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REPORT 

OF THE 

NORTH CAROLINA 

PROFESSIONAL 
LIABILITY INSURANCE 

STUDY COMMISSION 




MARCH 12, 1976 
RALEIGH, NORTH CAROLINA 




^ortt| dlarolina General ^sscmbly 

Jlalrtgl] 27611 



ERNEST B. MESSER. Chai 
COMMITTKC ON INSURANCE 



4E ADDHtSS; 15 FORKST VIEW CIRCLE 

Canton. N C. 28716 



COMMITTEES: 

Appropriations. Vice Chairma 
Economy. Vice Chairman 
Election Laws 
Employment Security 
state personnel 
University Board of Goverx 

Nominating Committee 
Water and Air Resources 



The Honorable James B. Hunt, Jr. 
President of the North Carolina Senate 

The Honorable James C. Green 

Speaker of the North Carolina House of Representatives 

Dear Lieutenant Governor Himt and Speaker Green: 

On behalf of the members on the Commission, I am pleased 
to submit to you and the North Carolina General Assembly the 
Report of the North Carolina Professional Liability Insurance 
Study Commission. 

Part One of the Report contains the findings made by the 
Commission, an analysis of insurance and legal concepts relevant 
to the professional liability insurance situation in North 
Carolina, and the Commission's recommendations for positive 
legislative action by the General Assembly. Part Two contains 
a Minority Report by Senator Thomas H. Suddarth, Jr. , who 
disagrees with the Commission's recommendations concerning the 
statute of limitations and pretrial screening panels. Part 
Three contains an appendix of information and data concerning 
the study effort of the Commission. 

We recommend that these proposals be considered by the 
Session of the General Assembly which convenes on May 3, 1976. 

Sincerely, 



Rep. 



Ernest B. 



J. ')/? . 

Messer 



Chairman Sen. 




ux'^mJ^ 



Barker, Vice Chairman 



The Honorable James B. Hunt, Jr, 
The Honorable James 0. Green 



Page 



SenX/Julian RJ Allsbrook 



^ 




■■*'Re-pybolm R. Gamble, Jr. N"r. Bernar'd 11. Parker 



a/.. J^J^^^^ 



y^ 



^jjvWi — ■ 



ttu. 



Dr. Ira Hardy- 



Hep. Thomas B. Saw; 




'M^' 



/S /^t^udj£^>^t\^' 



ohn Henderson 



-^^ 



Rep. B6A.Jamin D. Schwar 



\ 




^Sen. Thomas H. Suddarth 



* Senator Suddarth diaagrees with the Commission's recommendations 
concerning; the statu)^ of limitations and pretrial screening panels 
and is submitting his Minority Report in Part Two. 

**ivcpresentative Gamble s1;rongly opposes the Commission's re ■com- 
mendation that legislation regulating attorneys' contingency 



CONTENTS 
COMMISSION REPORT 
FART ONE: RECOMMENDATIONS AND FINDINGS 

Pa^e 

SUMMARY OF RECOMMENDATIONS AND CONSIDERATIONS i 
RECOMMENDATIONS AND FINDINGS 

I. INTRODUCTION 1 

II. THE NATURE OF THE TORT LAW AND PROFESSIONAL 

LIABILITY INSURANCE SYSTEM 2 

III. THE NATIONAL MALPRACTICE EXPERIENCE ^ 

IV. THE NORTH CAROLINA MALPRACTICE EXPERIENCE 6 

V. 1975 NORTH CAROLINA LEGISLATION 15 

VI. INSURANCE CONCEPTS 

A. Joint Underwriting Associations 18 

B. Reinsiarance Exchanges 22 

C. Patients' Compensation Funds 25 

D. Residual Malpractice Insurance Authorities and 

Other State Funds 24- 

E. Physician-Owned Mutual Insurance Associations 25 

VII. LEGAL CONCEPTS: EXPLANATIONS AND RECOMMENDATIONS 

A. Substantive Modifications 

1. Res Ipsa Loquitur 26 

2. Statute of Limitations 

(a) Time Period 26 

(b) Minor's Disability 28 
5. Informed Consent 29 

4. Good Samaritan Laws 50 

5. Standard of Care 51 

6. Limitations on Recovery 52 

B. Procedioral Modifications 

1. Ad Damnum Clause 52 

2. Counterclaims 55 

C. Mitigation of the Impact of Awards 

1. Attorneys' Contingency Fees 55 

2. Collateral Source Rule 5^ 
5. Periodic Payments of Awards 55 



CONTENTS 



D. Alternatives to Litigation 



Page 



1. Pretrial Screening Panels • 35 

2. Arbitration 37 

VIII. THE PATIENTS' COMPENSATION FUM3: RECOMMENDATION 37 



PAPT TWO: MINORITY REPORT 
SENATOR TOM SUDDARTH 

I . PREFACE 1 

II. INTRODUCTION 1 

III. THE STATUTE OF LIMITATIONS 

A. Hidden Injiiry or Damage 7 

B. Minor's Disability 10 

rV. THE PATIENTS' COMPENSATION FUND 13 

V. PRETRIAL SCREENING PANELS 14 

VI. THE 1976 "MINI-SESSION' OF THE GENERAL ASSEMBLY 18 

PART THREE: APPENDIX 

I. STUDY COMMISSION ENABLING LEGISLATION: 
H.B. 567, S.B. 901 and S.B. 915 

II. STUDY COMMISSION MEMBERSHIP 

III. PERSONS WHO APPEARED BEFORE THE STUDY COMMISSION 

IV. NORTH CAROLINA MEDICAL MALPRACTICE INSUEACE 
RATES AND CLAIMS EXPERIENCE. 

V. INTERIM REPORT OF THE COMMISSION TO SPEAKER JAMES C. GREEN, 
SR. , AND LT. GOVERNOR JAMES B. HUNT, JR. 



CONTENTS 



VI. PROPOSED LEGISLATION: 

A. Statute of Limitations 

B. Standard of Care 

C. Informed Consent 

D. Collateral Source 

E. Good Samaritan Law 

F. Ad Damnum Clause 

G. Patients' Compensation Fund 

VII. PROPOSED LEGISLATION: Periodic Payments of 
Malpractice Awards 

VIII. DECETIBER, 1975 SURVEY OF MALPRACTICE INSURANCE 

MARKET IN NORTH CAROLINA, CONDUCTED BY STUDY COMMISSION 
MEMBER JOHN L. HENDERSON. 

IX. REPORT ON MALPRACTICE INSURANCE SITUATION IN NORTH 
CAROLINA TO STUDY COMMISSION CHAIRMAN ERNEST MESSER 
FROM JOHN R. INGRAM, COMMISSIONER OF INSURANCE 

X. MINORITY REPORT PROPOSED LEGISLATION: A North Carolina 
Medico-Legal Board from which pretrail screening panels 
may be selected to review malpractice claims. 



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SIMTIARY OF RECOMNENIjATIONS AND CONSIDERATIONS 
Considered and Recommended 
Recommendation #1 . The Commission recommends that legislation 
be enacted to establish a new statute of limitations for profes- 
sional malpractice actions which would not exceed a period of 
tour years from the occurrence of the malpractice. (See page 25 
of the Recommendations and Findings and page 1 of the proposed 
legislation in Appendix VI.) 

Recommendation #2 . The Commission recommends that legislation 
be enacted to make the proposed limitation period in Recommendation 
#1 applicable to all minors seven years of age and older. (See 
page 28 of the Recommendations and Findings and page 2 of the 
proposed legislation in Appendix VI.) 

Recommendation #3 . The Commission recommends that legislation 
be enacted to establish an informed consent law which will provide 
both (1) a rebuttable pres-omption that a consent in writing is 
valid if the health care provider followed the "same or similar 
commiinity" standard in obtaining the consent and (2) a test of 
reasonableness when considering whether the patient has a general 
understanding of the medical procediore and the usual and most 
frequent risks involved. (See page 29 of the Recommendations and 
Findings and page 5 of the proposed legislation in Appendix VI.) 



RecoTTimendation #^ » The Commission recommends that legislation 
be enacted to extend the present "good Samaritan" law to any 
Tonexpected emergency situtation that does not occiir in the ordinary 
and normal course of the business or profession of the person 
rendering treatment. (See page 50 of the Recommendations and 
Findings and page 6 of the proposed legislation in Appendix VI.) 

Recommendation #5. The Commission recommends that legislation be 
enacted for the purpose of codifying the present case law "same 
or similar communities" standard of care required of all health 
care providers. (See page 51 of the Recommendations and Findings 
and page 5 of the proposed legislation in Appendix VI.) 

Recommendation ^6. The Commission recommends that legislation be 
enacted to eliminate the ad damn\am clause ( the statement of the 
specific amoiint of money demanded) from the pleadings in professional 
malpractice actions. (See page 52 of the Recommendations and 
Findings and page 6 of the proposed legislation in Appendix VI.) 

Recommendation >^7 « The Commission recommends that legislation be 
enacted to establish a collateral sotrrce rule that requires re- 
duction of the avjard if it duplicates public collateral sources 
of compensation or benefit and reduction for any collateral source 
not derived from premiums paid by either the plaintiff or on his 
behalf. (See page 3^ of the Recommendations and Findings and 
page 5 of the proposed legislation in Appendix VI.) 



Reco mmendation ?^8. The Commission recommends that legislation be 
enacted to provide for periodic payments of malpractice awards 
where fut\ire damages are found to equal or exceed $100,000. (See 
page 55 of the Recommendations and Findings and Appendix VII.) 

Recommendation #9« The Commission recommends that all professional 
associations advise their members that the Uniform Arbitration Act, 
G.S. 1-567.1 through G.S. 1-567.20, can be employed for the dis- 
position of professional malpractice claims. The Commission 
further recommends that the public be made aware of this fact. (See 
page 37 of the Recommendations and Findings.) 

Recommendation #10. The Commission recommends that legislation 
be enacted to establish the Patients' Compensation Fund which will 
provide excess liability coverage for health care providers in 
exchange for (1) the filing proof of financial responsibility of 
$100,000 or more (per individual occiirrence) and (2) the payment 
of a sxorcharge into the Fund. (See page 37 of the Recommendations 
and Findings and page 7 of the proposed legislation in Appendix VI.) 

Recommendation #11 . Self-Insurance Plans for State Medical Centers. 
The Commission recommends that the North Carolina House and Senate 
Committees on Insurance consider the self-insiorance plan proposed 
by the officials at North Carolina Memorial Hospital and the UNC 
School of Medicine. The Commission has not had sufficient time to 
explore the details of the plan, but endorses the concept. 



- Considered But Not Ilecommended - 
Consideration #1 . The Burden of Proof: The Commission does not 
recommend the enactment of legislation concerning the plaintiff's 
burden of proof in malpractice actions. (See page 26 of the 
Recommendations and Findings.) 

Consideration #2 , Counterclaim Procedures: The Commission does 
not recommend the enactment of legislation changing the present 
Rules of Civil Procedure concerning counterclaims. (See page 33 
of the Recommendations and Findings.) 

Consideration #3 » Attorneys' Contingency Fees: The Commission 
does not recommend the enactment of legislation regulating 
attorneys' contingency fees in malpractice actions. (See page 33 
of the Recommendations and Findings, and note Representative 
Gamble's dissent on page 2 of the Letter of Transmittal.) 

Consideration ;^4 . Limitations on Recovery: The Commission does 
not recommend the enactment of legislation placing a ceiling on 
the amount of damages an inj\ared person can recover in a malpractice 
action. (See page 32 of the Recommendations and Findings.) 

Consideration #^ . Pretrial Screening Panels: The Commission does 
not recommend the enactment of legislation providing for any pre- 
trial procediore for the assessment of the merit of malpractice 
claims. (See page 35 of the Recommendations and Findings; and 
see Senator Suddarth's dissent on page 2 of the Letter of Trans- 
mittal, the Minority Report in Part Two and Appendix X.) 



PABT ONE 
RECOMMENDATIONS AND FINDINGS 

I. INTRODUCTION 

The North Carolina Professional Liability Insurance Study 
Commission was created by House Bill 56? and directed "to make a 
thorough and comprehensive study on any and all aspects of profess- 
ional liability insxirance. . . . " Senate Bill 901 further directed 
the Commission to examine the impact of proposed legislation 
dealing with the statute of limitations, informed consent of 
patients and the standard of care of health care providers. (See 
Appendix 1.) 

The Commission members were duly appointed and began meeting 
on October 10, 1975. (See Appendix II.) Between that initial 
meeting date and through October 25, 1975, the Commission held five 
days of public hearings, during which representatives from all 
interested groups and agencies were given opportunities to address 
the problems of writing and obtaining professional liability ins\irance 
in North Carolina and to make specific recommendations to the Commiss- 
ion to guarantee the availability of insurance and thus guarantee 
the provision of health care to the people of the State. (A list of 
persons appearing before the Commission appears in Appendix III, and 
information concerning malpractice insurance rates and claims is con- 
tained in Appendix IV.) 

The Commission, after issuing an interim report to the Speaker 
of the House and the Lieutenant Governor (See Appendix V), continued 
to monitor the situation and reviewed the various options and 
proposals put forth for its consideration. The final product of 



-2- 

the Conmission' s study is explained in the Recommendations and 
Considerations beginning on page i of Part One of this report and 
also appears in bill form in Appendices VI and VII. 

This report is designed to acquaint the reader with the concepts 
behind the malpractice insurance problem, and therefore provide the 
necessary information base upon which important policy decisions may 
be made by the legislator. With this in mind, Sections II through 
VTII of the Recommendations and Findings are designed to establish 
the foimdation necessary for careful analysis of the Commission's 
r e c ommendat ions. 

II. THE NATURE OF THE TORT LAW AND THE PROFESSIONAL LIABILITY SYSTEM. 

The tort law system in which professional malpractice claims 
are tried is one that has evolved from the English common law and 
developed in the United States through case law decisions and some 
statutory modification. The system has basically a twofold purpose: 
First, to find fault for alleged negligent acts or omissions and 
compensate the person injured by such negligence; second, to reach 
the assets of the negligent party to pay for the injured person's 
damages and provide the wrongdoer with the incentive to avoid bad 
results in the future. 

The increasing presence of liability insurance within the last 
half-century has somewhat changed the tenor of the second facet 
of the fault system. By protecting the insured's assets through 
indemnification for losses inciorred by the insured in exchange 
for the payment of policy premiums, the burden of the cost of 
injiory to a claimant has been shifted away from the wrongdoer's 



-5- 

assets to those of the insurer. Thus, at even enormous premium 
rates the wrongdoer's assets are fairly well protected from a claim 
of malpractice, and the insurance premium cost is actually borne 
by the persons paying for the professional services. 

Although the North Carolina courts have maintained a rather 
conservative attitude toward malpractice litigation, the general 
trend in a number of states has been toward an expectation of compen- 
sation to injured persons for adverse or unfortunate medical results. 
Symptoms of this new theory seem to include an increase in the number 
and dollar demand of claims, higher jury awards, liberalised rules 
of civil procedure and some fundamental changes in the sub- 
stantive tort law. Accompanying these symptoms are diminishing availa- 
bility and increasing costs of liability insurance for the professional 
on a nationwide basis; and compounding the situation are escalating 
costs for health care services. 

The response to the malpractice situation by the states has been 
to provide alternatives to litigation, reform in the licensing and 
regulation of professionals, changes in the tort laws and in the 
rules of civil procedure which arguably will make the courtroom more 
equitable, and changes and innovations which hopefully will guarantee 
the availability of insurance, which include reinsurance, joint 
underwriting associations, mutual companies ov/ned by professionals, 
and state-operated (but not state-fvmded) patients ' compensation 
funds for excess coverage. 

A more detailed discussion of the problem and possible solutions 
follows in Sections III through VIII of the Recommendations and 
Findings. 



III. THE NATIONAL MALPRACTICE EXPERIENCE 

A person researching the medical malpractice phenomenon need 
go back only ten years to witness the great proliferation of problems 
in insTiring providers of health care. The frequency of malpractice 
suits has increased dramatically. For example, the number of mal- 
practice suits filed in the United States increased 70% from 1975 
to 197^. The size of malpractice awards increased 20% during the 
same period. The first award in excess of one million dollars was 
handed down in 1968, and in the past seven years approximately 
thirty more million dollar verdicts have been rendered. 

