Final Report

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Actuarial Science Program
Integrated Project # 6
Designing Prediction Models
Of Tort Reforms for
Malpractice
Aug 11, 2014
Students: Bita Bakhshi, Han Han
Mentors: Allan Kaufman, Betsy Wellington
Supervisor: Lina Xu

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Table of Contents
1. Executive Summary........................................................3
2. Market Overview of Malpractice...............................3
2.1Background .................................................................3
2.2 Market Overview of Malpractice in Texas4
3. Introduction to Tort reforms......................................5
3.1Background .................................................................5
3.3 Why Texas?.................................................................8
4. Parametric Index Modeling......................................10
4.1 Sample and Collection.......................................10
4.2 Variables and Descriptive Statistics .........11
4.3 Variable Transformation......................................11
4.4Distribution of error of data................................12
4.5 Regression Models ..............................................15
5. Prediction and suggestion ........................................19
5.1 Prediction based on regression model ...19
5.2 Strategy and suggestion.......................................19
6. CONCLUSION ..................................................................19
Appendix ...............................................................................21

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1. Executive Summary
Our goal as consultants is to find out the effect of tort reforms on malpractice claims in
Texas. In order to do that, we create the tort reform indices describing tort reforms of
last 20 years first and then use them as triggers to design a multivariate model to help
the insurance company predict the trend of malpractice claims caused by tort reforms.
Lastly, a logical analysis is provided to explain the result and give a suggestion of the
future strategy for the company and potential policy in the future.
2. Market Overview of Malpractice
2.1Background
A. Medical Liability Insurance - Who and What it Covers
 Medical liability insurance covers a healthcare professional for errors and
omissions arising from the practice of ithe insured's professional specialty.
 Coverage for nursing homes will become mandatory effective September 1,
2003. Other healthcare providers are not legally required to purchase
coverage but hospitals and HMO's typically require minimum amounts and
proof of coverage.
 Approximately 54,117 physicians currently practice in Texas. 1
B. Texas Medical Liability Insurance Underwriting Association (JUA)
 Requires insureds to provide evidence of rejection by two licensed insurers.
 Policyholders are not protected by the Guaranty Fund. Policyholders and JUA
member insurance companies may be assessed to maintain solvency.
 Policy forms and rates of the JUA are regulated by TDI.
 While the JUA offers an immediate solution with regard to availability, the
more attractive policies and lower rates for certain specialties can be viewed
only as a stopgap measure for addressing the present problem of
skyrocketing medical malpractice insurance rates and a shrinking number of
carriers.
C. Recap of 1993 and 1995 Tort Reform Measures in Texas
The 73rd and 74th Texas Legislatures enacted several laws addressing tort reform.
The cumulative effect of the tort reform rate rollbacks is that medical malpractice
rates are 17.2 percent lower than they would have been without reform. This
number is derived from information companies reported to TDI regarding actual
1 Source: AMA Physician Masterfile (December 31, 2012)

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rate rollbacks and tort reform savings. It includes all medical malpractice lines
combined, i.e. hospitals, physicians, dentists, nurses, etc.
2.2 Market Overview of Malpractice in Texas
Figure 1 includes the major medical malpractice insurers in Texas:
Figure 1
Based on information obtained above, the following insurers write the majority of
coverage for individual physicians and group practices:
 American Physicians Insurance Exchange
 The Doctors' Company
 The Medical Protective Company
 Texas Medical Liability Trust (TMLT)
 Texas Medical Liability Insurance Underwriting Association (JUA)
31%
34%
27%
3%
4%
1%
Market Share for Different Carrier
Licensed Admitted
Carriers (excluding JUA)
Texas Medical Liability
Trust
Risk Purchasing Groups
Risk Retention Groups
Surplus Lines Insurers
Texas Medical Liability
Insurance Underwriting
Association (JUA)

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3. Introduction to Tort reforms
3.1Background
A. Tort and Tort Reform
A tort is an injury to someone’s person, reputation, or feelings or damage to real
property.2 Under the U.S. system of tort liability, courts can hold injurers liable for
many different types of torts, such as those caused by automobile accidents,
contract fraud, trespass, medical malpractice, and defective products. The major
categories of tort litigation are automobile-related torts (53 percent), premises
liability (16 percent), and medical malpractice (15 percent)3. The plaintiff in a tort
suit can seek compensation of two types: compensatory damages to cover the
“economic” cost of an injury—for example, medical costs and lost wages—and the
“noneconomic” costs of pain and suffering and punitive damages intended to punish
a defendant for willful and wanton conduct. (See Box 1 for a list of definitions of
some common tort terms.) U.S. tort law is almost exclusively contained in state law,
and the large majority of tort cases are filed in state courts. In 2000, more than
700,000 torts were filed in state general courts, compared with only 37,000 in
federal courts. Tort law is based primarily on common law—in which judicial rules
are developed on a case-by-case basis by trial judges—rather than on legislation.
B. Tort Liability as a Tool for Achieving
Efficiency and Equity The risk of injury or loss is inherent in everyday life:
consumers are injured or killed by defective products, workers are hurt on the job,
train passengers are injured by derailments, and patients are harmed by medical
errors. Markets provide broad incentives to control the number and costs of such
injuries. For example, enhanced safety features can give a product a marketing
advantage over competitors. Furthermore, insurance allows individuals and firms to
reduce the financial uncertainty associated with potential injuries. The U.S. tort
liability system, however, serves to augment the safety incentives and insurance
opportunities provided by the market.3 In particular, it provides incentives for
individuals and firms to take appropriate care, compensates those who are harmed,
helps spread risk, and serves the purposes of punishment or retribution.
In economic terms, those various purposes can be related to the overarching social
goals of efficiency and equity. In theory, the tort system contributes to economic
2 Bryan A. Garner, ed., Black's Law Dictionary, 7th ed. (St. Paul, Minn.: West Group, 1999), pp. 1496-
1497. For a review of the basics of the U.S. tort system, see Congressional Budget Office, The
Economics of U.S. Tort Liability: A Primer (October 2003).
3 Those percentages are based on each category’s share of the total number of tort trials completed in
the general-jurisdiction courts of the 75 largest U.S. counties in 2001. See Department of Justice,
Bureau of Justice Statistics, Civil Trial Cases and Verdicts in Large Counties, 2001, NCJ 202803 (April
2004), Table 1.

