used to assess the plaintiff's attorney fee and does not determine the future amount the infant receives. See Joyner-Pack, 38 Misc.3d 903, 904-05 (Ct Cl 2012). Courts have commented that the fund "is antithetical to the notion that judges, jurors and lawyers are soothsayers who can predict, at the time of trial or settlement, the actual lifetime cost of the child's future medical needs." Mendez ex rel. Mendez v. New York and Presbyt. Hosp., 34 Misc.3d 735, 739 [Sup Ct 2011]. The amount of the plaintiff's attorney fees attributed to the fund must be paid by the defendants. As for the plaintiffs' attorney fees for all other damages, this is paid from the plaintiffs' non-fund damages award.

Set-Off by Settling Defendant

Under General Obligations Law §15-108, the non-settling defendants have the benefit of the judgment against them being reduced by the greater of the following: the settling party's equitable share of fault or the amount the settling party paid. This applies to both economic and noneconomic damages. See Whalen v. Kawasaki Motors, 92 NY2d 288, 297 (1998). Under CPLR Article 16, if a defendant's equitable share of liability is 50 percent or less of the total liability for all the defendants, whether or not named, then that defendant shall only be liable to the extent of his degree of culpability and only for "non-economic loss." However, if the defendant is found to be 51 percent liable, then the entire amount for non-economic damages can be collected from that one defendant.

While Article 16 does not affect joint and several liability for economic losses, meaning regardless of the defendant's percentage of liability the plaintiff can collect the entire economic loss from any defendant, CPLR §1601(2) expressly states that "[n]othing in this section shall be construed to affect or impair any right of a tortfeasor" under GOL §15-108.

CPLR Article 50-A

CPLR Article 50-A specifies how damages are to be computed in medical malpractice cases. Article 50-A and CPLR §4111 form the basis for the jury's assessment of damages for past and future pain and suffering and past and future economic damages. CPLR §4111(d) expressly provides that the jury shall specify the amount assigned to each element of damages "including but not limited to medical expenses…loss of earnings, impairment of earning ability, and pain and suffering." The statutes require the jury to find the annual costs of care and future economic damages, the timing of payments, whether the conditions are permanent, and the rate of inflation applicable to future care.

The judge then applies this inflation rate to the annual cost of care, and arrives at a total, which, for purposes of entering a judgment and computing attorney fees and interest, is discounted to present value. Pragmatically, the jury's determination of future care costs serves as a basis for qualifying the infant for fund payment, determining the percentage attributed to the fund and determining the amount of the plaintiffs' attorney fees.


We will examine the monetary consequences of the interaction of the fund and the other mentioned statutes with two hypothetical cases. Both hypotheticals involve settling and non-settling defendants. For the non-settling defendants we will use two different jury awards. Then we will vary the order of the application of the fund and GOL; and then vary the percentage attributed to the fund first by the settlement and then the jury verdict. We assume the following for both cases.

• The private attending obstetricians, who delivered the infant, settled prior to jury selection for a total sum of $4 million.

• It was agreed by the parties and approved by the court, that 50 percent of the damages be assigned to the fund and 50 percent to non-fund damages. Therefore, the cash payment by the settling defendant was approximately $2 million.3

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