Concomittant with the increase in claims and the size of awards 
is the rise in the cost of professional liability insurance. The 
national total of malpractice premiiims paid in 197^ was five hundred 
million dollars and was projected at one billion dollars for 1975* 
In states where the cost of professional liability insurance has 
shown the greatest increase, some health care providers have reduced 
their practice or retired. Others have relocated to states with more 
favorable claims atmospheres or have entered areas of health care with 
a lower risk. 

It follows that the persons paying for health care services are 
bearing the cost of liability insurance which, although a small 
element of the total rising costs of health care in the United States, 
is quite significant if the 1975 projections aro' correct. 

In arguing for higher premiiim rates, insurers of health care 
providers are citing the combination of increasing claims and de- 
clining insurance company investments as the cause of inadequate 
premiums and the reason for an increase. Another factor that 
insTirers claim complicates the matter is the fact that claims 



-5- 



against health care providers may be instituted long after the 
occTorrence of the alleged negligent act or omission which allegedly- 
caused the injury. This "tail period," insurers argue, makes the 
projection of claims for malpractice more difficult and increases 
the costs of handling claims and litigation. The recent increase 
in claims filed compounds the difficulty of projection, since 
future obligations of indemnification for acts presently occurring 
may exceed premium incc^me. 

One measure has been taken by some insurers to meet the "tail 
period" problem, although they say it is a temporary one. It is 
basically a change in the policy form, from "occurrence" policies 
to "claims-made" policies. Under the traditional "occurrence" 
policy, the policy owner is ins\rred for all acts or omissions 
creating liability during the year of policy coverage. The insurer 
is obligated to pay for claims arising out of those acts or omissions 
no matter when the claim is filed and finally settled or adjudicated. 
Under the new "claims-made" policy, the policy owner is insured 
only for claims reported against him during the year of policy 
coverage, regardless of when the act or omission giving rise to 
the claim took place. Insurers who have converted to "claims-made" 
policies state that unless the claims climate improves, "claims- 
made" policies won't solve the fundamental malpractice problems. 

Many different factors are said to have caused the national 
malpractice crisis. Some persons point to the advances in medicine 
and the biological sciences in recent years which have created 
more complex treatments and procedures, which in turn have in- 
creased the likelihood of error. These advances also have 



-6- 

created greater expectation of satisfactory results from health. 
care treatment. Many patients who experience unsatisfactory re- 
sults, failure to respond to treatments or even medical injiories think 
that the cause is negligence of the health care provider when in fact 
there may be no negligence involved. The doctor-patient relationship 
has eroded due to the decline in number of general practitioners and 
the increase in specialists and higher health care costs. 

Other factors are said to be changes in legal doctrines which 
have arguably favored plaintiffs' causes, and the fact that people 
are more lawsuit-conscious than ever before. It has been estimated 
by the insurance industry that 90% of all malpractice suits in the 
legal history of the United States have been filed since 196^. 

The remedial legislation enacted by other states has concentrated 
on the relevant legal doctrines and on guaranteeing the availability 
of professional liability insurance. These insurance and legal 
concepts will be discussed in detail in Sections VI and VII of the 
Recommendations and Findings. 
IV. THE NORTH CAROLINA MALPRACTICE EXPERIENCE 

The malpractice dilemma which had been pervading the more populous 
states in the nation began to surface in North Carolina in 197^. 
The St. Paul Fire and Marine Insiorance Company, which at that time 
insured 48,000 doctors in M^ states, requested an 82.05% increase in 
its malpractice rates from the Commissioner of Insurance and 
threatened to withdraw from the North Carolina market if the increase 
was not granted. St. Paul was the principal malpractice insurer in 
North Carolina, uinderwriting policies for over 90% of the physicians 
and surgeons practicing in the state as well as 75 hospitals. 



-7- 

The Department of Insiorance held rate hearings from July to 
December, 197^? at which time the rate increase request was approved. 
These rates were to expire on June 30, 1975 » when they would be 
subject to review. It was hoped that by that time the General 
Assembly would arrive at a solution to guarantee the availability 
of malpractice insurance. The Commissioner's position was that 
the North Carolina experience did not justify the 82.05% increase 
that was requested. The bulk of the increase was for reserves for 

what St. Paul called IBKR claims that were "incurred but not 

reported." 

On J\ine 30, 1975, House Bill 74 was ratified (Chapter 4-27, 
1975 Session Laws) , and the North Carolina Health Care Liability 
Reinsurance Exchange was created. H.B. 7^ was designed in theory 
along the same principle as the Motor Vehicle Reinsurance Facility in 
Article 25A of General Statutes Chapter 58. Under the Reinsurance 
Exchange, all companies offering general liability insurance in the 
state are required to offer and provide malpractice insurance policies. 
High risk policy holders would be ceded to the Exchange, thereby spread- 
ing these ceded risks and premiiims among all of the companies in the 
Exchange. Losses in the high risk pool would be shared by the com- 
panies, each company's share being proportionate to its share of the 
total North Carolina liability insurance market.* Meanwhile, St. 
Paul was given an extension on its rate approval until August 15? 1975* 

The legislation created a Board of Governors which would manage 
the Reinsurance Exchange. In accordance with the provisions of 
H.B. 7^, the Board of Governors submitted a plan of operation for 
the Exchange to the Commissioner of Insurance for his approval. The 
•Exclusive of automobile insiirance 



-8- 

Commissioner approved most of the plan, except for one item that 
was crucial according to the insurance companies. The Board of 
Governors, in Article XVII of the Plan of Operation, proposed a 
stabilization reserve fund to cover any losses in excess of premiuun 
income. The stabilization reserve fund would have been funded by 
a 25% siircharge on the premiums paid by the policyholders. This 
would have hopefully guaranteed the companies against losses and 
assirred them of breaking even. The Commissioner submitted his own plan 
of operation on August 6, 1975, which was substantively similar to the 
Board of Governors' plan but without the reserve fund and the premium 
s\ircharge . 

The Reinsiirance Exchange legislation provided that any insurer 
with obligations iinder the Act could elect, with the approval of the 
Exchange, to assign the underwriting, issuance of policies, and claims 
handling to a designated carrier approved by the Board of Governors, 
and the Plan of Operation provided means for the selection and 
approval of one or more carriers to act as a designated carrier. 
The approved carrier would have to have extensive underwriting ex- 
perience in professional liability ins\u?ance. No insurance carrier 
in the State was willing to undertake such a task before a Plan of 
Operation was in effect, and therefore, each and every company was 
bound by H. B. 7^ to write and handle professional liability 
insurance. 

Meanwhile, St. Paul requested another premium rate increase 
(which rates would vary according to specialties) and a change in 
policy form from "occurrence" to "claims-made." St. Paul had been 



-9- 

able to put "claims -made" policies into effect in ^^■ of the 4^i states 
in which it was writing professional liability insurance. The "claims- 
made" policy form was more desirable than the "occurrence" policy form 
because the underwriters could better project claims under "claims- 
made." Under the "claims-made" policy, as discussed earlier in 
this report, the policyholder is insured for all claims reported 
against him during the year of insurance coverage, regardless of 
when the alleged act or omission giving rise to the claim occurred. 
Of course any policyholder who retires, ceases to practice his 
profession, moves to another state where the company does not provide 
insurance on a "claims-made" basis or any insurance at all, or decides 
to change to a company offering "occurrence?" policies, miast be covered 
in some way for future claims arising out of past and present alleged 
acts or omissions. In order to provide this extended coverage for 
future claims, St. Paul proposed a three year reporting endorsement 
or "buy out" provision whereby the policyholder who wanted to terminate 
his "claims-made" coverage (for reasons other than death, disability 
or retirement) would pay three annual installment premiimis at rates 
to be set after his policy period ended. This would assure the 
policyholder of future coverage. 

The dispute between St. Paul and the Commissioner of Insurance 
arose out of this proposal. The Commissioner agreed to all of St. 
Pauls' requests (rates and policy forms) except for the three year 
reporting endorsement proposal. The policyholder v;ould not know the 
amount of the three premium installments for such future coverage 
until he was billed for them. The Commissioner of Insurance suggested 
a one year reporting endorsement whereby the policyholder would only 
pay a certain amoiint one time after his "claims-made" coverage ceased 



-10- 

and thus avoid the situation of being bound to pay uncertain amoujits 
in the three years following termination of coverage. The Gommissioner 
also wanted to reserve the right to review in advance the rates for 
the "buy out" premiums in accordance with his prior approval authority 
set out in the General Statutes. The parties could not reach a 
mutually satisfactory agreement on the reporting endorsement provisions, 
and a stalemate ensued. 

It was at or about this time that the insurance industry mounted 
its attack on the Reinsurance Exchange in the Superior Court of V/ake 
Coxmty. The companies filed complaints with the court challenging the 
constitutionality of the Reinsurance Exchange Act and of its applica- 
tion by the Commissioner, seeking a declaratory judgment that the law 
and its application were unconstitutional and therefore void and with- 
out effect, and seeking temporary injunctions against the requirement 
of the companies' participation in the Exchange while the court was 
deciding on its constitutionality. The temporary injimctions were 
granted thus relieving over 100 insurance carriers from any participa- 
tion in the Exchange's plan of Operation. 

During this period of the stalemate between the Commissioner of 
Insurance and St. Paul and of the legal challenge to the Reinsurance 
Exchange, the North Carolina Medical Society and North Carolina Hospital 
Association pursued alternative methods of insurance. The Nedical 
Society initiated plans to establish its own mutual insurance company 
to provide coverage to health care providers, and the Hospital Associa- 
tion considered setting up a three million dollar insurance trust bo 
insure against losses sustained by its member hospitals, with excess 
coverage for high losses provided by Lloyds of London. 



-11- 

The necessity for these alternative plans became more real when 
St. Paul, dissatisfied with the Commissioner's order concerning the 
"claims-made" policy forms, decided on September 29, 1975? "to cease 
offering coverage in North Carolina. This meant that as their St. 
Paul policies expired, health care providers would be forced to 
seek coverage elsewhere. St. Paul also joined the other insurance 
companies in the court challenge of the Reinsurance Exchange. By 
that time 240 of the state's 550 general liability carriers had 
joined in the suit. 

Despite the fact that no professional liability insurance was 
available in the state and the fact that a fair niimber of St. Paul 
policies had expired and would be expiring within the near future, 
there was no immediate curtailment of health care services across the 
state. Temporary coverage for hospitals of ^250,000 per occurrence 
was provided by the Hospital Association's self-insurance trust while 
the Association officials sought an arrangement with Lloyds of London 
for excess coverage. The Medical Society worked toward the establish- 
ment of its mutual company by seeking S500 subscriptions from the 
Society's members and setting up the administrative details for the 
operation of the company. Some doctors whose St. Paul policies had 
expired were able to secure coverage from some of the insurance companies 
still subject to the provisions of the Reinsurance Exchange, which was 
still viable in spite of the loss of carriers from its plan of operation. 

It was in this atmosphere that the North Carolina Professional Lia- 
bility Insurance Study Commission convened to first try to solve the 
problem of the availability of malpracti-e insurance and then examine the 



-12- 
long-range solutions to the problem that had been suggested by- 
interested persons and organizations. There was the possibility of a 
special legislative session if the malpractice situation grew critical 
and forced any significant reduction in health care services, and the 
Study Commission was told by the Speaker and Lieutenant Governor to 
draw up an emergency proposal in the event a special session was re- 
quired because the self-insurance proposals did not succeed. The 
Study Commission passed two resolutions: The first requested that 
the attorneys representing all litigants in the Reinsurance Exchange 
case "do everything possible to bring about the earliest determination 
by the courts of the issues and questions involved in the litigation;" 
the second resolution urged the North Carolina Medical Society "to 
endorse the formation and operation" of the Society's proposed mutual 
insurance company. 

Reports of curtailments in health care services by some doctors 
and a few hospitals in the state were received by the Study Commission 
as it began to explore ways to increase the availability of insurance. 
During the week of October 20, 1975, the Study Commission held daily 
meetings, and it was during that time that a major breakthrough in 
the stalemate between St. Paul and the Commissioner of Insurance was 
effected, and the immediate crisis was abated for the time being. 

Due largely to the efforts of various members of the Study 
Commission, an important compromise was reached be 'ween the Commissioner 
of Insurance and the St . Paul Fire and Marine Insurance Company. A 
compromise position v/as established on the issue of the "claims-made" 
policy reporting endorsement and the two sides decided to meet there. 
The language finally agreed to is as follows: 

"The option of purchasing claims made reporting coverage 



-15- 

on a single premiiom purchase basis is made available to 

the estates of deceased doctors and other medical providers 

and to doctors and other medical providers who retire; 

become disabled; move to another city, state or country, 

enter the armed services; take a sabbatical; or have 

some other similar and sudden discontinuity of medical practice. 

The option of purchasing claims-made reporting coverage on 
a single premi\am purchase basis is made available to doctors 
and other medical providers who have maintained claims-made 
coverage with the company for a continuing period of three 
years or less; provided, however, this option shall be 
available only to those having new or renewal policies 
issued by the company on or after December 1, 1978." 
St. Paul resumed its business in the state for its policy- 
holders; the North Carolina Medical Society established its mutual 
insurance company which offered "occiirrence" type policies; and the 
North Carolina Hospital Association, despite the fact that Lloyds of 
London declined to provide excess coverage, continued to fiind and 
administer its self -insurance trust. 

The Study Commission submitted on October 25, 1975, its Interim 
Report to the Speaker and Lieutenant Governor, stating that "the 
crisis created by the lack of availability of medical malpractice 
insurance has abated," and that a special session of the General 
Assembly was unnecessary at that time. (See Appendix V.) The 
Study Commission then turned to consideration of "changes or innova- 
tions in the procediire for handling malpractice suits and in the 



tort la\-;....so as to pr9vide a better cl.imate for both providers 

and insurers of health care without compromising the basic rights 

of our citizens. The Commission believes that some changes mighb 

be necessary if future crises in the availability of professional ''• 

liability insurance are to be avoided." (See Appendix V). The 

Study Commission continued to monitor the professional liability 

insvirance situation. 

Mr. John L. Henderson, a Study Commission member, conducted a 
survey of North Carolina's medical malpractice insurance market in 
December, 1975» His conclusion is that "there is a very limited 
market for the writing of this type of insurance" in North Carolina. 
He is of the opinion that "as insurance companies consider (1) the 
existing overall market problems, (2) the improbability of rapid 
legislative change, and (5) the publicity which has produced a claims- 
conscious public, they are reluctant to broaden a market for pro- 
fessional liability insurance in North Carolina. Furthermore, this 
limited private market will place an even greater burden upon the 
recently-created, doctors' Medical Liability Mutual Insurance Company, 
inasmuch as this company must accept all health care risks applying 
to them for this vital coverage." (See Appendix VIII) 

On October 29, 1975? Insurance Commissioner John Ingram submitted 
to Representative Ernest Messer, Chairman of the Study Commission, 
a report on the malpractice insurance market in North Carolina. 
According to the Commissioner's report, "Uninterupted health care 
is now guaranteed by three choices of malpractice insurance: (1) 
Medical Mutual Company writing 'occurrence' coverage, (2) North 
Carolina Hospital Association ' self -insurance ' plan, and (5) St. 
Paul's 'claims-made' coverage." The report goes on to explain the 



-15- 

conceptual differences between the i.hree plans and compares the 
options provided by each. (See Appendix IX) 

Professional liability insurance is presently available to health 
care providers in North Carolina, although there is concern and argu- 
ment about the stability of the market; and although coverage is 
available, the present cost of insurance to North Carolina health care 
providers is extremely high as compared to previous years. The frequen- 
cy of reported malpractice claims and the amount per claim have in- 
creased in North Carolina over the past seven years. 

(See Appendix IV for comparison tables of rates and reported claims.) 
It is the Study. Commission's hope that its recommendations, if 
enacted, will assure the availability of insurance and alleviate the 
insurance burden on health care providers and other professionals in 
North Carolina in the near future. 
V. 1975 NORTH CAROLINA LEGISLATION 

V/hen the 1975 General Assembly convened on January 15, 1975, 
there was already a growing concern about the malpractice insurance 
problem in the United States and how North Carolina could avoid the 
pitfalls of a "malpractice crisis." The major carrier, the St. Paul 
Pire and Marine Insurance Company, after threatening to leave the 
North Carolina market if no rate increase was granted, had been 
granted a substantial 82.05% rate increase ^usc one month earlier. 
This increase was to expire on June 50, 1975- It was the hope of 
the Commissioner that before the expiration of his order granting 
the increase, the General Assembly would enact legislation that 
would guarantee the availability of malpractice insurance and 
stabilise the market. 



