Do Defendants Pay What Juries Award? Post-Verdict Haircuts in Texas Medical Malpractice Cases, 1988-2003

Legal scholars, legislators, policy advocates, and the news media frequently use jury verdicts to draw conclusions about the performance of the tort system. However actual payouts can differ greatly from verdicts. We report evidence on post-verdict payouts from the most comprehensive longitudinal study of matched jury verdicts and payouts. Using data on all insured medical malpractice claims in Texas from 1988-2003 in which the plaintiff received at least $25,000 (in 1988 dollars) following a jury trial, we find that most jury awards received “haircuts.” 75% of plaintiffs received a payout less than the adjusted verdict (jury verdict plus pre-judgment and post-judgment interest), 20% received the adjusted verdict (within + 2%), and 5% received more than the adjusted verdict. Overall, plaintiffs received a mean (median) per-case haircut of 29% (19%), and an aggregate haircut of 56%, relative to the adjusted verdict. The larger the verdict, the more likely and larger the haircut. For cases with a positive adjusted verdict under $100,000, 47% of plaintiffs received a haircut, with a mean (median) per-case haircut of 8% (2%). For cases with an adjusted verdict larger than $2.5 million, 98% of plaintiffs received a haircut with a mean (median) per-case haircut of 56% (61%). Insurance policy limits are the most important factor explaining haircuts. Caps on damages in death cases and caps on punitive damages are also important, but a significant percentage of the above-cap damages were likely uncollectible, since defendants often paid substantially less than the post-cap adjusted allowed verdict. Remittitur accounts for a small percentage of the haircuts. Punitive damage awards have only a small effect on payouts. Out-of-pocket payments by physicians are rare, never large, and usually unrelated to punitive damage awards. Most cases settle, presumably in the shadow of the outcome if the case were to be tried. That outcome is not the jury award, but the actual post-verdict payout. Because defendants rarely pay what juries award, jury verdicts alone do not provide a reliable basis for claims about the performance of the tort system. † We owe special thanks to Fang Zhang and Myungho Paik for their work in analyzing the database, and to Vicky Knox, Ken McDaniel, Clare Pramuk, and Brian Ryder at the Texas Department of Insurance for patiently answering our many questions. For comments and suggestions, we thank an anonymous referee, participants at the RAND/JELS conference on medical malpractice, and workshop and seminar participants at Berkeley, Georgetown, Northwestern, and Vanderbilt University Schools of Law, and the Institute for Government and Public Affairs at the University of Illinois. Funding for this study was provided by the Center on Lawyers, Civil Justice, and the Media at the University of Texas School of Law, and the Jon David and Elizabeth Epstein Program in Health Law and Policy at the University of Illinois College of Law.