The Effects of 'Early Offers' in Medical Malpractice Cases: Evidence from Texas
Bernard S. Black
Northwestern University - Pritzker School of Law; Northwestern University - Kellogg School of Management; European Corporate Governance Institute (ECGI)
David A. Hyman
University of Illinois College of Law
University of Texas at Austin - School of Law
December 1, 2009
as published in 6 Journal of Empirical Legal Studies, pp. 723-767 (2009)
Empirical Legal Studies Conferences, 3rd Annual Conference on Empirical Legal Studies (2008)
Northwestern Law & Economics Research Paper No. 09-15
University of Illinois Law & Economics Research LE08-014
University of Texas Law, Law and Econ Research Paper No. 130
Medical malpractice litigation is costly and time-consuming. Professor Jeffrey O'Connell, with various coauthors, has long advocated 'early offer' rules that would encourage defendants to offer to settle for economic damages plus attorney fees, and punish plaintiffs who refuse such offers. Using detailed closed claims data from Texas for 1988-2005, we simulate the effects of these 'early offers.'
We find that defendants will normally not make early offers in cases with large economic damages (over $500,000 in 1988 dollars) because doing so will increase payouts. Early offers will normally reduce payouts, and hence will be made, in cases with small economic damages (under $100,000 in 1988 dollars). Defendants may also make offers in cases with moderate ($100,000-500,000) economic damages, depending on case characteristics and the plaintiff’s chances of prevailing.
An early offer program will (i) sharply reduce payouts in cases with small economic damages; (ii) will not materially affect predicted payouts in other cases; (iii) will have very different effects on different types of plaintiffs, with large payout reductions for elderly and deceased plaintiffs and much smaller effects for newborns and employed adult plaintiffs; and (iv) will overlap substantially in its effects with statutory caps on non-economic damages, and hence have a smaller effect in states with these caps.
Our mixed results contrast sharply with dramatic claims by O’Connell and co-authors, who predict 70% reductions in payouts and defense costs. Their estimates reflect the compound effects of a series of unreasonable assumptions.
This article, in part, responds to Hersh, O’Connell and Viscusi, An Empirical Assessment of Early Offer Reform for Medical Malpractice, 36 Journal of Legal Studies s231-s259 (2007).
Hersch, O’Connell and Viscusi reply to this article in Reply to the Effects of 'Early Offers' in Medical Malpractice Cases: Evidence from Texas, 7 Journal of Empirical Legal Studies (forthcoming 2010), working paper version available at http://ssrn.com/abstract=1487681
We extend our analysis and respond to Hersch, O’Connell and Viscusi in Black, Hyman, and Silver, O’Connell Early Settlement Offers: Toward Realistic Numbers and Two-Sided Offers, 7 Journal of Empirical Legal Studies (forthcoming 2010), available at http://ssrn.com/abstract=1503125
Number of Pages in PDF File: 45
Keywords: litigation, settlement, early offers, medical malpractice, torts
JEL Classification: K13, K32, K41
Date posted: July 30, 2009 ; Last revised: January 28, 2015