-16- 

To accomplish this, House Bill 7^ was introduced, proposing l.he 
creation of the North Carolina Health Care Liability Reinsurance 
Exchange. Ratification of the bill was strongly advocated by the 
Commissioner of Insurance as the solution to the present and future 
problems of assuring the availability of malpractice insurance and 
keeping premium costs down. The history of the Reinsirrance Exchange 
V7as discussed earlier in Section IV of the Findings. 

On ITcvember 3, 1975» V.'ake County Superior Coiort Judge James H. 
Pou Bailey found the Reinsurance Exchange Act to be unconstitutional 
on its face and in its application and implementation by the 
Commissioner of Insurance, and therefore of no force and effect. 
A motion has been filed with the North Carolina Court of Appeals 
seeking permission to bypass that Court and take the appeal directly 
to the North Carolina Supreme Court. Even if the Court of Appeals 
is bypassed, the earliest date oral arguments can be heard before 
the Supreme Court is April 10, 1976; but it is unlikely that argixments 
will be heard before the end of April, 1976. This litigation has 
created much uncertainty about the survival of the Reinsurance Ex- 
change Act as it presently reads in G.S. 58-175-3'^ through 
G.S. 58-173.51. There has existed a "wait and see" attitude among 
decision makers. It is possible that the final word on the constitu- 
tionality of the act may come from the Suprene '.ourt after the 1976 
Session of the 1975 General Assembly adjourns. It is hoped that 
the Court's opinion will be filed before adjournment so the Genera] 
Assembly might take appropriate action if necessary. The Reinsurance 
Exchange and other insurance mechanisms and concepts will be dis- 
cussed and comparea in Section VI of the Findings. 



-17- 

A total of fifteen bills affecting the area of malpractice was 
introduced during the 1975 legislative session; eiglit of them were 
identical bills. Aside from the enabling and funding legislation 
related to the Study Commission, the only other bill that was ratified 
dealt with the authority of the North Carolina Board of Medical Exajniner£ 
Senate Bill 900 (Chapter 690, 1975 Session Laws) rewrote G.S. 90-14, 
giving the Board the power to revoke, suspend, annul or deny a license 
to practice medicine when the Board finds that an applicant or licensee 
has been guilty of "unprofessional conduct, including, but not limited 
to, any departure from, or the failure to conform to, the minimal 
standards of acceptable and prevailing medical practice, ..., 
irrespective of whether or not a patient is injured thereby .-.," or 
"lack of professional competence to practice medicine with a reasonable 
degree of skill and safety for patients." Prior to the ratification of 
S. B. 900, the only language in G.S. 90-14 that approached such 
grounds for revocation or rescission of a license were "any unprofes- 
sional or dishonorable conduct unworthy of, and affecting, the 
practice of his profession ...." Thus S. B. 900 added considerable 
criteria for the Board's regulatory powers over its licensees and 
clarified other groiinds for denial, suspension, revocation or annul- 
ment of licenses to practice medicine. 

Other bills were introduced relating to the statute of limita- 
tions, informed consent, the standard of care, malpractice evidence 
and procedure, pretrial screening panels for malpractice claims, 
and a patients' compensation fund; but none of these were ratified. 



-18- 

VI. INSURANCE CONCEPTS. 

(Portions of the following analysis have been reprinted from 
"A Legislator's Guide to the Medical Malpractice Issue," published 
jointly by the Health Policy Center at Georgetown University and 
the National Conference of State Legislatures, whose assistance is 
deeply appreciated. ) 

A. Joint Underwriting Associations . 

Joint Underwriting Associations (JUA) were one of most common 
substantive responses to medical malpractice problems, v/ith more than 
twenty states passing legislation in 1975 "to authorize their creation. 
The underlying concept is to have insurers provide malpractice cover- 
age and share (pool) any resiolting losses which may or may not be 
subject to recoupment. 

The basic format of this type of legislation is to authorize 
establishment of a temporary JUA composed of all liability insurance 
carriers in the state. Some states have opted for longer periods 
and a few states do not specify a time frame. However, in all cases 
the intent appears to be the achievement of an interim solution 
which would be continued only if no better plan emerges in the next 
few yeai's. 

Under the authorizing legislation the JUA is either formed 
but not operational or it remains unformed until the Commissioner of 
Insiirance (or an equivalent administrative official) determines that 
medical malpracLice insurance is not available in a voluntary market 
on a reasonably competitive basis. Upon this finding the JUA be- 
comes an ujiderwriting agent for medical malpractice within the state 
and commences underwriting operations for "risks" (i.e., insureds, in 



-19- 

this case health, care providers) not otherwise able to obtain malpractice 
insurance. In addition, in many states insurance companies may rein- 
sure existing policies with the JUA or "cede" (i.e., assign) liability 
responsibility for these policies directly to the JUA. In some states 
the JUA is or may become the exclusive agent for the issuance of 
medical malpractice insurance and insurers may be required to cede all 
policies to the JUA. Generally, a JUA will cease underwriting when the 
statutory authority lapses (usually two years) or v;hen the Commissioner 
determines a competitive voluntary market exists. 

Except in a few states where the JUA will automatically service 
all health care professionals, the determination to form and operation- 
ali-e the JUA ajid to begin underwriting is to be made separately, and 
as needed, for each major category of licensed health care providers. 
The major categories (e.g., physicians and surgeons, nurses, dentists, 
etc.) are generally to be kept intact \inder these plans to minimi"e 
adverse risk selection against the JUA. This might occur if an insurer, 
by careful selection, were to rid himself of all policies likely to 
produce a claim v/hile keeping only policies with a high probability of 
profit, thus forcing the JUA to absorb higher than average losses. 

With a few exceptions the intent is that JUA'c be self- 
supporting. For example, Idaho's JUA is to be made self-supporting 
by a three stage process of recoupment: 

1. A nonprofit group retrospective rating plan by which the 
the final premium for all policyholders as a group will be equal 
to the administrative expenses, loss and loss adjustment expenses 
and taxes, plus a reasonable allowance for contingencies and 



-20- 



and servicing; 

2. A stabilization reserve fiond charge equal to 1/5 of the 
premitm due; this fund then to be utilized to pay off the group 
retrospective rating plan charge, returning any excess to policy- 
holders; 

3. Should the stabilization reserve funds be exliausbed, 
the Director of Insurance is to authorize the recoupment of any 
further JUA loss by one of the following methods: 

a. maximum 2% surcharge on annual premiums on 
future policies; 

b. deduction by the association members of their share 
of the deficit from past or future premium taxes due 
to the state. 

While a group retrospective rating plan and a stabilization 
reserve fund (Steps 1 and 2) similar to Idaho's are common, many 
states have taken different approaches to recoupment of fiirther losses. 
A number of states have set up a separate Patients' Compensation 
Fund (discussed below) to finance large Judgments. Other stabes have 
set more flexible limitations on recoupment by retrospective assessment 
or prospective rate increases. Several states appear to anticipate 
the possibility that insurers may sustain unrecouped losses through 
the JUA after recoupment procedures are exhausted. A few states make 
no provisions for recoupment. 

The JUA is to be run by a board of directors, usually composed 
of insurance industry representatives. The actual plan of operations 
(administrative and management details) of the JUA is to be set by the 



-21- 



JUA itself, subject to the approval of the Commissioner of Insurance 
(or equivalent official). Failing submittal of a satisfactory plan, 
the Commissioner may implement a plan of his own. The JUA or the 
Commissioner may be authorized to set rates or establish physician 
rating categories. In many states, once the plan of operations is 
approved, a management contract to run the JUA may be given to an 
insurer without his incurring any additional liability for operating 
losses. 

The amoumt of coverage available imder the JUA is generally 
set by the plan of operation. Usually a maximum amount is fixed by 
the legislation, most often one million dollars for each claimant under 
one policy and three million dollars for all claimants \inder one 
policy per year. However, in several states the maximum is much lower 
than these figures. \'/hether policies will be written on a "claims- 
made" or "occurrence" basis, or both, is usually set by the legislation. 
The "claims made" basis generally is permitted where insurers commit 
themselves to continuing coverage. 

A model JUA has been circulated by the National Association of 
Insurance Commissioners and organizations like the American Insurance 
Association have advocated the JUA. Although the model JUA has been 
adopted to a varying extent in many states and JUAs have been less 
controversial than many other proposed changes, nonetheless the enacted 
JUAs reflect tremendous individuality of detail — a result of the state to 
state variation in political forces, perceived needs, and basic circum- 
stances. Among the many variations not previously noted, Rhode Island 
has created a JUA by administrative order, claiming preexisting 
authority in the event a JUA is needed. V/est Virginia and the District 



-22- 

of Columbia have asked insixrers to voluntarily create a JUA. Nevada 
allowed large administrative leeway in the approach to be taken by 
the Commissioner of Insurance, the primary criteria being relief 
from non-availability of insurance. South Carolina required the 
Insurance Commissioner to bind coverage in the JUA on an emergency 
basis to doctors and hospitals whose malpractice insurance had been 
cancelled or non-renewed. The binder would be effective until the 
JUA became operational and a retroactive policy ccmld be issued. 
Maine's JUA specifies that insurers with less than five million dollars 
in assets cannot be required to participate. 
B. Reinsurance Exchanges 

Arkansas and, as discussed earlier. North Carolina authorized 
reinsurance exchanges, a pooling device similar in effect to a JUA but 
differing in several significant respects. Since the enactment of the 
exchange in Arkansas, the authority granted has been interpreted to 
permit formation of a JUA instead and this has been done. 

The details of the North Carolina plan suggest the differences 
from a JUA. An Exchange is created to reinsure (up to a fixed dollar 
maximum per policy) medical malpractice insiirance policies v/ritten by 
member insurers. iUiy profit or loss from these policies is to be 
apportioned on an equitable basis among Exchange members with no pro- 
vision for recoupment. V/hether reinsured or not, all policies are 
written and serviced by the insurer. To the extent that a policy can 
be reinsured, no pc;licy may be terminated or refused by an insurer 
except for nonpayment of preraiuia, non-residency, or suspension or revo- 
cation of license. If losses match a particular formula, the Exchange 



-25- 

must require 100% reinsiipance of policies. As can be seen, the 
primary difference between this plan and a JUA is that the adminis- 
trative and underwriting responsibilities remain with the insurance 
company rather than being centralized into the Association. 
C. Patients' Compensation Funds 

A small number of states set up state f-unds instead of, in 
addition to, or as a back-up to the joint imnderwriting associations. 
These schemes essentially meet two general purposes: plans designed 
to avoid potential constitutional problems involved in requiring 
insurance companies to participate in a joint association, and reducing 
costs of excess liability coverage. 

Indiana and Louisiana each created two state funds: a 
Patients' Compensation Fund and a Residual Malpractice Insiirance 
Authority (discussed below in Subsection D). The Patients' Compensation 
Fund is an excess loss plan to cover the differential between absolute 
maximum liability under the states' new laws ($500,000) and the maxi- 
mum health care provider liability ($100,000). To qualify for this 
protection, a health care provider must be insured for the first 
S100,000 of liability and pay into the fiond a siorcharge, not to exceed 
a fixed percentage of his premiums (10% in Indiana, 20% in Louisiana). 
The s\archarge is to be reduced when reserves build up to $15,000,000. 
The Indiana plan also limits attorneys' fees to 15% of the amount 
recovered from the f\ind. It is expected that the fund will reduce 
malpractice insurance costs by providing an alternative to relatively 
expensive excess liability coverage. 

Wisconsin, Oregon, Florida, and Pennsylvania have established 
the patient's compensation funds similar to those enacted by Indiana 



and Louisiana. Except for Pennsylvania (which has relatively high 
liability limits for its fiind), the primary difference is that the 
funds are not protected by absolute maximum liability and might have 
to pay multi-million dollar judgments. Under the Oregon fund, payments 
to the fund and provider's maximum liability are based on classes of 
physicians according to the risks and loss experience of their 
specialty. The Pennsylvania fund covers the entire judgment on claims 
made more than fo\ir years after the alleged incident, as well as providing 
excess liability coverage. Florida, V/isconsin, and Pennsylvania also 
authorized JUAs. 

D. Residual Malpractice Authorities and Other State Funds . 

The Residual Malpractice Insurance Authority, as created by 
Indisma and Louisiana, is designed to provide malpractice insurance 
coverage to health care providers who have been refused by at least 
two insurers. This residual insurance fund is to be supported by the 
premium payments of those insured by it. In Indiana, the Authority was 
initially appropriated $1,500,000. 

In Michigan, a state malpractice insurance fund has been 
established. Like most of the JUAs, the operation of the fund is to 
be segregated by provider classes and the fund is to be activated only 
when the Commissioner of Insurance finds that a class of medical pro- 
viders cannot readily obtain malpractice insurance. Upon such a 
finding, any member of the medical provider class may apply to the fund 
for malpractice insurance coverage and all members of the medical provider 
class will be required to pay an assessment to cover losses and expenses. 
New York has set up a somewhat similar state fund, except that it is 
not to be activated unless the JUA, in the process of providing medical 
and hospital malpractice insurance, fails financially or '-onsti bution- 



-25- 

ally. Financing is to be by a one-time premixim charge, not to exceed 
5 percent of premiums, on all new policyholders of the state fund, and 
any remaining capital of the JUA, if it fails constitutionally. 
E. Physician-Owned Mutual Insurance Associations . 

A few states authorized physician-owned mutual insurance 
associations in addition or as an alternative to other mechanisms de- 
signed to assure availability of liability insurance. Maryland produced 
the best known and most elaborate enactment of this kind. It created a 
nonprofit Medical Mutual Liability Insiorance Society, with initial 
funding and reserves established by a one-time S500 tax on ]icensed 
physi'-^iams for the privilege of practicing medicine in Maryland. The 
eleven member board of directors, after an initial seven-month period, 
is to be elected by the membership. No more than five directors may be 
physicians and at least two directors must have substantial insurance 
experience. A doctor choosing to join the Society and obtain its mal- 
practice insurance may deduct the S500 tax from his initial premiiim pay- 
ments. In addition, members must pay into a stabilization reserve 
fund to cover any of the Society's losses in excess of income from 
annual premiums. The Society is required to participate in the 
Maryland JUA. 

North Dakota passed a bill similar to Maryland's. 
Iowa and New Jersey authorized physicians to form their own mutual 
insurance companies. 
VII. LEGAL CONCEPTS: EXPLANATIONS AlTD RECOMMENDATIONS 

(Portions of the following analysis have been reprinted from 
"A Legislator's Guide to the Medical Malpractice Issue," published 
jointly by the Health Policy Center at Georgetown University and 



-26- 



the National Conference of State Legislatures, whose assistance is 
deeply appreciated.) 

A. Substantive Modifications 

1. Res Ipsa Loquitur 

The burden of proof is the responsibility for convincing 
the jury by "clear and convincing evidence" as to particular 
facts alleged. Normally the primary burden of proving 
negligence rests with the plaintiff. Res ipsa loquitur 
("the thing speaks for itself") is a legal doctrine which 
raises a rebuttable inference that a particular injury would 
not have occurred normally without preceding negligence 
by the defendant. If the court makes a res ipsa loquitur 
finding, the burden of proof usually shifts to the defendant 
to prove he did not act negligently. Health care providers 
and insiorers have forcefully argued that; this doctrine is 
inappropriately used in many malpractice cases, in particular 
that it is given more weight than in other types of tort 
litigation. 

This doctrine is not generally recognized in North Carolina 
malpractice case law, unless the facts surrounding the 
injiiry leave room for no other conclusion but that there 
was negligence. Normally the plaintiff must satisfy the 
jury that there was negligence and bhe negligence was the 
proximate cause of his injury. Therefore, the Commission 
does no^: recommend legislation on this subject . 

2. Statute of Limitations . 
(a) Time Period 

The statute of limitations governs the length of 



-27- 



time in which a person may bring suit to recover damages. 
The limitation is usually expressed as the shorter of two 
applicable periods — one running from the time the injury 
is discovered (or should have been discovered) and the 
other rxinning an absolute maximum number of years from the 
time the injury occurred. Modifications upon this formula 
are common: usually the statute is longer for minors and 
other persons under legal disability; in some states the 
period is longer in cases where foreign bodies (such as 
sponges) are left in the patient; and in some states the 
statute is tolled (i.e., does not run) for the period in 
which the patient was prevented from discovering the injury 
by the fraud or misrepresentation of the defendant doctor or 
hospital. Most states which made changes in the statute of 
limitations shortened the applicable period, but a few 
states made changes in the applicability of the limitations. 

