Caps, Settlements, and Chutzpah under California’s Medical Malpractice Law

By Alex Stein

A recent California Supreme Court decision, Rashidi v. Moser, — P.3d —- (Cal. 2014), must be read by anyone interested in medical malpractice and in torts generally.

This decision involved a very serious incident of medical malpractice. A patient underwent surgery to stop severe nosebleed. His doctor ran a catheter through an artery in his leg up into his nose. Tiny particles were injected through the catheter to irreversibly block certain blood vessels. The particles, however, traveled to places other than the intended sites. As a result, when the patient awoke after the surgery he was permanently blind in one eye. He sued the doctor and the hospital for medical malpractice and the particles’ manufacturer for products liability. Subsequently, the patient settled with the particles’ manufacturer for $2,000,000 and with the hospital for another $350,000. The case went to trial against the doctor alone.

The jury found that the doctor was negligent and that his malpractice was responsible for the patient’s incapacitation. Based on that finding, it awarded the patient $125,000 for future medical care, $331,250 for past noneconomic damages, and $993,750 for future noneconomic damages. The trial court reduced the noneconomic damages to $250,000, pursuant to the cap set by the Medical Injury Compensation Reform Act of 1975 (MICRA, Civil Code § 3333.2: “In no action [for injury against a health care provider based on professional negligence], shall the amount of damages for noneconomic losses exceed two hundred fifty thousand dollars ($250,000).”).

The defendant doctor did not benefit from the cap alone. He also took full advantage of California’s Civil Code § 877 that allows a nonsettling tortfeasor to set off the amount of a jointly liable tortfeasor’s settlement against damages awarded at trial. This offset was only available with respect to the patient’s economic damages, for which tortfeasors are liable jointly and severally. Under California’s Civil Code § 1431.2, tortfeasors assume strictly several liability for noneconomic damages and pay in proportion to their share of fault. Because the patient’s settlements with the hospital and the manufacturer did not differentiate between economic and noneconomic damages, the doctor obtained a post-verdict allocation pursuant to the rule devised in Espinoza v. Machonga, 11 Cal.Rptr.2d 498 (Cal.App. 1992). Under that rule, the percentage of the jury’s award attributable to economic damages is calculated and applied to the settlement, yielding the amount that the nonsettling tortfeasor is entitled to offset. The patient’s award attributable to economic damages was 8.62% ($125,000 in economic damages divided by the total award of $1,450,000). Applying that percentage to the $2,000,000 settlement with the manufacturer yielded $172,400 in economic damages, which allowed the doctor to offset the jury’s $125,000 economic-damages award.

For the settlement between the patient and the hospital, the requisite calculation was different. Because the hospital (unlike the manufacturer) was entitled to cap the patient’s noneconomic damages at $250,000 pursuant to MICRA, the jury’s award of noneconomic damages was reduced to $250,000 and then juxtaposed against the economic award of $125,000. This juxtaposition yielded a different percentage: $125,000/$375,000=33.33%. Applying that percentage to the $350,000 settlement between the patient and the hospital yielded another $116,655 in economic damages—an allocation that the doctor no longer needed because the patient’s economic settlement with the manufacturer – $172,400 – already compensated him for his entire economic loss of $125,000.

After eradicating the patient’s economic award, the doctor also tried to offset his noneconomic liability – $1,325,000, capped at $250,000 pursuant to MICRA – by the patient’s settlement recoveries for noneconomic damages ($233,345 from the hospital and $1,827,600 from the manufacturer). The doctor argued that he is entitled to this setoff as well.

Happily, the California Supreme Court rejected this audacious argument.

The Court properly distinguished between apportionment and setoff. Apportionment of noneconomic damages under Civil Code § 1431.2, it explained, “is a form of equitable indemnity in which a defendant may reduce his or her damages by establishing others are also at fault for the plaintiff’s injuries.” The doctor failed to establish the hospital’s and the manufacturer’s faults, and for that reason he was not entitled to apportion his liability for the patient’s noneconomic damages. Hence, the doctor should be obligated to pay the patient the capped compensation in the amount of the $250,000 unless he can establish that MICRA caps settlement recoveries as well.

The Court then went on to explain that MICRA’s cap provision only applies to judgments awarding noneconomic damages and does not extend to settlement recoveries.

In the Court’s words,

“Neither the parties nor amici curiae direct us to anything in the legislative history [of MICRA] that indicates an intent to include settlement recoveries in the cap on noneconomic damages. To the contrary, we have noted that the Legislature had jury awards in mind when it enacted the cap, and that only a collateral impact on settlements was contemplated. In Fein v. Permanente Medical Group, 695 P.2d 665 (Cal. 1985), where the constitutionality of the cap was upheld, this court observed that one problem identified in the legislative hearings was the unpredictable size of large noneconomic damage awards, resulting from the inherent difficulties in valuing such damages and the great disparity in the price tag which different juries placed on such losses. The Legislature could reasonably have determined that an across-the-board limit would provide a more stable base on which to calculate insurance rates.

Furthermore, as one amicus suggests, the Legislature may have felt that the fixed $250,000 limit would promote settlements by eliminating ‘the unknown possibility of phenomenal awards for pain and suffering that can make litigation worth the gamble.’ Thus, the Legislature was primarily concerned with capricious jury awards when it established the MICRA cap. However, excluding settlement dollars from the cap does not leave settlements unaffected. The prospect of a fixed award of noneconomic damages not only increases plaintiffs’ motive to settle, as noted in Fein, but also restrains the size of settlements. Settlement negotiations are based on liability estimates that are necessarily affected by the cap. By placing an upper limit on the recovery of noneconomic damages at trial, the Legislature indirectly but effectively influenced the parties’ settlement calculations.”

The Court also observed in this connection that “If nonsettling defendants were assured of an offset against noneconomic damages regardless of their degree of fault, an agreement with one defendant would diminish the incentive for others to settle. Conversely, if all defendants are responsible for their proportionate share of noneconomic damages, settlements are encouraged. Nonsettling defendants must weigh not only their exposure to liability for noneconomic damages within the limits imposed by section 3333.2, but also the prospect of having to prove the comparative fault of settling defendants in order to obtain a reduction under section 1431.2.”

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