When Governor Newsom signed Assembly Bill (AB) 35 on May 23, 2022, amending California’s Medical Injury Compensation Reform Act (MICRA), it concluded one of the California’s longest running political battles and substantially improved the fairness of California’s medical malpractice statute. The amended law goes into effect January 1, 2023.
Among its significant changes, AB 35 raises MICRA’s cap on non-economic damages and also restructures and increases MICRA’s limits on plaintiff attorney fees. In addition, AB 35 includes a slight modification to MICRA’s periodic payment of judgment statute which remains mandatory “at the request of either part.”
Praised publicly by representatives of both defendants and plaintiffs, AB 35 represents a political compromise. Both sides see benefits.
- For plaintiffs and their attorneys, potential non-economic damages have substantially increased and compensation adjustments mean plaintiff attorneys can now afford to pursue cases on behalf of medical malpractice clients who previously may have gone unrepresented.
- For defendants, damage caps will continue for large verdicts – even though those caps are higher and can potentially be applied to multiple defendants.
Summary of Key Provisions
- AB 35 increases MICRA’s prior $250,000 cap on non-economic damages and provides for future increases to account for inflation. The legislation establishes two separate caps, depending on whether a wrongful death claim is involved.
- In a wrongful death case, the cap increases to $500,000. Each January 1st thereafter, this cap increases by $50,000 until it reaches $1 million.
- If the medical malpractice case does not involve wrongful death, the cap starts at $350,000, and increases each year by $40,000 until it reaches $750,000.
- Beginning on January 1, 2034, the applicable limitations on noneconomic damages for personal injury and for wrongful death will be adjusted for inflation on January 1st of each year by 2%.
- As originally enacted, MICRA restricted contingent attorney fees to 40 percent of the first $50,000 recovered, 33 percent of the next $50,000, 25 percent of the next $500,000, and 15 percent of anything that exceeds $600,000. AB 35 instead links fee limits to the stage of the representation at which the amount is recovered:
- 25 percent if the recovery occurs pursuant to a settlement prior to a civil complaint or demand for arbitration being filed.
- 33 percent if the recovery is pursuant to settlement, arbitration, or judgment after a civil complaint or demand for arbitration is filed.
- If an action is tried in a civil court or arbitrated, the plaintiff attorney may file a motion with the court or arbitrator for a contingency fee in excess of 33 percent based on evidence establishing good cause for the higher contingency fee.
- AB 35 increases the minimum amount of a judgment required to request periodic payments from $50,000 to $250,000.
- AB 35 also includes a Chapter 3 titled “Expressions of Sympathy, Benevolence or Fault in Health Care” disallowing a broad category of such communications from being admitted into evidence or in relation to any penalty.
MICRA History
Signed into law by Governor Jerry Brown in 1975, supporters of MICRA promoted the legislation as necessary to lower medical malpractice liability insurance premiums and keep healthcare providers financially insolvent. Doctors in California actually went on strike in support of MICRA.
MICRA was enacted at the beginning of an era of rising interest rates, inflation and medical malpractice verdicts. MICRA also initiated a wave of insurance and defense-led tort reform legislation in other states which occurred in the late 1970s and then again in the late 1980s. This tort reform frequently included periodic payment of judgments.
For the past 45 years, MICRA has proven controversial – and arguably unfair to victims of medical malpractice. Opponents have challenged MICRA on constitutional grounds but the law has been upheld by the California Courts.
Until AB 35 was enacted, multiple legislative attempts to amend MICRA had been defeated as a result of intense lobbying on behalf of a political coalition consisting of doctors, hospitals and insurers.
Former California Governor Jerry Brown, who signed MICRA into law in 1975, summarized the views of many MICRA opponents in 1993 when he wrote the following to argue against using MICRA as a model for national healthcare:
“We have learned a lot about MICRA and the insurance industry in the seventeen years since MICRA was enacted. We have even witnessed another insurance crisis., and found that insurance company avarice, not utilization of the legal system by injured consumers, was responsible for excessive premiums. Saddest of all, MICRA has revealed itself to have an arbitrary and cruel effect upon the victims of malpractice. It has not lowered health care costs, only enriched insurers and placed negligent or incompetent physicians outside the reach of judicial accountability. For these reasons, MICRA cannot and should not be a model for national legislation.”
Nick Rowley and The Fairness for Injured Patients Act
What happened to change the political balance in California resulting in AB 35 and the amendments to MICRA?
Many observers attribute the enactment of AB 35 primarily to attorney Nick Rowley, one of the most successful trial attorneys in the United States. Attorney Rowley was the driving force behind a legislative initiative called “The Fairness for Injured Patients Act .”