The medical malpractice interest in the statute of limitations 
comes from its creation of a "long tail" or residue of cases 
which are not filed or litigated in the year in which the 
injury occurred. Reduction of the limitations period 
helps insurers better to predict claims and costs, and 
because cases are more recent also allows defendants better 
preparation for litigation. However, the statute must be 
long enough to provide reasonable opportunity for plaintiff- 
patients to discover latent or consequential injuries. 

Under the present North Carolina law in G.S. l-15(b) and G.S. 
1-52(5), a person injured by the negligence of another has 



-28- 

three years from the date of the negligent act within 
which he must file suit to recover for his injuries. 
There is an exception where the injury is not apparent 
to the injured person at the time of the negligent act 
(for example, the hidden sponge cases in medical mal- 
practice cases). In such a case the period of three 
years does not begin to run until that person discovers 
(or through due diligence should have discovered) the 
injury; the total period available to the injured 
person in this kind of situation is limited, however, 
to ten years from the negligent act. Therefore, in the 
hidden sponge case, a patient would have no more than ten 
years from the date of the operation to discover the 
sponge and file an action in court against the surgeon 
whom the patient believes is responsible. 

The Study Commission recommends lowering this outside 
time limit to four years for actions based on professional 
malpractice. The three year period would still start 
running at the time of the act of negligence for injuries 
that are ascertainable at that time. Actions for injuries 
that are discovered between two and three years after 
the negligent act must be filed within one year after 
the discovery. In no event could an action be filed 
more than four years from the date of the negligent act. 

(b) Minor's Disability 

G.S. 1-17(1) presently provides that the time period within 



-29- 

which a person under the age of eighLeen years must 
bring an action does not begin to rim until the person 
reaches the age of majority. For a malpractice action, 
this provision means that a child injured at any age 
has until age 21 to bring suit (18 years old plus the 
5 year statute of limitations). The Study Commission 
recommends removing the minor's disability for pro- 
fessional malpractice cases by putting minors seven 
years of age and older on the same footing with 
persons of majority age . This means that the time 
period mentioned earlier would apply to all persons of 
age seven years and older. The period would not begin 
to run for a person under seven until his seventh 
birthday. 

It is hoped by the Commission that reductions of these 
time periods will help malpractice insurers to better 
predict claims and costs. Long time periods create a 
residue of cases which are not filed or tried in court 
soon after the injury occurred. Defendants and plain- 
tiffs can better prepare for suit if cases are more 
recent, but the time period should be long enough for 
patients to discover latent or hidden injuries. 
3. Informed Consent 

Absent extenuating circumstances such as emergencies, medical 
standards generally impose a duty upon a physician to disclose 
the risks of treatment to the patient before treatment begins. 



-50- 



This is known as the doctrine of informed consent. This doctrine 
is an amorphous aspect of medical tort ]aw, often subject to 
varying applications. As a result, several states made efforts 
to clarify and limit by statute the doctrine of informed consent. 
Several states provided that consent in writing is either presumptive 
(subject to rebuttal) or conclusive on the issue of informed consent. 
Some states enacted a standard that informed consent is to be 
evaluated by the "same or similar community" rule or by a test of 
reasonabl eness . 

The Commission recommends the enactment of an informed consent law 
which will provide both (1) a rebuttable presumption that a cons ent 
in writing is valid if the health care provider followed the "same 
or similar community" standard in obtaining the consent and (2) a 
test of reasonableness when considering whether the patient has a 
general understanding of the medical procedure and the usual and 
most frequent risks involved . If all of these standards and tests 
are satisfied, a patient cannot recover from the health care pro- 
vider on the ground of lack of consent to the treatment or surgery. 

4. "Good Samaritan" Laws 

There has been a trend over a number of years to improve malpractice 
protection for health care providers who provide emergency care 
outside of a hospital to persons with whom there is no previous 
doctor-patient relationship. Statutes to provide this kind of 
protection, known as "good Samaritan" laws, were passed in 
several states in 1975« Although some were limited to specific 
health care providers or types of emergency treatment, they 



-51- 



generally provide immunity from civil liability. North Carolina 
has a "good Samaritan" statute in G.S. 20-166(d), but it is 
limited to motor vehicle accidents on the public highways. 

The Commission recommends extending this law to any unexpec ted 
emergency situation that does not occur in the ordinary and 
normal course of the business or profession of the person rendering 
treatment . Under a "good Samaritan" law, 3 person who gives aid 
is liable only for acts of gross negligence (which entails wanton 
and reckless disregard of the consequences of his actions) or 
intentional wrongdoing. This will hopefully encourage needed 
emergency medical treatment without fear of being sued for an error 
made under extenuating circumstances. 
5. Standard of Care 

Traditionally, doctors have been required to exercise skill and a 
general standard of care equal to the prevailing acceptable level 
for their t;^/pe of practice in their community. Because of betber 
communications and greater uniformity in physician training there 
have been moves in some states and by many courts to require ad- 
herence to "similar communities" practices or even to regional or 
national standards of care. That movement was reversed by several 
states this year by codification of the locality rule. The moti- 
vation for this is probably mixed: a general feeling that 
"country doctors" shouldn't be held to a "big city" standard, a 
hope that the locality rule will produce fewer claims and smaller 
awards, and a contention that a broader spectriom of acceptable 
medical practice protects genuine and legitimate variations in 



-52- 
health care. A few states, not counted here, adopted a locality 
rule with regard to adequacy of informed consent. 

At least one state, Arkansas, went counter to this brend. It 
provided that the hearing panels in its volimtary arbitration system 
are not to apply the locality rule. 

The Horth Carolina Sixpreme Court has gone only as far as a "same 
or similar communities" standard of care, and, the Commission recom- 
mends that this concept be enacted into the General Statutes to 
avoid further interpretation by the Supreme Court which might lead 
to regional or national standards for all health care providers . 
6. Limitations on Recovery 

Because of Uhe question as to the constitutionality of an absolute 
limit on recovery for malpractice, the Commission does not recommend 
legislation placing a ceiling on damages . 
Procedural Modifications 
1. Ad Damnum Clause 

The ad damnum clause is part of the initial pleadings in a legal 
action involving liability for damages. In this clause the 
plaintiff states the specific amount of monetary damages to which 
he believes he is entitled. Much has been made of the resultant 
publicity and the stigma upon the health care providers involved 
when 'he claim for damages is very high. It is often alleged that 
juries would award relatively smaller amounts if the ad damnum 
clause were eliminated. In states where ihis reasoning has been 
followed, the clause has been entirely eliminated. In \;isconsin, 
only a jurisdictional amount is named (e.g., the plaintiff claims 
in epccess of S10,000 in damages). In Tennessee, the ad damnum 



-35- 

clause remains in the pleadings but is not revealed to the jury. 
In North Carolina civil practice the pleadings are not read to the 
jury \inless the trial judge directs so. Therefore, there is no 
problem of juries awarding higher amounts because of a high dollar 
demand in the pleadings. 

However, the Commissioj;! feels that elimination of the ad damnum 
clause in professional malpractice cases would avoid adverse press 
attention prior to trial, and thus save reputations from the harm 
which can result from persons reading about huge malpractice suits 
and drawing their own conclusions based on the money demanded. The 
Commission, therefore, recommends that the ad damnum clause be 
eliminated from pleadings in professional malpractice actions . 

2. Co\int ere 1 aims 

In order to discourage non-meritorious or harassment claims, some 
states have provided that health care providers who are sued for 
malpractice can sue the patient for malicious prosecution (or 
abuse of legal process) in the same action. _The Commission found 
no evidence of any si^nificsmt number of harassment or iinfounded 
claims and does not recommend any new counterclaim procedures . 

C. Mitigation on the Impact of Awards 
1. Attorneys ' Contingency Fees 

The most usual method of compensating the plaintiff's attorney in 
a medical malpractice case is by the contingent fee agreement. 
Under this arrangement the attorney receives a percentage of the 
award (sometimes as high as 30-40%) if he wins, and nothing if he 
loses. Health care providers view the contingency fee as a major 



-54- 

culprit in large awards and rising insurance rates. It also re- 
duces the patient's actual dollar recovery, sometimes severely, 
and makes it tmlikely that a patient with a small case will be 
able to get legal assistance because of the limited payment oppor- 
tunity for the lawyer. On the other hand, the contingent fee system 
does allow patients to bring their cases without great financial 
strain, and with no personal loss if they should lose the suit. 
States enacting legislation on the attorney contingency fee system 
have set a ceiling on the percentage fee attorneys may collect, 
either by a reasonableness test (to be applied by the court) or by 
a sliding maximum percentage scale. An alternative to this \-j8.s 
enacted in V/isconsin, which now requires attorneys to offer to work 
per diem or per hour at the time of employment, before accepting 
a contingency arrangement. 

After hearing various medical, legal and insurance people, the 
Commission saw no problems concerning or evidence of abuse of con- 
tingency fees, and therefore does not recommend legislation to 
regulate attorneys' fees in malpractice actions. 

2. Collateral Source Rule 

The collateral source rule prevents introduction of evidence that 
a patient's injury-related expenses have been reimbursed by other 
compensation plans such as private insurance, workmen's compensa- 
tion, etc. This sometimes results in a windfall recovery for the 
plaintiff. It has been suggested that elimination or modification 
of the collateral source rule will result in reduced liability for 
defendant's insurer and eventually reduce the cost of premiums. 
There were minor differences in the modification. In California 



-55- 

the defendant may introduce, at his option, evidence of collateral 
sotirces but this permits plaintiff to introduce evidence as to 
premi\ims paid. Pennsylvania requires reduction of the award if 
it duplicates public collateral sources of compensation or benefit. 
Ohio requires reduction for any collateral source not derived 
from premiums paid by either the plaintiff or his employer. 

The Commission recommends a collateral so\irce rule that requires 
reduction of the award if it duplicates public collateral sources 
of compensation or benefit and reduction for any collateral source 
not derived from premiums paid by either the plaintiff or on his 
behalf. 

5. Periodic Payments of Awards . 

In any large jury award a lump sioin payment of damages is a tremendous 
burden on the defendant. The financially naive plaintiff may lose 
or be defrauded out of his money overnight. The Commission recommends 
provisions for periodic payments in cases involving future damages 
of $100,000 or more to (1) alleviate the burden on insurers of de- 
fendants and (2) provide a sufficient flow of money to compensate 
the injured plaintiff without the risk of iinwise spending. The 
decision to change a lump sum award to periodic payments would rest 
with the trial judge, who would be able to evaluate the situation 
and the relative burdens on the parties to the suit. 
D. Alternatives to Litigation 
1. Pretrial Screening Panels 

Two of the frequently cited reasons for excessive malpractice costs 
are the expenses of trial and the reputed tendency of juries to 
make awards larger than justified and sometimes when no award at 



-56- 

all is appropriate. However, state legislatures are extremely 
limited in the manner and extent they can limit accessibility to 
the coiirts because of federal and state constitutional principles. 

Instead, interest has centered around promoting pretrial settlements 
by: 1) voluntary screening or arbitration of claims; 2) mandatory 
pre-trial claims review; and 5) civil practice law changes allow- 
ing certain pre-trial screening results to be admissible as evidence 
at trial. Arguments for this type of approach stress the societal 
benefits as well as the economic savings suggested above. They 
point to clogged court calendars and resultant civil trial delays 
which frustrate the need of all parties for a quick resolution. 
Criticism of this type of approach centers on whether it will be 
effective in decreasing the number and duration of trials, and 
whether it overly favors the physician and insurer. 

Two states have created voluntary screening or arbitration programs, 
while 11 states have compelled pre-trial claims review. In a 
majority of the states the decision of the panel is admissible as 
evidence in a later trial and in some of these states other infor- 
mation from the screening process is also admissible. Variation of 
format in these 15 states is \vide. For example, the composition of 
the panel is different in almost every state. To some extent this 
reflects local needs. In Nevada the panel's judgment is not admis- 
sible, but if the plaintiff prevails a doctor will be appointed to 
testify at the trial in his behalf as a medical expert. Much of 
this detail is noted in the state-by-state legislative summary. 



-57- 

The Commission does not recommend legislation to provide for the 
screening of malpractice claims . The sentiment of the Commission 
was that this would constitute an undue and costly burden on the 
parties and that most of the cases would go to court anyway. 

2. Arbitration 

The Commission investigated the possibility of arbitration of mal- 
practice claims and found that the present Uniform Arbitration Act, 
G.S. 1-567.1 through G.S. 1-567-20, is adequate for this purpose. 

Since the State cannot compel persons to arbitrate (and therefore 
lose their right to go to court), arbitration must be by consent 
of both parties. The Commission also found that few people in the 
medical profession v;ere aware of the fact that our statutes today 
provide a method for arbitration of malpractice claims, and recommends 
that all professional associations advise their members that the Uniform 
Arbitration Act can be employed for the disposition of malpractice 
claims, and that the general public be made aware of this fact . 

VIII. THE PATIENTS' COMPENSATION FUND: RECOMMENDATION 

The North Carolina Professional Liability Insurance S':udy Commission 
recommends the establishment of the Patients' Compensation Fund . This 
is a new concept where a health care provider who qualifies is pri- 
marily liable after a judgment, settlement or arbitration award, for 
the amount of insurance coverage he has (not to be less than ^100,000 
per occurrence) , and any amount over that is paid i-o the injured 
patient out of the Fund. The Fund is maintained in trust by the State 
Treasurer, but the money for the Fund comes from a surcharge levied 



-38- 

on health care providers who desire to be covered in this maiir.er. 
No State money is involved in the funding or administration oT the 
Fund. 3y filing proof of financial responsibility of 4>100,000 or 
more and by paying the surcharge (as determined by the 'Jommissioner 
of Insurance), a health care provider will come under the provisions 
of the Patients' Compensation Fund plan. Those v/ho do not v/ish to 
participate are not subject to the provisions of the plan and are 
subject to liability under the present laws. 

This plan is designed to (1) avoid potential constitutiona]. 
probl.ems involved in requiring insurance companies to participate in 
a joint underwriting association (JUA) or a reinsurance exchange (113 
7^ as implemented) and (2) reduce the costs of excess liability 
insurance. By establishing a threshold amount of ^^100, 000 of insur- 
ance coverage, this plan would afford more certainty to insurance 
underwriters in rating health care providers and v/ould hopefully solve 
most if not all of the malpractice problem from an insurance stand- 
point. The plan would also guarantee injured patients their just 
compensation. 



PART TWO 



MINORITY REPORT 



I . PREFACE 

Being subject to human frailties, physical and psycological, 
this Senator has a compelling desire to please doctors and all 
members of the health care professions. Great satisfaction would 
result from being able to take a legislative posture which would 
be wholly acceptable to the medical community. In years gone by, 
I handled my first (and perhaps last) medical malpractice lawsuit; 
nevertheless, before election to the Senate there were coiintless 
members of the medical profession whom I was privileged to call 
my friends. I have nothing but the highest regard and respect 
for the dedication of those engaged in the healing arts. As a 
matter of fact I owe my life to the medical profession. Even now, 
it would be easy to follow the road of least resistance and vote 
for legislation based on political expediency rather than on the 
basis of deep-seated convictions after probing the inner recesses 
of the soul. 

Be that as it may, every man worth his salt must draw the line 
as to where he shall take his stand. With extreme reluctance, I 
have drawn that line. 

II. INTRODUCTION 

Historically, the medical profession has been an overly pro- 
tected class. The tremendous increase in the number of medical 
malpractice claims over the last few years is not because of 
lawyers as some would have you believe, but because of increasing 



-2- 



public awareness that doctors are in fact human, that they do make 
■istakes and these mistakes sometimes result in substantial injury 
to the patient. Further, in this day of consumer orientation, 
there is an increasing public awareness that every person should 
be held accountable for the consequences of his own wrong if 
another person is inotired thereby. 

The truth of the matter is that through the years and even 
up to this date, the medical profession has had the benefit of a 
protective shield and our court system is something less than 
inviting atmosphere for a medical malpractice claimant. The 
medical malpractice law of North Carolina and its restrictive 
rules of evidence, as developed by case law over the years, re- 
quires for an inj\ired claimant to have his case considered by a 
North Carolina jury that a knowledgeable doctor testify in his 
behalf saying in effect that his fellow-physician, the defendant, 
in providing treatment to the plaintiff failed to comply with the 
required standard of care or otherwise failed to use his best 
judgment in providing care and treatment. There is the additional 
evidentiary restriction that the medical witness must have know- 
ledge of the standard of care in the "same or similar community" 
where the treatment or mis'^reatment occurred. 