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efficiency by assigning liability for accidents so that individuals and firms account
for the extent to which their actions affect the risk of injury. However, different
concepts of equity may affect the assignment of that liability. For example, a
particular concept of fairness might hold that certain victims should not be
considered responsible for exercising some forms of care although it would be more
efficient if they did so. The literature this paper reviews does not address the
efficiency and equity implications of various reforms but examines how reforms
might affect the number of court filings or the size of awards.
Figure 24
3.2 General Findings
A. General Findings from the Empirical Literature on Tort Reform
• The most consistent finding in the studies that CBO reviewed was that caps
on damage awards reduced the number of lawsuits filed, the value of awards,
and insurance costs (see The Effects of Tort Reform: Evidence from the States
by CBO paper, June 2004). One study of automobile-related torts found that
caps on noneconomic damages decreased not only the value of noneconomic
claims made to insurance companies but also the number of lawsuits filed.
Other studies suggested that those caps related to increases in insurers’
profitability for both medical malpractice and general liability insurance.
(Evidence on whether premiums were affected was mixed.)
4 Click on map to find out what civil justice reform laws have passed in each state,
when they were passed, and whether they have been upheld as constitutional.
Federal reforms are also available.

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• Yet even those findings must be viewed in context. As a whole, the studies
provided little systematic evidence that any one type of reform had a
significant impact on any of the various outcome measures studied. Few of
the findings—except for a reduction in the losses experienced by insurers—
were independently corroborated by other studies. Some studies were
unable to document any measurable effects from the tort reforms, a result
that may be more reflective of the lack of data than of any failure of the
reforms. At least two issues complicate the analysis of tort reform.
• First, data limitations preclude separately estimating the effect of each of the
many types of reform. Second, it is difficult to control for differences between
states that reformed their tort system and those that have not. Controlling for
such differences is critical in assessing the effect of tort reform on outcomes
such as the level of insurance premiums.
B. Tort Reform Initiatives at the State Level
Some state-level tort reforms have made it more costly or difficult to file tort cases.
For example, joint-and-several liability reforms tend to force plaintiffs to bring suit
against multiple defendants rather than concentrate their efforts on a few
defendants who are wealthier, more easily identifiable, or both; court procedural
reforms can make it harder to file suits; and caps on legal contingent fees make it
less lucrative for attorneys to accept “long shot” cases. The major argument for
those reforms is that too many frivolous cases are brought in general. Other reforms
limit the amount of damages, both compensatory and punitive, that can be awarded.
Underlying those reforms is the contention that the courts are apt to make excessive
awards, in terms of either what is necessary to compensate victims for their losses
or what incentives are appropriate to avoid future accidents.
Refer to Chart 1, Table 1 in the Appendix for more detailed information.

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3.3 Why Texas?
Medical malpractice insurance in Texas is the least profitable for insurance
companies, compared with the other top fifteen states, based on the 2010 NAIC
Report on Profitability By-Line-By State.
For all measures of profitability, including Underwriting Profit and Return on Net
Worth, Texas ranks last over the ten year period of 1991 through 2000. Under these
market conditions, it will be very difficult for Texas to retain or attract medical
malpractice insurers.

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• Underwriting Profit is premiums less losses and expenses as a percentage of the
premium. It does not include income from investments or federal taxes.
• Return on Net Worth is the return to the insurance company “investors” and is
analogous to a return on any investment (e.g. savings account, a bond, etc.). It
includes income from all sources and reflects all federal taxes.