As proposed, the “The Fairness for Injured Patients Act” would have effectively dismantled MICRA. Based upon their own political calculations, the defense lobby that previously had supported MICRA decided to negotiate with the resulting compromises contained in AB 35.
Impact of Original MICRA on Structured Settlements
Many California-based structured settlement professionals have no working knowledge of the MICRA periodic payment of judgment statute. For one reason, many established plaintiff attorney clients have avoided California medical malpractice cases historically because of the compensation restrictions.
For another reason, low interest rates have reduced the financial leverage MICRA originally provided defendants when the California Supreme Court ruled MICRA constitutional in 1984.
Third, even during the 1980s and 1990s, almost all California medical malpractice cases still settled following a MICRA verdict – with MICRA providing defendants a significant negotiation advantage.
MICRA was the first state periodic payment of judgment statute in the United States when it was enacted in 1975 although the California Supreme Court did not rule it constitutional until 1984. Even so, it had a significant impact on the early history of structured settlements – the United States origin of which also began in California in the mid-1970s.
By 1979, 13 additional states had followed California’s MICRA example and enacted periodic payment of judgment statutes most of which applied exclusively to medical malpractice. The Commissioners on Uniform State Legislation adopted the Model Periodic Payment of Judgments Act in 1980 and the Uniform Periodic Payment of Judgments Act in 1990.
The statutory history of periodic payment awards in the United States actually dates back to the workers compensation laws beginning in the mid-1800s. Prior to MICRA, and the pioneering work of a few structured settlement professionals, most attorneys and judges assumed that personal injury judgments were required to be paid in a lump sum and lump sum personal injury settlements (as opposed to structured settlements) represented a national standard.
MICRA, and tort reform more generally, helped create publicity for the periodic payment concept and also resulted in the publication of an important article titled “Periodic Payment of Judgments.” Written by Tom Elligett and published in the Insurance Counsel Journal, this article analyzed all of the then existing periodic payment of judgment statutes and represented a valuable educational resource for the nascent structure settlement industry.
Following the enactment of the Periodic Payment of Judgments Act in 1982 and ratification of MICRA’s periodic payment of judgment provisions in 1984 by the California Supreme Court, defendants began utilizing the MICRA periodic payment of judgment statute to negotiate favorable structured settlements in California medical malpractice cases.
According to one prominent California structured settlement professional, MICRA produced at least two important early results for structured settlements. First, MICRA’s periodic payment provisions helped grow the structured settlement market. Second, they required many California plaintiff attorneys to familiarize themselves with structured settlements and, despite early resistance, to subsequently understand the benefits of structured settlements for their clients.
Impact of the MICRA Amendments
Based upon discussions with multiple California structured settlement professionals, here are some expected results of the AB 35 MICRA amendments.
- Plaintiff Attorneys
The best plaintiff attorneys in California will begin litigating medical malpractice cases. Under the original MICRA statute, many medical malpractice claimants could not get representation. Because of the attorney compensation rules, the risk reward tradeoff was not fair.
For the most accomplished attorneys, medical malpractice cases under MICRA were not worth the investment. They pursued other cases – or represented medical malpractice victims in other states.
Plaintiff attorneys who did take medical malpractice cases settled those cases rather than taking them to trial. Now attorneys have incentives to file medical malpractice cases because they are able to receive fair compensation if their cases are successful.
- Damages under MICRA
Outside of California, the best plaintiff attorneys focus their arguments on the human story and non-economic damages. They mostly waive economic damages which often represent a relatively small amount of total damages in many serious cases.
With pre-amendment MICRA, economic damages represented almost the entire story. Because of continuing caps, larger medical malpractice cases in California will still be focused on economic damages under the amended MICRA.
- Structured Settlements under MICRA
Structured settlements have continued to occur under MICRA – not, however, for structured settlement professionals who represent the more established California plaintiff attorneys. Established California plaintiff attorneys have simply chosen other cases.
The MICRA amendments will generate more structures primarily because more money will be paid. Incentives now exist to pursue non-economic damages. More established plaintiff attorneys pursuing more cases with larger payouts, in general, will generate more and larger structured settlements.
- Lessons for Fighting Tort Reform
The success of the AB 35 MICRA amendment offers a lesson for fighting tort reform: fight it head on. When plaintiff attorneys tried to change MICRA by focusing on other issues it did not work. The MICRA amendments are all about fairness for patients.
The most effective plaintiff political strategy focused on stories about injured patients. Those stories created political fear on the defense side and encouraged them to compromise. The result: a political compromise that ultimately represents a victory for medical malpractice victims and their families.