The writer does not suggest for one minute that there is a 
grand conspiracy among North Carolina physicians and surgeons not 
to testify for would-be plaintiffs, but the unjustifiable protection 
of "silence" exists nevertheless. 

For those who would suggest that justice is readily available 



-5- 

in North Carolina courts for the vinfortiinate victim of medical 
negligence, let them ask themselves the question. How does an 
injured patient learn that he has been injured by the negligence 
of a physician or other medical provider? 

I challenge the members of the General Assembly, the news 
media, or others interested in basic justice for all of our 
citizens in North Carolina to do a poll so as to be satisfied as 
to where, and to what extent, medical and/or legal help is avail- 
able in North Carolina to a patient injured by medical negligence. 
Fake an injury to yourself resulting from medical negligence and 
put a file under your arm and go incognito knocking on the doors 
of medical experts all across our beloved State and it is likely 
that you will walk yourself to death before finding any significant 
nvunber of medical experts giving affirmative answer to the question, 
"will you testify in my behalf in a medical malpractice law suit?" 
The fact of the matter is that the overwhelming majority of 
physicians and surgeons will simply refuse to review the file 
when the possibility of a medical malpractice law suit is suggested. 
As a matter of fact, some hospitals have as established policy a 
prerequisite to their f\irnishing medical case histories that the 
requesting lawyer fiirnish a written certificate that the medical 
information is not sought with the intention of bringing suit 
against the hospital or any attending physician. 

For the unfortunate victim of medical malpractice in North 
Carolina, there is little encouragement to be fotind in visiting 



-4- 

at random the law offices across the State. Lawyers are blamed 
for the increase in malpractice claims , but the sad truth of 
the matter is that the average lawyer in North Carolina is equipped 
neither by training nor experience to process a medical malpractice 
law suit. It is not to the credit of the legal profession that 
the overwhelming multitude of North Carolina lawyers has neither 
the medical or legal expertise nor the moral fortitude necessary 
to successfully handle a medical malpractice law suit in North 
Carolina cotirts. The medical profession by its silence, whether 
intentional or otherwise, has contributed greatly to the present 
day atmosphere of medical malpractice claims. The reluctance of 
the potential medical witness to testify has resulted in a wide- 
spread search by the conscientious practitioner of the law to 
find a reputable medical expert who is willing to testify even 
where negligence is evident. This has resulted in the importation 
into the State of the so-called "professional medical witness" 
for which practice small segments of the Bar have been criticized. 

It is no accident that the St. Paul Insurance Company in de- 
fending medical malpractice claims over approximately twenty years 
has never lost a jury trial in the entire State of North Carolina. 

There is no medical malpractice problem in North Carolina, 
only an insurance pricing problem resulting from losses in 
California, New York and other states where the claims climate is 
so much more severe than in North Carolina, and from investment 
losses incurred by the insurance company not unlike losses that 



-5- 

have been suffered by other corporate investors during this period 
of national economic instability and uncertainty. 

The real issue before the Professional Liability Insurance 
Study Commission is not to promote legislation for the benefit 
of doctors or to withhold legislation on the basis of some pro- 
jected benefit for lawyers. Personally, we should not be con- 
cerned except incidentally with what is good for doctors or what 
is good for lawyers, but what is in the best interest of all of 
the people. Doctors and lawyers are both a privileged class. 
A lawyer in North Carolina who is willing to work can earn a 
good living without handling a single medical malpractice claim 
during his entire professional career. Any doctor who is willing 
to work can make a good living and pay his medical malpractice 
insurance premium without gouging a single one of his patients. 

Both the medical and legal professions have the privilege 
and distinction of making a determination as to those among the 
patient and client population whom they choose to serve. Both 
professions have as a common denominator in the unique oppor- 
tunity of alleviating human suffering while having sufficient 
earning capacity to enjoy the good life. Both professions have 
the opportunity to charge for their services at least in some 
measure based on their own self-esteem. Neither profession is 
entitled to any special S3rmpathy because of its downtrodden status 
in life. 

Medical malpractice in this day and age is a reality. The 
major thrust of our inquiry as a Commission and of our legislation 



-6- 



as a legislative body should not be to fxirther protect an already 
protected profession thus eliminating valid claims, but rather to 
equitably distribute the reasonable cost of medical malpractice 
over as broad a base as possible so that each segment of society 
bears its fair share of the cost of medical negligence. 

Our interim report provides the real basis for our existence 
as a Study Commission. Our responsibility is and should be to 
recommend after thorough study such legislation as is needed to 
provide a wholesome climate in which medical care and treatment 
can be afforded without sacrificing the basic rights of our 
citizens. To this end, this Senator is steadfastly dedicated, but 
I am unwilling to aid and abet the building of an "impregnable 
fortress" to further protect an already protected profession. 

I agree with the legislative direction given to the Coimnission 
to find a solution to the rising cost of health care liability 
insurance, so long as the legal rights of our citizen , (whose 
rights have been developed and preserved by free men in our free 
society over a period of 200 years) are not sacrificed. 

It has been my privilege as a member of the Commission 
(attending every meeting) to make constructive suggestions, and I 
have supported many proposals that in my belief would result in 
a long-range reduction of malpractice insurance premiums. I 
cannot support even one single proposal which has as its net 
result an unjustifiable sacrifice of the rights of our citizens 
without any compelling need for such drastic measures. There 
should be an equitable distribution of the cost of medical mal- 
practice without the abolition of precious legal rights. Surely 



-7- 

we as a sovereign people have sufficient ingenuity to find an 
equitable solution to the medical malpractice insxirance problems. 
In my considered view, one of the basic concepts of American 
justice is that all persons and all professions, lawyers, doctors, 
engineers, architects, contractors, et cetera, are fully accountable 
in the courts of a democratic society for the consequences of their 
own wrongful conduct to those who are injured or damaged by such 
wrongful conduct. Further, every person, professional or other- 
wise, should be held accountable at least for such length of time 
as is reasonably necessary for the injured party to have knowledge 
that he has been injured or damaged and at least xintil such time 
as the injvired party has had a reasonable opporttmity after 
discovery to initiate such process as will provide his grievance 
a fair and impartial hearing in a court of law. 
III. STATUTE OF LIMITATIONS 

A. Hidden injury or Damage 

The majority recommends that in professional malpractice 
cases a person injured by the negligence of another have 3 years 
from the negligent act within which to file suit. 

The exception that where the injury is not apparent at 
the time of the negligent act, an additional year is allowed from 
discovery in which to file suit, if discovery is made more than 
two years after the time of the alleged negligent act or omission. 

Let there be no mistake. A plaintiff in a professional 
malpractice action commenced in the fourth year following the 
negligent act must be prepared to prove the following: 



-8- 

1. That his injury or damage was not readily apparent 
to him at the time of its origin. 

2. That his injiiry or damage was not discovered within 
two years of its origin. 

3. That his injury or dajnage was not reasonably dis- 
coverable within two years of its origin. 

M-. That his injiiry or damage was not discovered more 
than one year prior to commencement of the action. 

The foregoing proof Items one through four manifests a 
clear invitation for perjured testimony. If a person knows him- 
self to be injured by professional malpractice will he not feel 
the righteousness of his cause justifies "fudging" of the all 
important discovery date? What will be sufficient evidence of 
'discovery? Will it suffice that plaintiff himself discovered 
a Ixomp in his abdomen which sometime after two years was found 
by surgery to be a sponge left behind in the previous operation? 

I have no quarrel with a 5 year statute of limitations on 
suits for injtiries or damages readily apparent at the time of 
the negligent act. For those injuries and damages which are 
not readily apparent, however, there should be an entirely 
different rule applicable to all professions but allowing a more 
reasonable length of time for discovery. 

It is contrary to my sense of basic American justice 
that the Statute of Limitations run before the injured party has 
knowledge of his injury. It is unconscionable that any claimant 
lose his right to have his grievance heard in a court of law 
before he becomes aware that he has a just grievance. 



-9- 



Accordingly, it seems only fair and just that every 
lawyer, doctor, engineer, architect, or other professional, be 
liable for the consequences of his own negligent conduct, at 
least tintil such time as the injured party has had a reasonable 
opportunity to know he's been injured and has had a reasonable 
opportunity to secure a fair hearing of his claim. 

A lawyer searching a title whose client first learns 
of his error ^-1/2 years later should not be able to avoid 
legal responsibility by pleading a ^-year statute of limitations. 
He should be accoxintable for his negligence until discovery and 
a reasonable time thereafter within which his client can bring 
suit. Likewise, it is legally and morally indefensible that a 
sponge or pair of scissors discovered 4-1/2 years following 
surgery gives rise to no compensation against the surgeon whose 
negligence caused the injury. 

Admittedly, there must be some absolute time limit for 
filing of claims resulting from negligent injxxry or damage. The 
same rule should be applicable to all professionals, lawyers, 
doctors, architects, et cetera, alike. Absent an absolute time 
limit the possibility of having to defend a lawsuit could go on 
forever. For hidden injuries and damages there should be a 
specified time limit after discovery with some absolute limit. 

The present ten year limit for discovery and suit is too 
long. But the 4 year discovery limit advocated by the majority 
report is too short. An equitable solution might be to allow 1 
year after discovery within which to file suit with an absolute 



-10- 



limit of 5 years from date of the negligent act. At least such 
provision would lessen the likelihood of negligent injury later 
discovered hecoming uncompensible by operation of law. 

It is significant to note that St. Paul reported not one 
single claim, made since enactment of the 10-year absolute limit 
of 1971 1 on the basis of discovery after 5 years. Manifestly, no 
statistics have been presented to demonstrate a need for the harsh 
A— year limit on discovery as advocated by the majority report. 
The loss of rights by one injured claimant is too high a price 
for society to pay for the hope of what at best can only be a 
reduction of a few pennies in the cost of malpractice insurance. 
B. Minor's Disability 

The recommended removal of the disability to bring an 
action for minors of seven years or older is cause for great 
concern not only because of the highly questionable constitutionality 
of such a measure, but also because of the practical detrimental 
effect it would have on persons of seven years or older whose 
parents or guardians do not file suit within the limitation period 
for one reason or another. In such a situation, once the statute 
of limitations has run out, absent fraud or collusion on the part 
of the parents or guardians and the alleged negligent professional, 
the child is left without any remedies for the injuries caused 
by any alleged negligence. 

The claims information concerning statutes of limitations 
that was furnished to the Commission does not demonstrate any need 
for the enactment of legislation restricting the rights of minors 



-11- 

who would not have the capacity to bring suit in their own behalf. 
This information appears in Appendix IV. 

The three year period applicable to the child seven years 
of age and older as recommended by the Commission takes away 
rights from the child who by law has no capacity to enter into 
a contract of employment with an attorney or to institute a 
lawsuit in his own behalf. Under such a proposal no parent, 
guardian, foster parent, social services case worker, orphan's 
home president or any other person has any legal obligation to 
make any investigation or to make any claim or demand on behalf 
of the child, or to institute a lawsuit in the child's behalf. 

The enactment of such a proposal may mark the first time 
in the history of North Carolina jurisprudence where one citizen, 
even suffering the legal disability of the status of minority, 
will suffer such indignity as will result from the catastrophic 
loss of his right to recover for his inj\iry caused by the 
negligence of another. This loss will result not from his 
enlightened choice but from the failiire of someone else to take 
proper action in his behalf. 

The constitutionality of such a proposal is, to say the 
least, doubtful and in any event is an abomination to those who 
cherish fairness and equal justice for all citizens. 

The orphan; the child incarcerated in a training school 
who is a ward of the State; the foster home child; the child 
whose parents are incompetent, illiterate, or whose parents' 
extreme religious convictions preclude litigation; the child whose 
parents are purchased or persuaded by unscrupulous insurance 



-12- 



adousters or claims handlers loses his right to have his just 
grievance heard in a court of law, all under the pretense of 
saving at most a modest increment in the cost of malpractice 
insurance. This is repulsive to my sense of fairness, my concept 
of justice, and contrary to everything I have come to hold dear 
in the fabric of the law. Such a concept should be reprehensible 
to free men everjnffhere. 

It is not enough to say that the loss of these rights 
will infrequently occur. In the words of one of the physician 
members of the Commission, "Surely somebody will look after the - 
rights of the injxired." If it should infrequently occur it will 
have little effect on the overall malpractice insurance rates. 
The St. Paul Fire and Marine Insiirance Company presented statis- 
tics showing that since 1970 only eight claims on behalf of 
minors were made more than three years after the occurrence of 
the alleged negligent act. Infrequent occurrence however, is no 
cause for the sacrifice of basic legal rights. Even for one child 
to walk on a stump for the remainder of his life uncompensated 
for the loss of a leg caused by professional negligence is far 
too high a price to pay for the tinnecessary protection of the 
medical commTinity. The injured child should not alone bear the 
cost of medical malpractice, but each segment of society should 
bear its fair share of this cost. Surely we can find equitable 
solutions to our malpractice insurance problems without sacrificing 
one single individual and requiring him to pay so dearly for the 
mistake of another. 



-13- 

Advocates for drastic reduction in the time limit within 
which a minor may bring suit rely on the premise that such 
drastic reform of the law is mandatory to help insurers better 
predict future claims and costs. Such argument is without 
weight and not persuasive when one considers that the St. Paul 
Companies and the Medical Society's Mutual Company both offer 
insurance on a "claims-made" basis. Thus, it will no longer be 
necessary for actuaries to establish huge reserves (and possibly 
hide profits) to cover unreported claims from "long-tail" 
situations. At each rate hearing the Commissioner of Insurance 
has authority to set rates that are reasonable based on losses 
that were actually paid in the previous reporting period. 

It is thus consoling that the medical community will no 
longer be victimized by fallacious reserve presentations in the 
rate making process. Increased acc\iracy may thus result in 
savings siifficient to offset the cost of preserving the sanctity 
of "minors' rights" tmder the law. 



IV. THE PATIENTS' COMPENSATION FUND 

It would seem to me that there is considerable merit in the 
Patients' Compensation Fund proposal of the Commission as a 



-14- 

means of spreading over a broad base the risk and consequent 
costs of medical malpractice. However, the recommendations 
that (1) the State Treasurer serve as trustee of the Fund and 
(2) the Office of the Attorney General provide legal defense of 
the private interests of the medical commxinity participating in 
the Fiind are, at best, of questionable constitutionality. Also 
these features of the proposal are in the opinion of this Senator, 
a thinly-veiled attempt to create a psychological barrier to the 
plaintiff in a medical malpractice action who has a claim against 
the Fvuid, in that he is placed in an adversary position with the 
State of North Carolina rather than with the health care provider 
whose alleged negligence caused the injury. 

The fund is reputed to be self-supporting, but why should 
taxpayers' money be spent to recruit in the Treasurer's office 
personp qualified to administer the Fund and in the Attorney 
General's office the legal staff with expertise in the defense 
of malpractice actions? The State of North Carolina should have 
no authority to interfere in private litigation between private 
parties as opposed to actions involving the public interest. 

V. PRETRIAL SCREENING PANELS 

What we need in North Carolina is not legislation that bars 
valid claims or protects doctors from actual justifiable malpractice 
claims. If we want to do what is right and just for all people, 
we need to develop a process whereby tinjustified claims are 
eliminated and justifiable claims settled or litigated. Regardless 
of legislation reducing the time limit or restricting the number 



-15- 



of witnesses who can qualify as a witness, there will continue to 
remain for doctors and health care providers the vexing problem 
of harassment by iin justified claims which must be defended or 
settled to avoid unnecessary damage to the reputation of the 
doctor. On the other hand the legal profession has an almost 
insurmovm table problem of securing a qualified medical witness 
under the restrictions of present and proposed North Carolina law. 
Even where qualified, it is only in the most aggravated case 
against perhaps the unscrupulous practitioner that the qualified 
witness is willing to testify, and not in a malpractice situation 
which in all fairness is actionable because malpractice actually 
exists. 

Accordingly, the real need in North Carolina can only be 
met by the establishment of a Medico-Legal Review Board with 
statutory authority to review all medical malpractice claims. 
This board should consist of doctors, lawyers and others all 
of whom are knowledgeable and of the highest integrity. The 
mechanics should be worked out by the North Carolina State Bar 
and the North Carolina Medical Society. Frivolous and unwarranted 
claims of malpractice should be discouraged by sanctions of the 
Bar where the Review Board has honestly found, after full investi- 
gation, no reasonable possibility of negligence. 