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4. Parametric Index Modeling
4.1 Sample and Collection
In response to the perception that liability insurance coverage was becoming more
costly and less available, most states enacted legislation in the mid-1980s that
reformed the common-law rules and other court procedures involving tort
litigation. This can create a misleading appearance of an increasing trend in claim
frequency. Therefore, we collected more than 50 million reports for all kinds of
malpractice claims, from 1960’s until now. In order to do that, we used the
parameters (Rectype Record Type, Work city, Year Type, Payment, Year range and
License Field) of the claims (1990-2010) provided by the national Databank
(npdb.gov), the annual population per county in Texas (1990-2010) provided by
U.S. Census Bureau and the annual Medical Consumer Price Index (1990-2010)
provided by the Bloomberg. The data and data source we used are shown in Table
4.1.
Data Data Source
parameters (Rectype Record Type, Work city, Year
Type, Payment, Year range and License Field)
national Databank
(npdb.gov)
annual population per county in Texas U.S. Census Bureau
Medical Consumer Price Index Bloomberg
GDP Index Bloomberg
Number of Physicians and Physicians Rate State Physician
Workforce Data Book
number of resident and active attorneys American Bar
Associations of data
Table 4.1 Data and Data Source
Figure 4.2

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From figure 4.2, we cannot find a concrete relation hip between time and payment,
For this reason, It is needed to find a way to describe potential varialbles.
4.2 Variables and Descriptive Statistics
We chose frequency and severity of claim as the dependent variable,
Year, The number of lawyers per 1000, Number of Physicians per 1000, GDP per
1000, Medical CPI as the independent variables. We also tried to add tort reforms in
each year, which is the major subject of our project. However, these kinds of data
are not available immediately and are less credible, we rule these two variables out
to make the model more practical. The variables we chose and their definitions and
predicted signs are shown in Table 4.2.
Refer to Table 2 in Appendix for more details.
Dependent Variable Definition
Year Malyear-1989
Log GDP (Log GDP)=log (GDP)
Population-TX million Population in Texas in million
NP Number of Physicians per 1000
NL The number of resident and active attorneys
CPI CPI
Dependent Variable:
Frequency(NM/NP) Frequency=Number of Claims/Number of Physicians
Severity(P/N) Severity=Amount of Payment/Number of Claims
Table 4.1
4.3 Variable Transformation
We can observe from Figure 4.3 that the Frequency and Severity are directly
proportional to the population, number of physicians per 1000, number of resident
and active attorneys and CPI. Therefore, we assume there exist a linear relationship
between factors and outputs.

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Figure 4.3
4.4Distribution of error of data
To test the validation of our model, which kind of method of test should be used
relies on the distribution of the error of variables. To decide this distribution, we
need to use the quantile - quantile plot.
A quantile - quantile plot, or Q-Q plot, is a plot of the sorted quantiles of one data set
against the sorted quantiles of another data set. It is used to visually inspect the
similarity between the underlying distributions of 2 data sets. Each point (x, y) is a
plot of a quantile of one distribution along the vertical axis (y-axis) against the
corresponding quantile of the other distribution along the horizontal axis (x-axis).
If the 2 distributions are similar, then the points would lie close to the identity line, y
= x.

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From Figure 4.3-4.6 we can see Lawyers, Physicians, GDP and CPI with time are all
around the line x=y. The 4 Q-Q plot of Lawyers, Physicians, GDP and CPI with time are
all around the line x=y. For this reason, we can assume that all these factors share a
distribution with time, who has a normal distribution. For this reason, we can assume that
all these factors share a distribution with time, who has a normal distribution.
This means that all statistical test like chi-square and t test can be used confidently.
4.5 Regression Models
The basic idea of designing the parametric index trigger is first to calculate the
modeled loss based on parameters of the malpractice and then to scale the modeled
loss to get the parametric index.
In order to get the modeled loss, we use linear regression model and under the
selection criterion of the highest coefficient of determination R2, the best linear
regression loss model is of the following form:

=
+ ∗
+ ∗
For Frequency of claims:
+ ∗
+ ∗ (

)
The coefficients of the linear regression loss models (Model 1 for the first half year,
Model 2 for the second half year), P-values, standard errors, coefficient of
determinations R2, adjusted R2 and so on are shown in Table 4.4. Model 1 has an
adjusted R2 of 0.503, and all coefficients are significant at the 99% confidence
interval. Model 2 has an adjusted R2 of 0.423, and all coefficients are significant at
the 90% confidence interval.

= + ∗ + ∗
+ ∗

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Table 4.2 Severity of claims
Independent variables coefficient Standard Error
(Constant) 4.865 0.13
Year 0.248 0.282
Tort reform 1995 -0.658 0.23
Tort Reform 2003 -0.183 0.028
Table 4.3 Frequency of claims
From the regression model, we get the simulation of claim loss. Since we assume
the random errors follow a linear regression, the random errors in the above
regression model follow the linear function. Using these formulas, we can obtain the
modeled loss. To get the indices, we scale the modeled loss by dividing the half year
aggregate loss in year i by the mean of total half aggregate loss.
The actual (observed) and estimated (fitted) indices are shown in Figure 4.2 and
Figure 4.3.
= + ∗ + ∗ + ∗ + ∗ (

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Figure 4.8 Frequency of Claims
More details and procedure of linear regression will be attached in the Appendix.

