The R.I. Department of Business Regulation has cleared ProSelect Insurance Co. to raise its doctors’ medical malpractice rates by 2.3 percent, down from the requested 4.9 percent, but denied a requested 13.5-percent hospital rate hike altogether.
The decision, issued Sept. 23, came just as NORCAL Mutual Insurance Co., the state’s dominant malpractice carrier, was about to be heard on a requested 10-percent rate hike.
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In an unusual move, the DBR had initially put ProSelect’s case on hold pending the NORCAL hearing, saying that ProSelect’s local market share was too small to make good loss trend judgments, so NORCAL’s data would be used to complete the picture.
Both ProSelect and the attorney general’s office objected, however, and the DBR agreed to decide the case on its own merits – though the hearing officers Elizabeth Kelleher Dwyer and Paula M. Pallozzi warned that they might, in the future, hold out for more evidence.
In the NORCAL case, meanwhile, Assistant Attorney General Genevieve M. Martin, whose experts had originally said only a 3.4-percent rate hike was justified, agreed after a conference call with NORCAL’s experts that 10 percent was, indeed, “reasonable.”
In a new filing Monday, on the eve of the hearing, Martin said revised calculations showed a 10.7-percent hike would be justified, so she wouldn’t oppose the 10-percent request – though she continued to object to NORCAL’s claim that a 41.3-percent hike would’ve been warranted.
Last year, under similar circumstances, Martin signed off on a 19-percent rate hike, and the DBR went on to approve it without a full hearing.
This time, however, the R.I. Trial Lawyers Association was also involved, and it did not agree with Martin, claiming instead that a “significant, double-digit decrease” in rates was warranted, as lawyer and industry critic Jay Angoff put it.
And concerned about substantial differences in the way ProSelect, NORCAL and the attorney general each have argued that rates should be calculated, the DBR officials said they wanted to explore critical issues in-depth even if NORCAL and Martin had reached an agreement.
Thus, for a day and a half last week, NORCAL’s and Martin’s economists and actuaries faced intense questioning on how big a profit an insurer should seek to make and how that profit should be calculated, as well as how loss trends should be estimated.
On the latter point, NORCAL relied entirely on “incurred” losses, which includes not only the amounts already paid on claims, but amounts reserved in anticipation of having to pay – a practice that malpractice insurers say is particularly important in their line of business because cases tend to stretch out over many years.
The trial lawyers, however, have long argued that incurred losses can be exaggerated, and Angoff stressed during the hearing that NORCAL’s actual losses, over time, had been shown to be 9 percent lower than initially estimated – 20 percent lower in the last four years.
Martin’s position was that loss trends should be calculated using a combination of paid and incurred losses, but NORCAL lawyer R. Kelly Sheridan countered that in every aspect of its filing, NORCAL was only following the directives that DBR had issued in a 2003 ruling.
Another point of disagreement was a requested 4-percent “load” for extra-contractual obligations and payouts in excess of policy limits. The main reason NORCAL and ProSelect have cited for that surcharge is a 1999 state Supreme Court ruling, Asermely v. Allstate, that made insurers liable for jury awards even beyond policy caps if, acting against the policyholder’s wishes or in bad faith, they refused an offer to settle for less than the cap.
But both NORCAL and ProSelect have admitted that they’ve never been forced to make a payout under Asermely – though NORCAL officials argue that doctors may be accepting settlements they shouldn’t just to be protected under that ruling. Instead, both insurers have based their requested surcharges on out-of-state cases.
At the NORCAL hearing, Angoff argued with a company official over whether the insurer’s California rates included that surcharge (he replied that there’s no surcharge, but rather all losses, except bad-faith judgments, are built into the overall figures).
Angoff questioned the credibility of the reply, and Miriam Weizenbaum, of the trial lawyers association, speculated that NORCAL is “making up on this end what they can’t collect on that end.”
In the ProSelect case, meanwhile, the DBR ruled that despite the lack of Asermely-related verdicts, Asermely does present “a unique risk” that the insurer could be liable in excess of policy limits, even if the doctor has also refused to settle. But because of the lack of relevant verdicts, the DBR approved only a 2-percent “load,” and said that “as time passes” without such a liability, the need for a surcharge would decrease.
Weizenbaum said the trial lawyers were pleased to see that the DBR’s view of Asermely was becoming “more accurate,” though she didn’t fully agree with the interpretation.
At the end of the hearing, the DBR’s Dwyer promised to render a decision as quickly as possible, given that NORCAL has said it needs to know by Oct. 15.