A full investigation of the facts by the Review Board would 
tend to protect the doctor from unfair publicity damaging to 
his reputation and prevent the xinscrupulous lawyer from proceeding 
with an unjustifiable claim. On the other hand where a reason- 
able possibility of negligence is foxind by the Review Board to 



exist, tiie medical profession as part of its duty to the public 
should in all fairness assume responsibility for providing 
expert medical testimony in a court of law if necessary in order 
to see that a just claim for negligent injury is compensated by 
a settlement, arbitration or otherwise. 

In other words, reputable lawyers would not need to go out 
of the state to try to find a medical witness for what he knows 
to be negligence but could rely upon the integrity of the 
Medical Society to furnish medical testimony where justified. 
Health care providers, on the other hand, through their Society 
would have assurance that the stigma of having to testify against 
a fellow health care provider would be removed and at the same 
time he and his fellow health care providers would be protected 
against frivolous claims. 

At the direction of the Chairman of the Study Commission, this 
Senator with staff assistance spent weeks in research, data 
collection and drafting, and proposed legislation to provide for 
the pretrial screening of all malpractice claims. This docvunent, 
which appears in Appendix X of the Report, was given long and 
careful study, and represents a composite of all of the best 
features included in similar proposals adopted by many states. In 
addition, the proposal contains new and innovative concepts to 
guarantee the integrity of the screening panel and also to 
limit the cost to the potential litigants, '^^rhen the finished 
product was presented to the Commission the members, without 
having prior access to its contents and within less than 15 
minutes consideration, voted not to recommend any pretrial 



-17- 



screening procedure that did not involve binding arbitration. 

The pretrial screening panel proposal has much merit for 
the future settlement of medical malpractice claims in Worth 
Carolina, and I strongly urge its careful scrutiny, not only by 
members of the General Assembly but also by the leadership of 
the medical and legal professions. 

One of the criticisms expressed by one Commission member was 
that any non-binding pretrial screening procedure would simply 
add another costly tier to the malpractice litigation process. A 
cursory examination of the pretrial screening panel proposal (see 
page 8 of the pretrial review panel bill in Appendix X) will 
clearly demonstrate that such criticism is without merit. Even 
the modest cost involved would be more than offset by the 
defense costs which would be avoided by the elimination of mal- 
practice claims having no merit. 

Another criticism, and one which belongs exclusively to the 
medical commiinity, is that a pretrial screening procedure would 
result in more malpractice claims being made. Obviously the 
real thrust of this criticism is not that more claims will be 
made or that more cases will be submitted for panel review, but 
that somewhere in the process more instances of negligent injury 
will be xincovered. If so, so be it! If the medical community 
is sincere in its desire for the self-policing of its professionals, 
why should negligent injuries remain uncompensated because of 
the absence of an impartial claim evaluation process? Is it 
\injust that negligent injuries be discovered? Is the objection 
to this proposal merely another mechanism to perpetuate 



-18- 



the potential injustice that can result from reluctance of 
members of the medical profession to become a witness for the 
plaintiff in a medical malpractice lawsuit? 
VI. THE 1976 "MINI -SESSION" OP THE GENERAL ASSEMBLY 

Letters recently have been forwarded to members of the 
General Assembly suggesting that the recommendations of the Study 
Commission be considered, after an enabling two-thirds vote, by 
the abbreviated 1976 Budget Session of the General Assembly. 

One letter contained statements that some physicians "have 
to pay as much as $12,000 for medical malpractice insurance 
coverage" and "that insurance for hospitals is now costing S200 
per bed." Reference is made to the fact that cost of malpractice 
insurance is thus increased nine hiindred per cent. May I suggest 
that the letter paints the picture of a dire emergency which in 
fact does not exist. The communication does not reflect the true 
status of either malpractice claims or malpractice insurance 
availability in North Carolina, 

It is respectfully suggested that the letter is politically 
oriented and reflects the political climate of the day. Physicians 
paying $12,000 per year for medical malpractice insurance are so 
insignificant in number that the requested information was not 
readily available from the Medical Society's Mutual Insurance 
Company. The coverage provided by the indicated premium is that 
for an "occurrence" type policy for the high risk surgeons and 
the same limit of coverage is available for a "claims-made" type 
policy for approximately $3,600.00. The surgeon or surgeons 
paying the $12,000 sum is thus paying that amo\int because he 



-19- 

chooses to do so and probably in anticipation of early retirement. 
Thus it can be seen that the 900% figure is grossly misleading 
as to the urgency for legislative action. In addition, it should 
be pointed out that $200 per bed per year for hospital liability 
insurance premium does not add any significant increment to the 
costs of medical care and treatment for our citizens. If that 
hospital bed is used for forty weeks by forty different patients 
it is elementary that each patient would have added to his 
hospital bill $5*00 for one week's stay. This cost would in most 
events be covered by hospitalization insurance. 

If members of the General Assembly give in to political 
pressure and vote to consider the recommendations of this Study 
Commission at the 1976 Budget Session, it is a foregone conclusion 
that the members of the General Assembly will fiirther yield to 
political pressure and in the words of a recent editorial, 
we will have "a half baked loaf." 

If the 1976 Session of the General Assembly enacts legislation 
in the field of medical malpractice, it will, in my opinion, be 
a sad day for justice in North Carolina, We will see one of two 
things. If the recommended legislation is introduced, by two- 
thirds vote of the General Assembly in 1976, in my opinion it 
will result in drastic changes in the tort law of North Carolina 
which has developed over a period of two hundred years. Most 
likely these changes would be effected without careful and 
extensive review and analysis by a single Judiciary committee of 
either House. Two or three weeks of consideration by insurance 
committees will not provide adequate safeguards for the protection 



■20- 



of all segments of our society. It is not enough to say that 
long and careful consideration has been given by the Professional 
Liability Insurance Study Commission. Meaning no disrespect, 
the regular voting membership of the Study Commission during its 
extended deliberations consisted of 2 doctors, 2 insurance 
company representatives, a hospital administrator, and a pharmacist, 
Some members of the Study Commission have no more reason to be 
familiar with the concepts of due process in the courts of a 
free democratic society where basic American justice is meted 
out to o\ir citizens than this writer has with the operative pro- 
cedures in corrective surgery for coarctation of the aorta. 

If the General Assembly votes to consider the recommendations 
of the Study Commission in the 1976 Session, we will have either 
chaos or the greatest railroad job in the history of North 
Carolina. The choice is ours. 



Respectfully submitted. 



Tom Suddarth 



APPENDIX I 



Session Laws— 1975 



H. B. 567 CHAPTER 623 

AN ACT TO CREATE A NORTH CAROLINA PROFFmSIONAL 
LIABILITY INSURANCE STUDY COMMISSION. 

The Ci-neral As<ien)hly ofSorth Carolina ennctF: 

Section 1. Commission created. purp<jse. There is hereby created a 
Prot'es.sional Liability Insurance Study Commiision. The comiiu.ssion shall have 
the responsibility to make a thorough and comprehensive study on .iny and all 
•spects of professional liability insurance including but not limited to the 
following: 

(1) The problems which insurance companies face in writing proles.-? ioiial 
liability insurance in North Carolina and other stales of the Union. 

(2) The problems which profes.sionals (particularly professionals in the 
health care professions) have in obtaining professional liability insurance in 
North Carolina, including problems dealing with the adequacy of coverage, 
limits of coverage, availability of coverage and reasonableness of rates. 

(3) The desirability and feasibility of (a) Affording professional liability 
insurance through the establishment of a State-operated fund or insurance 
company; (b) Creating a State Administrative Board or ComniKsion wiili the 
necessary e.vperiise lo hear and determine questions of fact relating to 
profes.=;ional malpractice and the amount of damages injured persons are entitled 
to recover resulting therefrom; (c) Implementing compulsory arbitration 
procedures for the determination of profes-sional malpractice disputes, and (d) 
Improving the quality of professional services through strict supervision and 
control by State licensing hoards. 

(4i The desirability and feasibility of la) amending the Statute of 
Limitations with reference to professional malpractice claims; (bl eliminating 
contingent fee contracts between attorneys and clients in malpractice claims: 
and ici implemciuing a joint underwriting association or reinsurance pool 
underwritten by insurers or the State or federal government. 

Sec. 2. Appointment of membership; composition; tenure of oiTic-e. The 
comr;rssion shall consist of 12 members who shall be appoinled as follows: The 
Speaker of the House shall appoint six members, lour |x"rsr)i.N from niemltership 
of the House, one person represent iiig iiisurance compiiiiies uriliii;; professional 
liability insurance in this State and one person who shall lie a prolcssional in the 
delivery of health care services in this Slate. The President of llu- Senate shall 
appoint SIX members, four from the membersliip i>f the Seii.ile. one person 
representing insurance companies writing professional liability insurance in this 
State, and one person who shall be a professional in the delivery of health care 
services in this State. The members shall .serve ui.iil the termination of the 
commi.ssion. If a vacancy occurs in the membership, the appointing authority 
shall appoint another person to serve until the termination of the commission. 
Members of the commission shall take office upon their appointment. The 
commission shall terminate upon the filing of a report with the General 
iXssembly. 

Sec. 3. Duty to report. The commission shall submit a written report and 
recommendations, including recommended legislation, to ll.c Gcneial As!,einbly 
on or before March 15. 1976, or as soon thereafter as practicable. 

Sec. 4. Organization of commi.ssion; employment of professional and 
clerical staff. The members of the comnrs«ion ..hall eicit one o! th -ir ::iernbere 
as chairman and one memlier as vice-chairman. The chairm^in shall preside at 
all metnn~:s of the commission and in his aljsence the vice ch.nrm.in shall act as 
chairman. The commission is authorized lo ernplov such o.-o!isM<inal and 
clerical stai: and as.sistant= as are necessary lo the ptrforrnance iiid execution of 
itsdul les Irom >urli funds as shall f)e made «va liable lor this p«upo;^e. 

Sec. ."). Comiiensation find reimbursement of memh. rs. (.-») Legislator 
members of ihe commission shall be reimbufbed for subsislence and travel 
expenses at the rates set out in G.S. 120-3.1 from funds available to the 
commission. 



Appendix I 
Session Laws— 1975 

(b) The other members of the commission who are not officers or 
eroployc'Ci of tlie State shall receive compensation and reitvibursement for travel 
and subsistence expenses at the rates set out in C.S. 138 5 Irom funds available 
to the commission. 

(CI The members of the commission who are officers or employees of the 
Stale shall receive reimbursement for travel and subsistence expenses at the 
rates set out in G.S. 138-6 from funds available to the commission. 

Sec. 6. State departments and agencies to conpctate. Upon request of the 
commission, State departments and agencies shall provide the commission with 
any information and assistance that the commission shall deem helpful to its 
inquiry. 

Sec. 7. This act shall become effective upon ratification. 

In the General Assembly read three times and ratified, ihis the Itlth day of 
June, 1975. 



S. B. 901 CHAPTER 861 

AN ACT TO DIRECT THE PROFESSIONAL LIABILITY INSURANCE 
STUDY COMMISSION TO STUDY: SHORTENING MALPR.ACTICE 
SUIT TIME, REQUIRING INFORMED CONSENT BY PERSONS TO 
BE TREATED BY HEALTH CARE PROVIDERS, AND CHANGING 
THE HEALTH CARE MALPRACTICE STANDARD. 

The General Assembly of North Carolina enacts: 

Spctinn 1. The North Carolina Professional Liability In.~urance Study 
Commission created by 1975 North Carolina Session Laws Chapter 623 is 
directed to study, and to make recommendations for such consideration as it 
deems necessary, the matters contained in this act. In addition to dealing uith 
the issues specified in Section 1 of its createing act. the Liability Insurance 
Study Commission shall report to the session of the General Assembly held in 
the 1976 calendar year on its study and recommendations on the following: 

(1) Shortening malpractice suit time (SB901/HB1240) as follows: 

(a) The desirability of amending G.S. l-15(b) by providing that the 
subsection shall not apply to an action arising out of the furni.shing or failure to 
furnish medical, dental, or other care by a provider of health care, and that such 
an action shall be deemed to accrue at the time of the occurrence of or the 
failure to provide such care, except as otherwise provided by statute. 

(b) The desirability of amending G.S. 1-17 by providing that an action on 
behalf of a minor arising out of the medical, dental, or other care by a provider 
of health care shall not be instituted after the expiration of five years after the 
cau.% of action accrued or after such minor becomes seven years of age. 
whichever is later. 

(2) Requiring informed consent by persons to be treated by health care 
providers (SB902/HB1239) by enacting legislation as follows; 

(a) No recovery shall be allowed in any court in this State against a 
physician, dentist, or other provider of health care for examining, treating, or 
operating upon a patient without the patient's informed con.senl where: 

1. The action of the physician, dentist, or other provider of health care in 
obtaining the consent of the patient or of another person authorized to give 
consent for the patient was in accordance with an accepted standard of medical 
or dental practice among members of the medical or dental profession with 
similar training and experience in the same or similar medical or dental 
community; and 

2. A rea.sonable individual from the information provided by the physician, 
dentist, or other provider of health care under the circumstances would have a 
general understanding of the procedures or treatment and of the medically or 
dentally acceptable alternative procedures or treatment and of the substantial 
risks and hazards inherent in the proposed procedures or treatment which are 
recognized by other physicians, dentisus, or similar providers of health care in 
the same or similar community who jxTform.s similar treatments or procedures; 
or 

3. The patient would reasonably, under all the surrounding circumstances, 
have undergone such treatment or procedure of which he complains had he been 
advised by the physician, dentist, or other provider of health care involved, in 
accordance with the provisions of paragraphs (a) and (b) of this section. 



Appendix I 



Session Laws— 1975 



similar training and experience in the same or similar medical or dental 
community; and 

2. A reasonable individual from the information provided by the physician, 
dentist, or other provider of health care under the circumstanc** would have a 
general understanding of the procedures or treatment and of the medically or 
dentally acceptable alternative procedures or treatment and of the substantial 
risks and hazards inherent in the proposed procedures or treatment which are 
recognized by other physiciaiis. dentists, or similar providers of health care in 
the same or similar community who performs similar treatments or procedures; 
or 

3. The patient would reasonably, under all the surrounding circumstances, 
have undergone such treatment or procedure of which he complains had he been 
advised by the physician, dentist, or other provider of health care involved, in 
accordance with the provisions of paragraphti (a) and (b) of this section. 

(b) A consent which is evidenced in writing and which meets the foregoing 
standards, and which is signed by the patient or another authorized person, shall 
be presumed to be a valid consent. This presumption, however, may be subject 
to rebuttal only upon proof that such signature and consent was obtained by 
fraud, deception or misrepresentation of a material fact. 

(3) Changing the health care malpractice standard (SB903/HB1241 ) by 
enacting legislation providing that in any action for damages for personal injury 
or death arising out of the furnishing or the failure to furnish medical, dental, or 
other health care, the defendant or defendants shall not be liable for the 
payment of d»magPK unless the trier of the fart.s is .'satisfied by the greater 
weight of the evidence that the cure of sucJi provider or providers of health care 
was not in accordance with the practices and procedures which were approved 
and accepted by the providers of such care in the community in which the action 
aroec or in similar communities at the time such action arose. 

Sec. 2. This act shall become effective upon ratification. 

In the General Assembly read three times and ratified, this the 26th day of 
June. 1975. 



S. B. 915 CHAPTER 893 

AN ACT TO APPROPRIATE GENERAL FUNDS TO THE NORTH 
CAROLINA PROFE.SSIONAL LIABILITY INSURANCE .STUDY 
COMMI.SSI0N AND TO FUND SPECIAL STUDIES THROUGH THE 
LEGISI^TIVE SERVICES COMMISSION. 

Whe.'-e.is, House Bill .567 establishes a commission to study professional 
liability in.suranre in North Carnlina: and 

Whereas, without positive legislative action in this important area there is 
a probability that essential medical services would l* seriously curtailed if the 
availability of pro(essiot:al liability insurance is reduced or terminated; and 

Whereas, there is a need for the commission to employ professional and 
clerical staff with competence in the field of professional liability insurance; 
Now, therefore. 