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5. Prediction and suggestion
5.1 Prediction based on regression model
As shown in the Figure 4.6 and 4.7, both severity and frequency of claims is reducing
to 0, which means there are less profit can be earned in Texas year by year.
We can also see that it is tort reform in 2003 affect the frequency and severity
negatively. There are three main reason causes this result in detail:
The unfriendly tort reform put a cap at the amount of payment, which reduced the
severity of claim. In the meanwhile, the cap of malpractice resulted in no profit in
each claim, the cost of malpractice is decreasing, the lawyer will lack of interest to
such case, so there will be less case go through court, so the frequency is decreasing,
too.
5.2 Strategy and suggestion
Since the prediction value and trend are approach to zero, our predicted value based
on linear regression model is meaningless because it shows a future without hope.
But this does not mean there is no suggestion offered to deal with this problem.
Here we will give our suggestions facing government and companies separately:
GOVERNMENT IN TEXAS
Federal government should sentence new tort reforms with no doubt, since Texas
has become a least profitable place and the out-of –date tort reforms are the main
reason. The market need new incentive to build a free atmosphere, or the tough
situation and loss of money will never stop.
COMPANY IN TEXAS
A. Lobby
This is the most direct way to deal with the problem in Texas; companies need to
find representative to speak for them and appeal their will to federal government. It
relies on same strategy as government, only difference is that the government will
decide the consequence of law while company can only try to persuade government.
B. Special product
The Venue Reform in 2003 is no doubt good news because it offers an opportunity
to sell malpractice product in Texas, but actually it will be dealt in other states who
have better policy like higher cap, which make the case more profitable and more
lawyers will tend to deal with it.
6. CONCLUSION
The tort reforms enacted since the mid-1970's malpractice "crisis" affected the
frequency and severity of malpractice claims over the decade from
1990 to 2010 in a manner broadly consistent with economic theory and with
previous evidence. Although claim frequency and severity have continued to
ise despite reforms, this trend does not indicate that the tort changes have
had no effect. States that enacted shorter statutes of limitations and set outer

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imits on discovery rules have had less growth in claim frequency than states
with statutes more lenient to plaintiffs. On average, cutting one year off the
tatute of limitations for adults reduces claim frequency by eight percent. The
ffect would presumably be greater for a reduction from, say, four to three
years than from ten to nine years. (Percentage changes are the average
differential in a single year, relative to what the situation would have been
without enactment of the reform.).Statutes permitting or mandating the offset
of collateral benefits have apparently reduced malpractice claim severity by
eleven to eighteen percent and claim frequency by fourteen percent relative to
comparable states without collateral source offset. The feedback from a
reduction in severity to a eduction in frequency is not surprising, since
collateral source offset reduces he potential recovery for a large number of
claims, thereby reducing incentives to file.
Among the other factors affecting claims, urbanization remains a highly
significant factor that explains much of the observed difference among states
in claim frequency and severity. The evidence suggests that urban areas have
a particularly high frequency of nonmeritorious claims (those closed without
payment) and claims filed more than two years after the alleged injury. Per
capita income, the unemployment rate, and the number of attorneys per
capita have no statistically significant effects. The surgery rate in a state
increases claim frequency, and the ratio of surgeons to medical specialists
increases claim severity.
An overall evaluation of the merits of the various tort reforms from a
public policy perspective is beyond the scope of this paper and has been done
elsewhere.
However, it is worth noting that on average, severity has
increased at almost twice the rate of inflation of consumer prices over the last
decade. Thus, in the absence of further statutory controls, the income of
successful malpractice claimants-or at least some subset of them-will
continue to rise relative to the income of the population as a whole, and
relative to the income of other accident victims who are not compensated
through the tort system. The optimal structure of tort awards therefore
warrants further attention.

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Appendix
BOX 1
Definitions of Some Common Tort Terms
Malpractice: “An instance of negligence
or incompetence on the part of a
professional.”
Economic damages: Funds to
compensate a plaintiff for the
monetary costs of an injury, such as
medical bills or loss of income
Contingent fee: A fee charged by an
attorney for his or her services only
if the lawsuit is successful or is
favorably settled out of court.
Usually, the contingent fee is
calculated as a percentage of the
amount the plaintiff recovers from
the defendant.
Collateral-source payments:
Amounts that a plaintiff recovers from
sources other than the defendant, such
as the plaintiff’s own insurance. Under
the collateral-source rule, that
compensation from other sources may
not be admitted as evidence at trial.
Negligence: A violation of a duty to
meet an applicable standard of care.
Punitive damages: Damages awarded
in addition to compensatory (economic
and noneconomic) damages to punish a
defendant for willful and wanton
conduct.
Statute of limitations: A statute
specifying the period of time after
the occurrence of an injury—or, in
some cases, after the discovery of
the injury or of its cause—during
which any suit must be filed.
Noneconomic damages: Damages
payable for items other than monetary
losses, such as pain and suffering. The
term technically includes punitive
damages, but those are typically
discussed separately.
Joint-and-several liability: Liability in which each liable party is individually
responsible for the entire obligation. Under joint-and-several liability, a
plaintiff may choose to seek full damages from all, some, or any one of the
parties alleged to have committed the injury. In most cases, a defendant
who pays damages may seek reimbursement from nonpaying parties.
Chart 1 Time line of Tort Reforms in Texas
1987
Joint and Several Liability Reform: SB 5 (1987).
Bars application of the rule of joint and several liability in the recovery of all
damages from defendants found to be less than 20% at fault, except when a plaintiff

