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

• Published date: 01 March 2007
• DOI: http://doi.org/10.1111/j.1740-1461.2007.00081.x
• Author: Bernard Black,Charles Silver,David A. Hyman,Kathryn Zeiler,William M. Sage
• Date: 01 March 2007

Do Defendants Pay What Juries

Award? Post-Verdict Haircuts in Texas

Medical Malpractice Cases, 1988–2003

David A. Hyman, Bernard Black, Kathryn Zeiler, Charles Silver,

and William M. Sage*

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.” Seventy-five percent of plaintiffs

received a payout less than the adjusted verdict (jury verdict plus prejudg-

ment and postjudgment interest), 20 percent received the adjusted verdict

*Address correspondence to David A. Hyman, phone: 217-333-0061; email: dhyman@

law.uiuc.edu. Hyman is Professor of Law and Medicine and Galowich-Huizenga Faculty Scholar,

University of Illinois. Black is Hayden W. Head Regents Chair for Faculty Excellence, University

of Texas Law School, and Professor of Finance, University of Texas, Red McCombs School of

Business. Zeiler is Visiting Professor of Law, New York University School of Law, and Associate

Professor of Law, Georgetown University Law Center. Silver is McDonald Endowed Chair in

Civil Procedure, University of Texas Law School. Sage is James R. Dougherty Chair for Faculty

Excellence in Law, University of Texas School of Law, and Vice-Provost for Health Affairs,

University of Texas at Austin.

We owe special thanks to Fang Zhang and Myungho Paik for their work in analyzing the data,

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, Jennifer Arlen, Ronen Avraham, Tom Baker, Ted Frank, Cathy Sharkey,

Martin Wells, participants at the RAND/JELS conference on medical malpractice (2006) and

the First Annual Conference on Empirical Legal Studies (University of Texas Law School, 2006),

and workshop and seminar participants at Berkeley, Georgetown, NYU, 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, a research grant from the University of

Texas at Austin, and the Jon David and Elizabeth Epstein Program in Health Law and Policy at

the University of Illinois College of Law.

Journal of Empirical Legal Studies

Volume 4, Issue 1, 3–68, March 2007

©2007, Copyright the Authors

Journal compilation ©2007, Cornell Law School and Blackwell Publisher, Inc.

3

(within ⫾2 percent), and 5 percent received more than the adjusted

verdict. Overall, plaintiffs received a mean (median) per-case haircut of 29

percent (19 percent), and an aggregate haircut of 56 percent, 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

percent of plaintiffs received a haircut, with a mean (median) per-case

haircut of 8 percent (2 percent). For cases with an adjusted verdict larger

than $2.5 million, 98 percent of plaintiffs received a haircut with a mean

(median) per-case haircut of 56 percent (61 percent). Insurance policy

limits are the most important factor in explaining haircuts. Caps on

damages in death cases and caps on punitive damages are also important,

but defendants often paid substantially less than the 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 sufficient basis for claims about the

performance of the tort system.

I. Introduction

Juries and jury verdicts occupy center stage in the political debate over tort

reform and in academic analyses of the tort system. In the political arena,

critics claim that juries are out of control and out of their depth, periodically

dispensing unjustified blockbuster verdicts, especially against defendants with

deep pockets. These critics argue that this “lawsuit lottery” encourages defen-

dants to settle even nonmeritorious cases, and imposes a sizeable “tort tax” on

the economy. Conversely, defenders argue that juries generally “get it right,”

and that blockbuster verdicts are rare and often reduced by judicial oversight.

Both sides support or oppose reforms based on their differing views of how

juries behave. In like fashion, legal scholars assume that most cases are

resolved in the shadow of what a jury would award, and an extensive literature

models litigation and settlement decisions in the shadow of trial outcomes.

Thus, jury verdicts are used as the principal endpoint in both the

political debate over tort reform and in academic analyses of litigation and

settlement dynamics. As one set of scholars explained, “jury trial verdicts

form the basis of what we think we know about tort litigation.”1

1Ostrom et al. (1992–1994:97, 98).

4Hyman et al.

However, using jury verdicts as the relevant endpoint can be mislead-

ing if post-verdict payouts differ significantly from jury awards. Downward

departures can result from judicial oversight (remittitur, judgment notwith-

standing the verdict (jnov), and appellate reversal), statutory damages caps,

and settlement dynamics (which are influenced by limits on collectibility).

Upward departures can result from prejudgment and postjudgment interest,

and settlement dynamics. Whatever the sources of these adjustments, poli-

cymakers should factor them into their assessments of the performance of

the tort system, and academics should consider them in analyzing litigation

and settlement behavior. In particular, we would expect cases to settle in the

shadow of what the plaintiff can expect to collect if the case is tried—not

solely in the shadow of the expected jury award.

Past studies of post-verdict adjustments and payouts are limited. Most

focus on judicial review of the verdict, and provide limited information on

actual payments by defendants and their insurers. Most past studies also

cover a limited time period and use data that are subject to sample selection

bias, typically hand-gathered from jury verdict reporters, court dockets, and

surveys.2

We employ a unique data set of all closed insured Texas medical

malpractice claims from 1988–2003 with payout over $25,000 to study jury

verdicts and the frequency, size, and reasons for differences between jury

awards and payouts.3We find that post-verdict payouts fall substantially short

of both “adjusted verdicts” (jury awards plus prejudgment and postjudgment

interest), and “adjusted allowed verdicts” (adjusted verdicts less the effects of

damage caps and remittitur). Stated differently, although jury verdicts and

payouts are correlated, most jury verdicts receive a substantial “haircut” when

they are paid by the defendant. In particular, we find that (amounts in 1988

dollars):4

• Of 306 jury trials with plaintiff verdicts, 228 cases (75 percent) had

payment less than the adjusted verdict, 62 cases (20 percent) had

2See Section II for a summary of previous studies.

3This article is one of a series based on the Texas database. Other papers include Black et al.

(2005); Zeiler et al. (forthcoming).

4Unless otherwise indicated, all dollar amounts are in 1988 dollars; computed using the Con-

sumer Price Index for All Urban Consumers (annual average) as a price index. Source:

www.bls.gov/cpi/. To convert to 2006 dollars, multiply by 1.71.

Do Defendants Pay What Juries Award? 5