The Csncral Afurembly of North Carolina enactis: 

Section I. There is hereby appropriated from the General Fund of the 
State to the North Carolina Professional Liability Insurance Study Commi.ssion 
the sum of twelve thousand fi\e hundred dollars (.$12,5001 for fiscal year 
1975-1976 and the sum of twelve thousand five hundred dollars (.$12,500) for 
fiscal year 1976-1977 for purposes of employing professional and clerical staff in 
support of the commission, and to defray all other related travel and subsistence 
expsn-^es of the commission and its staff. 

Sec. 2. The sum of twenty-five thou.'and dollars ($25,000) is 
appropria'cd to the Ix-gislative Services Commission to he u.-^ed, on the express 
approv'al of the commission, to pay the erponsps of study conimiv.inns or study 
efforts authorized by the 1975 General A.s.scmbly but for whuh no specific 
funding was authorized. The funds appropriated by this «<.'ction may be 
expenck'd in the 1975-1976 fiscal year, and any amount remaining may be 
e.xpended during the 1976-1977 fiscal year. 

Sec. .1. This act shall become effective July 1,1975. 

la the General Aasembly read three times and ratified, this the 26th day of 
June. 1975. 



APPENDIX II 
MEMBERS 
NORTH CAROLINA PROFESSIONAL LIABILITY INSURANCE STUDY COMMISSION 



Representative Ernest B. Messer, Chairman 

44th House District - Haywood, Madison, Swain and 
Jackson Counties 

Senator Boh L. Barker, Vice-Chairman 

14th Senatorial District - Wake, Harnett and Lee 
Co\inties 

Senator Julian R. Allsbrook - 5th Senatorial District 
Halifax, Edgecombe, Martin and Pitt Counties 

Representative John R. Gamble, Jr. - 58th House District 
Lincoln and Gaston Covmties 

Dr. Ira Hardy - Greenville, North Carolina 

Mr. John Henderson - Goldsboro, North Carolina 

Senator John T. Henley - lOth Senatorial District 
Cumberland County 

Mr. Robert R. Martin - Laurinbtirg, North Carolina 

Mr. Bernard H. Parker - Raleigh, North Carolina 

Representative Thomas B. Sawyer - 23rd House District 
Guilford County 

Representative Benjamin D. Schwartz - 12th House District 
New Hanover County 

Senator Thomas H. Suddarth - 21st Senatorial District 
Davie, Rowan and Davidson Cotinties 



APPENDIX III 



NAMES OF PERSONS APPEARING BEFORE THE NORTH CAROLINA PROFESSIONAL 
LIABILITY INSURANCE STUDY COMMISSION 



Lt. Governor James B. Hunt, Jr. 
President of the Senate 

The Hon. James C. Green, Speaker 
House of Representatives 

Dr. James E. Davis, President 
N. C. Medical Society- 
Mr. Marion J. Foster, President 
N. C. Hospital Association 

Mr. I. B. Hudson 
Attorney General's Staff 

Dr. William J. Reeves, Pres. 
Cabarrus County Medical Society 

Mr. William Mills, Attorney 
Cabarrus Memorial Hospital 

The Honorable John Ingram 
Commissioner of Insurance 

Miss Vella Nelson 

N. C. Association of Nurse 

Anesthetists 

Dr. Roy Agnew, private physician 
Salisbury, N. C. 

Dr. Norman Sloop, private physician 
Rowan Cotinty 

Mr. Ben W. Aiken, Ass't. Secretary 
N. C. Dept. of Human Resources 

Dr. Archie Johnson, Ass't. Sec. 
N, C. Dept, of Human Resources 

Mr. James Long 

Chief Deputy Commissioner 

N. C. Department of Insurance 



Senator Lawrence Davis 
20th Senatorial District 
Forsyth Coiinty 

Mr. James Bethune 
Independent Insurance Agent 

Mr. Jim Chambers, N. C. Manager 
The St. Paul Companies 

Mr. Tom Thompson, Claims 

Manager 
The St. Paul Companies 

Dr. Ed McKenzie, Member 
Rowan-Davie Medical Society 

Ms. Harriet Loucas, Instructor 
Physician Assistant Program 
Bowman-Gray School of Medicine 

Dr. Odell C. Kimbrell, Jr., 
Pres. of the Board of Trustees 
Wake County Hospital System, Inc. 

Mr. Ted Dick, Vice President 
Collier-Cobb Ins\irance Agency 

Mr. A. H. Williams, Vice-Pres. 
Collier-Cobb Insurance Agency 

Mr. Gene Phillips 

N. C. Academy of Trial Lawyers 

Mr. Southgate Jones, Jr. , 

President-El ect 

Independent Insurance Agents 

Mr. Ruffin Bailey 

American Insurance Association 

Mr. Bernard H. Parker, Vice-Pres. 
Nationwide Insurance Company 



-2- 

Appendix III 



Mr. Steven Morrisette, Director 
Governmental Affairs 
N. C. MedicsLL Society 

Mr. Dennis R. Barry, Director 
N. C. Memorial Hospital 

Dr. William Easterling 

Chief of Staff 

N. C. Memorial Hospital 



Dr. Christopher Pordham, III 
Dean of the UNC School of 
Medicine 

Ms. Patricia Wagner, 
Hospital Attorney 
Office of the Attorney General 
of North Carolina 

Mr. William Holdford 

N. C. Acadeny of Trial Lawyers 



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Appendix IV 



THE ST. PAUL CONPANIES 

PHYSICIANS & SURGEONS CLAIMS 
INVOLVING MINORS 
01-01-71/10-28-75 



Accident 
Date 


Date 
Reported 

04-28-75 
age 19 


Suit 
Filed 


10-05-72 
age 16 


No 


02-10-65 
age 18 


07-20-73 
age 26 


07-12-73 
age 26 


03-05-68 
age 14 


01-25-74 
age 19 


01-18-74 
age 19 


05-01-68 
age 2 


03-05-73 
age 7 


No 


05-30-67 
age 13 


02-12-75 
age 20 


02-11-75 
age 20 


06-26-67 
age 6 


06-03-70 
age 9 


11-30-70 
age 10 


05-14-64 
age 7 


08-25-75 
age 18 


No 



COMPANIES 



C^Qi 




Stiting /o« tiound Mt world trouna /At clock 

RALEIUH OFFICE 

P. O. eOX 1222S, 1620 HILLSUORO STDCET 

RALEIQH, N. C. 27605 

PriONE 82 B-90/5 

November 20, 1975 



Appendix IV 



Senator Tom Suddarth 
Legislative Study Commission 
North Carolina Legislative Building 
Raleigh, North Carolina 



Dear Senator buddarth: 

To our knowledge, in North Carolina, we have not had any 
reported claims involving Senate Bill 572 which became 
effective July 21, 1971. 

It is likely thct an insufficient period of llfue has passed 
to properly evaluate the effect of the "10 year discovery 
statute." 

If we can be of further assistance, please let us know. 

Yours very truly, 

THE ST. PAUL COMPANIES 




. Foster 
Manager 



CC ; J. H. Thompson 
Charlotte, N»C, 

JEF/vlc 



lul Fire and Marine Insurance Company. St. Paul Mercury Insurance Company. The St. Paul Insurance Company 



NORTH CAROLINA PROFESSIONAL LIABILITY INSURANCE STUDY COMMISSION 

INTERIM REPORT 
OCTOBER 25, 1975 



TO: Lt. Governor James B. Hvmt, Jr. 
Speaker James C. Green, Sr. 



In compliance with your joint directive to the Professional 
Liability Insurance Study Commission dated October 17, 1975, 
the Commission submits the following report: 

The Study Commission has detemiined that the crisis created 
by the lack of availability of medical malpractice insurance has 
abated. The Commissioner of Insurance of North Carolina and the 
President of the St, Paul Companies have informed the Study Com- 
mission that they have reached an agreement whereby the St. Paul 
Companies will again provide insurance coverage for all clients 
ins\ired before the St. Paul Companies' withdrawal from the 
State. 

The North Carolina Medical Society has agreed, through the 
establishment of a mutual insurance company, to providfa- prof es- 
sional liability insurance to eligible risks, as defined in 
G.S. 58-175.52(4), who wish to be insured through that company. 
The Commission is of the opinion that these two insurance carriers 
will provide adequate coverage for North Carolina health care 
providers . 

Inasmuch as the Study Commission concludes that a crisis no 
longer exists in the availability of medical malpractice insxxrance, 
the Study Commission does not recommend that a special session of 
the General Assembly be convened to consider this problem. 



Appendix V 

North Carolina Professional Liability Insurance 
Study Commission - Interim Report - October 25, 1975 
Page 2 



The Study Commission further recommends that at the next 
convening of the General Assembly, consideration be given to 
any changes or innovations in the procedvire for handling mal- 
practice suits and in the tort law that are recommended by the 
Study Commission, so as to provide a better climate for both 
providers and insurers of health care without compromising the 
basic rights of our citizens. The Commission believes that 
some changes might be necessary if future crises in the avail- 
ability of professional liability insurance are to be avoided. 

The Study Commission will make specific recommendations to 
the next convened General Assembly on those subjects it feels 
are appropriate for change or innovation, including but not 
limited to the following areas: 

1. the statute of limitations 

2. the standard of care 

3. the doctrine of informed consent 

4. the ad damnum clause 

5. limitations on recovery for malpractice 

6. attorneys* contingency fees 

7. counterclaim procedures 

8. the collateral source rule 

9. periodic versus lump-sum payments of malpractice awai 

10. pre-trial screening panels 

11. the burden of proof in malpractice cases 

12. limitations on liability through insxirance coverage 
with a fund to back up judgments in excess of in- 
surance coverage 



Appendix V 

North Carolina Professional Liability Insurance 
Study Commission - Interim Report - October 25 » 1975 
Page 3 



15. immvmity for health care providers involved 
in emergency medical care situations 
The Study Commission will continue to monitor the professional 
liability situation in North Carolina. Should any problems arise 
which require the immediate attention of the Study Commission, the 
Commission will take necessary and appropriate action. 

Respectfully submitted, 

Rep. Ernest B. Messer, Chairman /-y^Sen. John T. Henley 

^oa.. Bob L. Barker, Vice Chairman Mr. Robert R. Martin 

Mr . Bernard H . Parker 
Rep. Thomas B. Sawyer 





ep. Hdnjamin D. Schwartz \ I 
C/R*»n- Thnmns H. Suddarth 



APPENDIX VI 

A BILL TO BE ENTITLED 
AN ACT TO REVISE AND PROVIDE FOR PROCEDURAL AND SUBSTANTIVE LAWS 
GOVERNING CLAIMS FOR PROFESSIONAL MIPRACTICE: TO SHORTEN THE 
STATUTE OF LIMITATIONS FOR ADULTS AND MINORS; TO PROVIDE FOR A 
STANDARD OF CARE, A DOCTRINE OF INFORMED CONSENT, A NEW COLLATERAL 
SOURCE RULE, Al^ EXTENSION OF THE GOOD SAMARITAN LAV, ELIMINATION 
OF THE AD DAMNUM CLAUSE; AND TO ESTABLISH THE PATIENTS' COMPENSATION 
FUND. 
The General Assembly of North Carolina enacts: 

Section 1. G.S. l-15(b), sis the same appears in the 1975 
Cumulative Supplement to Volume lA of the General Statutes, is 
amended by deleting the comma "(,)" following the word "death" in the 
second line and substituting the following: 

"or one for malpractice arising out of the performance 
of or failure to perform professional services," 
Sec. 2. G.S. 1-15, as the same appears in the 1975 Cumulative 
Supplement to Volume lA of the General Statutes, is amended by adding 
a new subsection (c) to read as follows: 

"(c) Except where otherwise provided by statute, a cause 
of action for malpractice arising out of the performance 
of or failure to perform professional services shall be 
deemed to accrue at the time of the occurrence of the last 
act of the defendant giving rise to the cause of action: 
Provided that whenever there is bodily injury to the 
person, economic or monetary loss, or a defect in or damage 



Appendix VI 
-2- 

to property which originates under circiimstances making 
the injury, loss, defect or damage not readily apparent 
to the claimant at the time of its origin, and the injury, 
loss, defect or damage is discovered or should reasonably be 
discovered by the claimant two or more years after the 
occiirrence of the last act of the defendant giving rise 
to the cause of action, suit must be commenced within one 
year from the date discovery is made: Provided further, 
that in no event shall an action be commenced more than 
foTir years from the last act of the defendant giving rise 
to the cause of action." 
Sec. 3. G.S. I-I7, as the same appears in the 1975 Ciimulative 
Supplement to Volume lA of the General Statutes, is amended by 
designating present G.S. I-I7 as subsection (a) and by adding a new 
subsection (b) to read as follows: 

"(b) Notwithstanding the provisions of subsection (a) of 
this section, an action on behalf of a minor for malpractice 
arising out of the performance of or failure to perform 
professional services shall be commenced within the limi- 
tations of time specified in G.S. l-15(c): Provided, that 
when the last act of the defendant giving rise to the 
minor's cause of action occurs while such minor is -under 
the full age of seven years, the cause of action shall 
be deemed to accrue at the time such minor attains the 
full age of seven years, subject to such additional 
time as allowed by G.S. l-15(c)." 



Appendix VI 



-3- 



Sec. 4. Chapter 8 of the General Statutes is amended by adding 
a new article to read as follows: 

"ARTICLE 13. 
"nedical Malpractice Actions. 

"§ 8-92. Definition . — As used in this Article, the term "health 
care provider" means without limitation any person who pursuant to 
the provisions of Chapter 90 of the General Statutes is licensed, 
registered or certified to engage in the practice of or otherwise 
performs duties associated with any of the following: medicine, 
surgery, dentistry, pharmacy, optometry, midwifery, osteopathy, 
chiropody, chiropractic, radiology, nursing, physiotherapy, pathology, 
anesthesiology, anesthesia, laboratory analysis, rendering assistance 
to a physician, dental hygiene, psychiatry, psychology; or a hospital 
as defined by G.S. 151-126.1(3); or a nursing home as defined by 
G.S. 150-9(e)(2); or any other person who is legally responsible 
for the negligence of such person, hospital or nursing home. 

"§ 8-93. Standard of health care . — In any action for damages 
for personal injury or death arising out of the furnishing of or the 
failure to furnish medical, dental, or other health care, the defen- 
dant shall not be liable for the payment of damages unless the trier 
of the facts is satisfied by the greater weight of the evidence 
that the care of such health care provider was not in accordance 
with the practices and procedures for services which were provided 
in the sajne or similar commionities by similar health care providers 
at the time of the alleged act giving rise to the cause of action. 

"§ 8-94. Informed consent to health care treatment or pro - 
cedure. — (a) No recovery shall be allowed against any health care 



Appendix VI 
-4- 

provider upon the groiinds that the health care treatment was 
rendered without the informed consent of the patient or the patient's 
spouse, parent, guardian, nearest relative or other person authori'ed 
to give consent for the patient v/here: 

(1) The action of the health care provider in obtaining 
the consent of the patient or other person authorized 
to give consent for the patient v/as in accordance 
with the standards of practice among members of the 
same health care profession with similar training 
and experience situated in the same or similar com- 
munity, and 

(2) A reasonable person, from the information provided by 
the health care provider under the circumstnnces, 
would have a general understanding of the procedures 
or treatments and of the usual and most frequent 
risks and hazards inherent in the prop^ sed procedures 
or treatments which are recogni-.ed and followed by- 
other health care providers engaged in the same field 
of practice in the same or similar community; or 

(5) A reasonable person, under all the surrounding circum- 
stances would have undergone such treatment or pro- 
cedure of whicli he ■"omplains hfd 1 e been Mlvised by the 
health care provider involved, in accordajice with the 
provisions of paragraphs (] ) and (2) of this se^' l;ion. 
(b) A consent which is evidenced in writing and v/hich meets 
the foregoing standards, and which is signed by the patient or 
other authorized person, shall be presumed to be a valid consent,. 



Appendix VI 

-5- 
This presumption, liowever, may be subject to rebuttal only upon 
proof thab such signature and consent was obtained by fraud, 
deception or misrepresentation of a material fact. 

(c) A valid signature is one which is given by a person who 
under all the surrounding circumstances is mentally and physically 
competent to give consent. 

(d) No action shall be brought whereby to charge any health 
care provider upon any guarantee, warranty or assurance as to the 
results of any medical, surgical or diagnostic procedures or treat- 
ment performed by any health care provider unless the agreement or 
promise upon which such action shall be brouglit, or some note or 
memorajidvim thereof shall be in writing and signed by the party to 

be charged therewith or by some other person by him thereunto lav;- 
fully authorized. 