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is found to be fault free and a defendant’s share exceeds 10%, and when damages
result from environmental pollution or hazardous waste.
Prejudgment Interest Reform: SB 6 (1987).
Limits the period during which prejudgment interest may accrue if the defendant
has made an offer to settle the lawsuit.
Punitive Damages Reform: SB 5 (1987).
Requires a plaintiff to show that a defendant’s actions were fraudulent, malicious,
or grossly negligent. Limits the award of punitive damages to the greater of four
times the amount of actual damages or $200,000.
1989
Rural Health Care Act: HB 18 - Effective September 1, 1989 (1989)
▪ requires that juries be instructed that a bad medical outcome does not necessarily
justify a finding of negligence;
▪ requires that expert witnesses be practicing physicians;
▪ indemnifies physicians with a case load of 10% or more charity cases.
Note: under the Act, OB-GYN's and emergency room physicians would be
indemnified for the first $100,000 and all physicians meeting the patient load, risk
management and insurance requirements would be indemnified for the first
$25,000.
1990
Medical Liability Reform: Wrongful Death: Tex. Rev. Civ. Stat. art. 4590i § 11.02.
Limits damages in wrongful death actions to $500,000. The statute originally limited
damages in all negligence actions, but the Texas Supreme Court held it
unconstitutional except as to wrongful death actions in Rose v. Doctors Hospital,
801 S.W.2d 841 (Tex. 1990)
1993
Forum Non Conveniens Doctrine: SB 2 (1993).
Reinstates the forum non conveniens doctrine, which permits a court to decline to
hear a case if justice would be better served by trying the case elsewhere.
Product Liability Reform: SB 4 (1993).
Requires proof of an economically and technologically feasible safer alternative
design available at the time of manufacture in most product liability actions for
defective design. Provides a defense for manufacturers and sellers of inherently
unsafe products that are known to be unsafe. Establishes a fifteen‑year statute of
repose for product liability actions against manufacturers or sellers of
manufacturing equipment. Provides protection for innocent retailers and
wholesalers.
1995
Deceptive Trade Practices Act: HB 668 (1995)

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refocuses the original law's intent to protect consumers from fraud and deceptive
practices. The bill limits recovery to economic damages in most cases, however,
damages may be tripled if the seller knew his conduct was fraudulent or deceptive.
Frivolous Lawsuits: SB 31 (1995)
adopts the model federal rule so that a court may impose penalties when a
groundless lawsuit is filed
Governmental Liability: HB 383 (1995)
provides a $100,000 limit for specified cases of governmental liability
Joint and Several Liability Reform: SB 28 (1995).
Bars application of the rule of joint and several liability in the recovery of all
damages from defendants found to be less than 51% at fault.
Prejudgment Interest Reform: HB 971 (1995).
Allows prejudgment interest only for damages that occurred before judgment.
Punitive Damages Reform: SB 25 (1995): Tex. Civ. Prac. & Rem. Code §§ 41.003,
41.008.
Limits the award of punitive damages to the greater of $200,000 or two times the
award of economic damages plus non‑economic damages up to $750,000. Requires
a plaintiff to show by “clear and convincing” evidence that a defendant acted with
malice, defined as the “conscious indifference to the rights, safety, or welfare of
others.” Requires the determination of awards for punitive damages to be made in
a separate proceeding at the request of the defendant.
Venue Reform: SB 32 (1995).
Allows a plaintiff to bring a lawsuit where the injury occurred, where the defendant
resides, or (if none of those apply) where the plaintiff resided when the injury or
harm occurred
1997
Restores the common-law doctrine of forum non conveniens to allow the court to
decline to exercise jurisdiction in an action or claim for personal injury or wrongful
death that arose outside of the state.
Interlocutory Appeals Reform: SB 453 (1997)
Amends the Texas statute to allow an interlocutory appeal for 1) a special
appearance, or 2) a jurisdictional challenge over a unit of state or local government
before the time and expense of trial have been incurred
1999
Government Retention of Personal Injury Lawyers: SB 113 (1999).
Requires that the state attempt to handle all litigation through in-house counsel.
Provides that when seeking outside counsel, the contracting agency must first seek
an hourly fee arrangement. Provides that contingent fee contracts in excess of
$100,000 be approved by a Legislative Review Board. Requires that at the
conclusion of contingent fee representation, the state receive a statement of hours
worked and total fees recovered.
TX Note:

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In 1999, the Texas Legislature adopted several recommendations of the Texas
Supreme Court’s Jury Task Force. These reforms included increasing juror pay
from $6 per day to a rate that varies based on the length of jury service, establishing
a uniform juror summons and questionnaire form, exempting from jury service
those who have served within the past three years, and strengthening civil penalties
and adding criminal penalties against employers who fire or threaten employees for
performing jury duties.
Volunteer Immunity: SB 215 (1999)
Provides immunity to licensed health care providers who volunteer their services
for or on behalf of charitable organizations
Y2K Liability: SB 598 (1999)
Provides a two-year statute of limitations and a fifteen-year statute of repose;
requires a 60 day cooling off period before a suit may be filed; protects sellers and
users who rely on statements that a product or service does not have a Y2K
problem; establishes affirmative defenses; requires alternative dispute resolution
before trial; prohibits pain and suffering awards, and limits punitive damages,
unless the plaintiff can prove by clear and convincing evidence that the defendant
committed fraud or malice.
2003
Appeal Bond Reform: HB 4 (2003).
Limits the amount a defendant can be required to pay to secure the right to appeal
to the lesser of 50% of a defendant’s net worth or $25 million. Provides that
defendants are no longer required to post a bond to appeal punitive damages.
Provides that foreign judgments cannot be executed in Texas if appeal is pending in
a foreign jurisdiction and a bond has been or will be posted.
Class Action Reform: HB 4 (2003).
Provides for the interlocutory appeal of class action certification. Reforms attorney
fees whereby fees are based on time and cost expended rather than a percentage of
recovery. Provides for stay on all proceedings during appeal of class certification.
Provides for administrative relief which requires a court to consider administrative
relief from state agencies before certifying a class.
Constitutional Amendment - Noneconomic Damages: H.J.R. 3 (Proposition 12)
(2003)
Provided that the Texas legislature has the authority to place limits on noneconomic
damages.
Joint and Several Liability Reform: HB 4 (2003).
Defendant pays only assessed percentage of fault unless defendant is 50% or more
responsible. Defendants can designate (as opposed to join) other responsible third
parties whose fault contributed to causing plaintiff’s harm. In toxic tort cases, the
threshold for joint and several liability raised from 15% to 50%.
Medical Liability Reform: Noneconomic Damages Reform: HB 4 (2003).
Limits the award of noneconomic damages in medical malpractice cases to $250,000
against all doctors and health care practitioners and a $250,000 per-facility cap
against health care facilities such as hospitals and nursing homes, with an overall

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cap of $500,000 against health care facilities, creating in effect an overall limit of
noneconomic damages in medical malpractice cases of $750,000.
Prejudgment Interest Reform: HB 4 (2003).
Sets the prejudgment interest rate to the New York Federal Reserve prime rate, with
a floor of 5% and a ceiling of 15%.
Product Liability Reform: HB 4 (2003).
Provides for a 15 year statute of repose for product liability cases. In cases
involving latent diseases, the plaintiff must have been exposed within 15 years of
the product’s sale and must show symptoms more than 15 years after the sale.
Provides for an innocent seller provision which prohibits actions against non-
manufacturing sellers except in specific circumstances such as if the seller
participated in the design of the product or knew of the defect at the time of the sale.
Punitive Damages Reform: HB 4 (2003). Tex. Civ. Prac. & Rem. Code §§ 41.003.
Requires unanimous jury verdict to award punitive damages. Specifies that jury
must be so instructed.
Venue Reform: HB 4 (2003).
Provides that every plaintiff must establish venue independently of every other
plaintiff. Mandates dismissal or transfer of any plaintiff who cannot establish venue
except upon exception showing. Provides for interlocutory de novo appellate
review of order granting or denying transfer or dismissal. Contains a forum non
conveniens clause that states that the court must decline jurisdiction if there is a
better forum for the suit.
2005
Restores the discretion of trial court judges to dismiss lawsuits with little or no
connection to Texas under the doctrine of forum non conveniens.
Jury Service Reform: S.B. 1704 (2005).
Increases juror pay in both civil and criminal cases from not less than $6 per day to
not less than $40 per day, beginning on the second day of service. The increased
compensation is to be financed by a $4 fee placed on individuals convicted of a
crime. Provides prospective jurors with one automatic postponement from service,
in which case service must be rescheduled within six months after the date of the
original summons.
Obesity Litigation Reform: HB 107 (2005)
Exempted from civil liability trade associations, livestock producers, agricultural
producers and manufacturers, sellers, marketers, distributors, and advertisers of
food (as defined in 21 U.S.C. 321 (f);(g);(i)) for claims arising out of weight gain,
obesity, a health condition associated with weight gain or obesity, or other generally
known conditions allegedly caused by or allegedly likely to result from long-term
consumption of food. This liability exemption includes actions brought by a person
other than the individual whose weight gain, obesity, or health condition the action
is based. It also includes any derivative action brought by or on behalf of any
individual or any representative, spouse, parent, child, or other relative or
individual. The liability exemption does not apply for a violation of federal or state

26
law applicable to the manufacturing, marketing, distribution, advertising, labeling or
sale of food and the violation was committed knowingly and willfully. The liability
exemption also does not prohibit an action from being brought under Chapter 431,
Health Safety Code; or by the attorney general under Section 17.47, Business &
Commerce Code. Provided that discovery and all other proceedings shall be stayed
during a motion to dismiss.
Settlement Credits Reform: SB 890 (2005)
Restored dollar-for-dollar settlement credit in a multiple defendant civil action.
Table 1
Selected Tort Reforms Enacted Since 1986
Type of
Reform
Number
of States
Summary States That Have
Enacted the Reform
Modify Joint-
and-Several
Liability
38 States have based the amount for
which a defendant can be held
liable on the proportion of fault
attributed, but the formulas
differ substantially from state to
state. In addition, most of the
reforms apply to specific types of
torts or have other restrictions.
Alaska, Arizona,
Arkansas,
California,
Colorado,
Connecticut,
Florida, Georgia,
Hawaii, Idaho,
Illinois, Iowa,
Kentucky,
Louisiana,
Massachusetts,
Michigan,
Minnesota,
Mississippi,
Missouri,
Montana,
Nebraska, Nevada,
New Hampshire,
New
Jersey, New
Mexico, New York,
North Dakota,
Ohio, Oregon,
Pennsylvania,
South Dakota,
Texas, Utah,
Vermont,

27
Washington, West
Virginia,
Wisconsin,
Wyoming
Modify the
Collateral-
Source Rule
25 Typical reforms either permit
evidence of collateral-source
payments to be admitted at trial,
allow awards to plaintiffs to be
offset by other payments, or both.
Alabama, Alaska,
Arizona, Colorado,
Connecticut,
Florida,
Georgia,* Hawaii,
Idaho, Illinois,
Indiana, Iowa,
Kansas,*
Kentucky, Maine,
Michigan,
Minnesota,
Missouri,
Montana,
New Jersey, New
York, North
Dakota, Ohio,
Oklahoma, Oregon
Limit
Noneconomic
Damages
23 The caps range from $250,000 to
$750,000. More than half of the
reforms apply to torts involving
medical malpractice.
Alabama,* Alaska,
Colorado, Florida,
Hawaii, Idaho,
Illinois,*
Kansas, Maryland,
Michigan,
Minnesota,
Mississippi,
Montana,
Nevada, New
Hampshire,*
North Dakota,
Ohio, Oklahoma,
Oregon,* Texas,
Washington,*
West Virginia,
Wisconsin
Limit Punitive
Damages
34 Various types of limits include
outright bans; fixed dollar caps
ranging from $250,000 to $10
million; and caps equal to a
multiple of compensatory
awards.
Alabama, Alaska,
Arizona, Arkansas,
California,
Colorado,
Florida, Georgia,
Idaho, Illinois,*
Indiana, Iowa,

28
Table 2
Mal
Year
Year The number
of lawyers
per 1000
Number of
Physicians
per 1000
GDP per
1000
CPI
1990 1 2.750456 1.491906 22.51645 125.1
1991 2 2.79542 1.537028 22.91233 130.8
1992 3 2.837157 1.579501 23.74816 133.9
1993 4 2.854296 1.619796 24.79656 137.3
1994 5 2.880302 1.657772 26.05711 141.2
1995 6 2.901488 1.693518 27.23023 144.9
1996 7 2.900937 1.727069 28.97814 148.8
1997 8 2.895502 1.758619 31.24531 151.4
1998 9 2.895473 1.788198 32.572 153.6
1999 10 2.874003 1.815752 33.73748 158
2000 11 2.866889 1.833373 35.63777 164.7
2001 12 3.023499 1.862383 36.81782 170.4
2002 13 2.878054 1.890779 36.88045 172.7
2003 14 2.931914 1.920793 38.29672 176.2
Kansas,
Kentucky,
Louisiana,
Minnesota,
Mississippi,
Missouri,
Montana, Nevada,
New Hampshire,
New Jersey, New
York,
North Carolina,
North Dakota,
Ohio, Oklahoma,
Oregon, South
Carolina, South
Dakota, Texas,
Utah, Virginia,
Wisconsin

29
2004 15 2.946459 1.947977 41.09971 178.7
2005 16 3.047019 1.972473 43.81825 184.7
2006 17 2.986387 1.987671 46.8232 190.1
2007 18 2.972558 1.998615 49.38612 193.245
2008 19 3.023777 2.006746 51.1469 201.791
2009 20 3.027457 2.021732 47.06193 200.544
2010 21 3.0506 2.046601 49.43224 201.624
Data source
For this project we mainly use two following sources of data:
(The data files is attached in appendix)
1- http://www.tdi.texas.gov/reports/report4.html
2- http://www.npdb.hrsa.gov/resources/publicData.jsp
Some clarification for Data
Claim
Source 1:
These reports do not include open claims, or claims not settled under
Texas law.
Source 2:
Based on this data base, medical malpractice claims classified in tree
category:
- Claims that lead to payment
- Adverse action claims
- Reinstatement Restore 
Year:
Source 1:
The data utilized in the preparation of this report includes 5,234
commercial liability closed claims submitted for calendar year 2012
on Quarterly Closed Claim Reports.
Source 2:
Medical Malpractice Payment and Adverse Action Report totals are
based on NPDB aggregate data through every calendar year.
Frequency of claims

30
Source 1
Frequency of claims by business classification
Source 2:
This data bank show us the number of medical malpractice claims, as
a result we define two kind of frequency for medical malpractice
claims:
Medical malpractice claims/ population
Medical malpractice claims/ physician’s population
We have these data from 2003 to 2013.
Severity of claims
Source 1:
1. Payment amount in this report refers to the amount paid by the
primary carrier on line 12 A.1 of the Quarterly Closed Claim
Reports. Settlement amount refers to the amount paid by all
parties on line 12 A.7 of the Quarterly Closed Claim Reports.
The settlement amount may include payments from other
insurers, the insured, excess carriers, and other defendants
that may not submit closed claims due to the reporting
requirements.
2. AVERAGE CLAIM PAYMENT
Source 2
It classified the payments amount in 7 group of:
0-45 Thousand $
50-99 Thousand $
100-249 Thousand $
250-499 Thousand $
500-999 Thousand $
1000-1999 Thousand $
2000+ Thousand $
and shows us how many claims paid in every group. Also based on
the SPSS files that we download from DataBank website we only
have payments of the claims from 2003 to 2014.
As you can see there are many differences between data from two
databases, based on these differences we can only compare the
trend of these data and we cannot compare them point-by-point.

31
Some potential factors that affect the project
Based on source 1
- Classification of the claims in two group of:
Short Forms – Indemnity settlements over $25,000 but less
than $75,000
Long Forms – Indemnity settlements of $75,000 or more
(Note that this criteria changed in 2009)
(Note that usually non-economic losses are more in long forms in
compare to short forms.)
Single-party claims- single defendant cases
Multi-party claims- more complex cases that involve multiple
defendants
Claims that involve law attorney and courts
Claims that don’t involve law attorney and courts
(Note the first case has more payment amount and non-economic
losses)
Based on source 2
The physicians can be classified in two groups of
MD (medical doctor regard the body part by part)

32
OD (osteopathic medicine regard the body as an integrated
whole)
The medical malpractice claims can be raised from these
classification of physicians:
Nursing
Adv. Practice Nurse
Licensed Nurse
Nursing Para-Professionals
Registered Nurse
Therapeutics
Clinical Social Worker
Psychologist
Therapists & Counselors
Dental
Dentist
Dental Hygienist/Asst.
Chiropractor
Optometrist
Pharmacist
Physician Assistant
Podiatrist
Technicians & Assistants
Other
(based on client as Chiropractor and… are not obliged to report the
claims, so the data is not accurate and we do not consider them)
Data
- Number of the claim: Sum of the claims in each year
- Rectype: Record Type:

33
M Malpractice Payment (format used prior to 1/31/2004) P
Malpractice Payment (format first used 1/31/2004)
- Work city
TX (Texas)
- LICNFELD
Practitioner's Field of License, [Note: Reporting is required for malpractice
payments made for all practitioners regardless of their field of license;
reporting is required for adverse actions (other than exclusions) only for
practitioners in license fields 10 through 35 (physicians and dentists).
If only consider physicians:
Codes will be:
Physicians
10 Allopathic Physician (MD)
15 Phys. Intern/Resident (MD)
20 Osteopathic Physician (DO)
25 Osteo. Phys. Intern/Resident (DO)
- ALEGATN1
First Specific Malpractice Act or Omission Code
- MALYEAR1
Accident year (the year that they report the accident)

34
- Payment
Amount of reported payment. This is the amount of the specific
payment that led to the filing of this malpractice payment report.
Data should be from 1991-2010
Severity = Payment/number of the claims
Tort reforms
Year Tort Reforms Related to medical malpractice
1990
- Medical Liability Reform - Medical Liability Reform
1991
1992
1993
- Forum Non Conveniens Doctrine:
SB 2 (1993)
- Product Liability Reform: SB 4
(1993).
1994
1995
- Deceptive Trade Practices Act:
HB 668 (1995)
- Governmental Liability: HB 383
(1995)
-
- Governmental Liability: HB 383
(1995)
- Joint and Several Liability
Reform: SB 28 (1995).
- Prejudgment Interest Reform:
HB 971 (1995).
- Punitive Damages Reform: SB 25
- Venue Reform: SB 32
HB 971 (1995).
- Punitive Damages Reform: SB 25
1996
1997
SB 220
- Interlocutory Appeals Reform:
SB 453
1998
1999
- Government Retention of
Personal Injury Lawyers: SB 113
(1999).
- Volunteer Immunity: SB 215

35
- Y2K Liability: SB 598 (1999)
2000
2001
2002
2003
- Certificate of merit
- Appeal Bond Reform: HB 4
(2003)
- Class Action Reform: HB 4
(2003).
- Constitutional Amendment -
Noneconomic Damages: H.J.R. 3
(Proposition 12) (2003)
- Joint and Several Liability
Reform: HB 4 (2003).
- Medical Liability Reform:
Noneconomic Damages Reform:
HB 4 (2003).
HB 4 (2003).
- Product Liability Reform: HB 4
(2003).
- Punitive Damages Reform: HB 4
(2003).
- Venue Reform: HB 4 (2003).
- Certificate of merit
- Appeal Bond Reform: HB 4
(2003)
- Constitutional Amendment -
Noneconomic Damages: H.J.R. 3
- Medical Liability Reform:
Noneconomic Damages Reform:
HB 4 (2003).
-
2004
2005
SB 15 (2005).
- Jury Service Reform: S.B. 1704
(2005).
- Obesity Litigation Reform: HB
107 (2005)
- Settlement Credits Reform: SB
890 (2005)
2006
2007
2008
2009
2010
2011
- Barratry
- Early Offer of Settlement
Trespasser Liability Reform
- Early Offer of Settlement
2012
2013
- Asbestos Inactive Docket

36
Tort
Reform
Number year
Prejudgment Interest Reform: HB 971 (1995). 1 1995
Punitive Damages Reform: SB 25 2 1995
Certificate of merit 3 2003
Appeal Bond Reform: HB 4 (2003) 4 2003
Constitutional Amendment - Noneconomic Damages: H.J.R. 3
5 2003
Medical Liability Reform: Noneconomic Damages Reform: HB
4 (2003).
6 2003
Early Offer of Settlement 7 2011

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