(e) In the event of any conflict between the provisions of 
this section and f:hose of Arbicle 7 of General Statutes Ghapler 35 
and Articles lA and 19 of the General Statutes Chapter 90, the 
provisions of those Articles shall control and continue in full 
force and effect. 

"§ 8-95- Collateral soiirces of recovery . — In any actic/i for 
malpractice arising out of the performance of or failure to perform 
professional services where the plaintiff seeks to recover for the 
cost of medical care, custodial care or rehabilitation services, 
loss of earnings or other economic loss, an award of damages shall 
not be reduced by insiorance proceeds or payments or other benefits 
paid under any insurance policy or contract where the premium or 
cost of such insurance policy or contract was paid either by or 
for the person or on behalf of a dependent v/ho has obtained the 



-6- 

award, but shall be reduced by any other collateral recovery for 
medical and hospital care, custodial care or rehabilitation services, 
loss of earnings or other economic loss. 

"§ 8-95. First aid or emerp;ency treatment; liability limitation . 
— (a) Any person who renders first aid or emergency health care 
treatment to a person who is unconscious, ill or injured, 

(1) when the circumstances require prompt decisions and 
actions in medical or other health care, and 

(2) when the necessity of immediate health care treatment 
is so apparent that any delay in the rendering of the 
treatment would seriously worsen the physical condition 
or endanger the life of the person, 

shall not be liable for damages, for injuries alleged to have been sus- 
tained by the person or for damages for the death of the person alleged 
to have occurred by reason of an act or omission in the rendering of 
the treatment unless it is established that the injuries were or 
the death was caused by gross negligence, wanton conduct or intentional 
wrongdoing on the part of the person rendering the treatment. 

(b) Nothing in this section shall be deemed or construed 
to relieve any person from liability for damages for injury or death 
caused by an act or omission on the part of such person while rendering 
health care services in the normal and ordinary course of his business 
or profession. 

(c) In the event of any conflict between the provisions of 
this section and those of G.S. 20-166(d), the provisions of 

G.S. 20-166(d) shall control and continue in full force and effect. 
Sec. 5. G.S. lA-1, Rule 8, as the same appears in the 1969 



Appendix VI 

-7- 

Replacement Volume lA of the General Statutes, is amended by adding 
a new subsection to read as follows: 

"(g) Ad damnxim rule . — Notwithstanding any provision in this 
Chapter, a pleading which sets forth a claim for relief for malprac- 
tice arising out of the performajice of or failure to perform profes- 
sional services shall not state a demand for a specific amount of 
monetary relief: Provided that such pleading shall state that the 
relief demanded is to compensate the plaintiff for damages incurred 
or to be incurred and that the monetary relief requested is within 
or exceeds the court's jurisdictional requirements." 

Sec. 6. Chapter 58 of the General Statutes is amended by adding 
a new Article 26B to read as follows: 

"ARTICLE 26B. 
"Patients' Compensation Fund. 

"i 58-254.20. Definition . — As used in this Article, the ■ erm 
"health care provider" means without limitation any person who pur- 
suant to the provisions of Chapter 90 of the General Statutes is 
licensed, registered or certified to engage in the practice of or 
otherwise performs duties associated with any of the following: 
medicine, surgery, dentistry, pharmacy, optometry, midwifery, 
osteopathy, chiropody, chiropractic, radiology, nursing, physiotherapy, 
pathology, anesthesiology, anesthesia, laboratory analysis, rendering 
assistance to a physician, dental hygiene, psychiatry, psychology; 
or a hospital as defined by G.S. 151-126. l( ?) ; or a nursing home as 
defined by G.S. 150-9(e)(2); or any other person who is legally res- 
ponsible for the negligence of such person, hospital or nursing home. 



Appendix VT 
-8- 

"§ 58-25A-.21 Qualification; applicability of Article . — (a) To 
be qualified \inder the provisions of this Article, a health care 
provider shall: 

(1) File with the Commissioner of Insur- nee proof 
of financial responsibility as provided in 
subsection (e) of this section in the amount of 
one hundred thousand dollars (1|100,000) or more; 
and 

(2) Pay the surcharge assessed by this Article on 
all health care providers according to 

G.S. 58-25^.25. 

(b) Subject to subsection (f) of this section, a health care 
provider qualified under this article is not liable for a claim of 
malpractice for an amount in excess of the amoujit stated in his 
proof of financial responsibility. 

(c) Any amount due from a judgment, "arbitration award" 

or court-approved settlement which is in excess of the total liability 
of all liable health care providers, subject to subsections (b) and 
(f) of this section, shall be paid from the Patient's Compensation 
Fund pursuant to the provisions of G.S. 58-25^.25, and shall inure 
respectively to the exclusive benefits of all liable health care 
providers. 

(d) A health care provider who fails to qualify under this 
Article is not covered by the provisions of this Article ond is 
subject to liability under the law without regard to the provisions 
of this Article. If a health care provider does not so qualify, the 
patient's remedy will not be affected by the terms and provisions 

of this Article. 



Appendix VI 
_9_ 

(e) Financial responsibility of a health care provider 
under this Article may be established only by filing with l,he 
Commissioner of Insurance proof that the health care provider is 
insured by a policy of malpractice liability insurance or is a 
participant in an insurance trust (which trust shall pay to or 
for the account of the participant), or is otherv;ise self-insured 
and files v;ith the State Treasurer bond, collateral or other 
security, in the amount of at least one hundred thousand dollars 
($100,000) per occurrence. 

(f) Nothing in this Article shall be deemed or construed to: 

(1) limit the personal liability of any health 
care provider for malpractice arising out of 
the performance of or failure to perform 
professional services; 

(2) limit the amount of compensation from any 
final judgment, arbitration award or court- 
approved settlement to any claimant injured 
as a result of said malpractice; or 

(5) permit the filing by any claimant, of an action 
against the Fund that is separate or independent 
from his action against a health care provider. 
58-25^.22. Advance payments; claims non-assignable . — (a) 
Except as provided in G.S. 58-254.24, any advance payment made by 
the defendant health care provider or his insiirer to or for the 
plaintiff, or any other person, may not be construed as an admission 
of liability for injuries or damages suffered by the plaintiff or any- 
one else in an action brought for medical malpractice. 



Appenaix vx 

-10- 

(b) Evidence of an advance payment is not admissible until 
there is a final judgment in favor of the plaintiff, in which event 
the court shall reduce the judgment to the plaintiff to the extent 
of the advance payment. The advance payment shall inure to the 
exclusive benefit of the defendant or his insurer making the payment. 
In the event the advance payment exceeds the liability of the defen- 
dant or the insurer making it, the court shall order any adjustment 
necessary to equalize the amount which each defendant is obligated 

to pay, exclusive of costs. In no case shall an advance payment in 
excess of an award be repayable by the person receiving it. 

(c) A patient's claim for compensation under this Article 
is not assignable. 

58-25^.25. Patients' Compensation Fund; creation; surcharge ; 
maintenance; claims against the Fund . — (a) There is hereby created 
the Patient's Compensation Fund (hereinafter referred to as the "Fund") 
to be collected and received by the State Treasurer for exclusive use 
for the purposes stated in this Article. The Fund and any income 
from it, shall be held in trust, deposited in a segregated account, 
invested and reinvested by the State Treasurer, and shall not become a 
part of the General Fund of the State. 

(b) To create the Fund, an annual surcharge shall be levied 
on all health care providers who qualify under the provisions of 
G.S. 58-254. 21(e). Subject to the provisions of subsection (f) of 
this section, the surcharge shall be determined by the Commissioner 
of Insurance based upon actuarial principles and shall not exceed 
fifty percent (50%) of the cost to each health care provider for 
maintenance of financial responsibility. The surcharge shall be 



Appendix VI 

-11- 

collected by the same method as premi^ums by each insurer and shall 
be forwarded to the Fund. If a health care provider is a participant 
in an insurance trust or is otherwise self-insured, the health care 
provider shall forward the surcharge to the Fund. On or before 
Narch 50 of each year, the Commissioner shall notify all participating 
health care providers, insurers and trust funds of the surcharge rates 
for that year. 

(c) Such surcharge shall be due and payable within thirty 
days after the premiums for malpractice liability insurance have been 
received by the insurer, or, if the health care provider is a partici- 
pant in an insurance trust or is otherwise self-insured, on or before 
April 50 of each year. Before the effective date of this Article, the 
Commissioner of Insvirance shall send to each insurer a statement ex- 
plaining the provisions of this Article together with any other infor- 
mation necessary for their compliance with this Article. 

(d) If the annual premium surcharge has been established ajid 
is not paid within the time limited above, the certificate of authority 
of the insurer may be suspended until the annual premium surcharge is 
paid. If the health care provider is a participant in an insurance 
trust or is otherwise self-insured, and the annual premium surcharge 

is not paid on or before April 50, the Commissioner of Insurance shall 
notify the appropriate licensing, registration or certification 
authority. 

(e) All expenses of collecting, protecting and administering 
the Fxmd shall be paid from the Fund. 

(f) Following the effective date of this Article, the sur- 
charge provided for in this section shall be established at 50% of 



Appendix VI 

-12- 

the cost to each health care provider for the maintenance of 
financial responsibility until the Fund reaches a level of four 
million dollars (:S^,000,000) . At that time, or, at the end of any 
calendar year after the payment of all claims and expenses, if the 
Fund exceeds the sxom of four million dollars (S^, 000, 000) , the 
Commissioner of Insurance shall reduce the surcharge provided in this 
section in order to maintain the Fund at an approximate level of four 
million dollars ($4,000,000) . 

(g) All claims against the Fund shall be computed on December 
51 of each year in which the claims become final. All claims shall 
be paid on or before January 15 of each year. If the Fund would be 
exhausted by payment in full of all claims allowed during a calendar 
year, then the amount paid to each claimant shall be prorated. Any 
amounts due and unpaid shall be paid in the following calendar year 
or subsequent calendar years in the chronological order that the 
claims have reached final judgment or award, or have been settled and 
approved by a court pursuant to Subsection (h) of this section. 

(h) The State Treasurer shall issue a warrant in the amount 
of each claim submitted by the Commissioner of Insurance to him 
against the Fund on December 51 of each year. The only claim against 
the Fund shall be a voucher or other appropriate request by the State 
Treasurer after he receives: 

(1) a certified copy of a final judgment against 

a health care provider in excess of the amount 
stated in his proof of financial responsibility; or 

(2) a certified copy of a court approved settle- 
ment between a claimant and a health care 



Appendix VI 

-13- 

provider in excess of the amount stated in the 
health care provider's proof of financial 
responsibility; or 
(3) a certified copy of a final arbitration award 

against a health care provider in excess of the 
amount stated in his proof of financial 
responsibil i ty . 
"§ 58-25'^«2^. Settlement procedure . — (a) If the insurer or 
trust fund of a health care provider has agreed to settle its liability 
on a claim against its insured or trust fund participant by payment 
of its policy or trust fund limits, or if a self-insured health care 
provider has likewise agreed, and the claimant is demanding an amount 
in excess thereof for a complete and final release, the claimant and 
the health care provider may agree to a settlement from the Puiid, 
subject to the provisions of this section. 

(b) \/here the claimant smd the health care provider have 
agreed to a settlement from the F\xnd, a petition shall be filed by 
the claimant and health care provider within twenty days after the 
agreement is reached, with the superior court of the county in which 
the cause of action arose, seeking approval of the agreed settlement 
and demanding payment of damages from the Fund. 

(c) The judge of the court in which the petition is filed 
shall set the petition for hearing before the judge as soon as 
practicable. The court shall give notice of the hearing to the 
claimant, the health care provider and the State Treasurer. 

(d) At the hearing the claimant, the health care provider 
and the attorney for the Fund may introduce relevant evidence to 



Appendix VI 

-lo- 
anable the judge to determine whether or not the petition should be 
approved. The judge may refer any matter regarding the issue of 
damages to the Attorney General for his opinion pursuant to 
G.S. 110-2(5). 

(e) In approving a settlement the judge shall consider the 
damages sustained by the claimant as established and render a find- 
ing and a consent judgment accordingly. 

(f) If the settlement is not approved by the judge, the 
judge shall render a finding and judgment accordingly. In such case 
the claimant and the health care provider shall be left to their 
remedies at law. The finding and judgment shall not be admissible 
as evidence in any action pending or subsequently brought by the 
claimant in a court of law. 

(g) Notwithstanding the provisions of Article 27 of General 
Statutes Chapter 1, any order disapproving an agreed settlement shall 
not be appealed: Provided that if the claimant has not commenced 

an action against the health care provider in a court of law, the 
applicable statute of limitations shall be tolled up to and including 
a period of 90 days following the issuance of the order disapproving 
he settlement. 

"§ 58-25^.25 Reporting of claims . — (a) All malpractice claims 
settled or adjudicated to final judgment agains'. a health care pro- 
vider that are in excess of the health care provider's insurance 
policy, trust or self-insurance limits shall be reported to the 
Commissioner of Insurance by the plaintiff's attorney and by Ihe 
health care provider or his insurer within sixty days following 



Appendix VI 

-15- 

final disposition of the claim. The report to the Commissioner of 
Insurance shall state the following: 

(1) nature of the claim; 

(2) damages asserted and alleged injury; 

(3) attorney's fees and expenses incurred in 
connection with the claim or defense; and 

(4) the amount of any settlement or judgment. 

(b) The information contained within the reports as required 
by this section is to be used for internal statistical purposes only. 
Therefore, such information shall be privileged and not be disseminated 
to the general public. 

"§ 58-25^.26. Acceptance of and compliance with Article . — (a) 
The filing of proof of financial responsibility with the Commissioner 
of Insurance shall constitute, on the part of the insurer, a con- 
clusive and unqualified acceptance of the provisions of this Article, 
(b) Any provision in a policy attempting to limit or modify 
the liability of the insurer contrary to the provisions of this 
Article is void. 

"§ 58-25^.27. Incorporation of Article into policy provisions ; 
revocation of approval of policy form ; — (a) Every insiorance policy issued 
or trust arrangement executed under this Article is deemed to include 
the following provisions, and any change which may be occasioned by 
legislation adopted by the General Assembly of the State of North 
Carolina as fully as if it were written therein: 

(1) The insurer or trust fund assumes all obligations 
to pay an award imposed against its insured 
within the policy or trust arrangement limits 



Appendix "VT 

-16- 
and under the provisions of this Article; and 
(2) Any tennination of the policy or trust arremge- 
ment by cancellation is not effective as to 
patients claiming against the insured covered 
hereby, unless at least thirty days before the 
taking effect of the cancellation, a written 
notice giving the date upon which termination 
becomes effective has been received by the 
insured and the Commissioner of Insurance at 
their offices. 

(b) If an insurer fails or refuses to pay a final judgment, 
except during the pendency of an appeal, or fails, or refuses to 
comply with any provisions of this Article, absent any material mis- 
conduct or noncompliance by its insured, in addition to any other 
legal remedy, the Commissioner of Insurance may also revoke the 
approval of its policy form until the insurer pays the award or judg- 
ment or has complied with the violated provisions of this Article and 
has resubmitted its policy form and received the approval of the 
Commissioner of Insurance. 

(c) If a health care provider fails or refuses to pay a 
final judgment, except during the pendency of an appeal, or fails, 
or refuses to comply with any provisions of this Article, in addi- 
tion to any other legal remedy, bhe Commissiorer of Insurance may 
also notify the appropriate licensing, registration or certification 
authority of his refusal to do so. 

"§ 58-254.28. Protection of the F\and . — (a) The Office of the 
Attorney General shall provide one or more attorneys for the pvirpose 



Appendix VI 

-17- 
of representing the Fvmd in any action, arbitration proceeding or 
settlement procedure where the amount demanded by the claimant ex- 
ceeds the limits of a health care provider's insurance policy, trust 
fund or self-insurance. The Fund shall reimburse the Office of the 
Attorney General for all expenses incirrred in representing the Fund. 

(b) Notice of any claim exceeding a health care provider's 
insurance policy, trust fimd or self-insurance limits shall be given 
to the State Treasurer by the health care provider against v/hora ^^he 
claim is made within 10 days after the health care provider receives 
notice or a statement of the total amo\int demanded by the claimant." 

Sec. 7- Article 2 of General Statutes Chapter 58 is amended 
by adding a new Section 58-21.1 to read as follows: 

"58-21.1. Annual statements by professional liability 
insurers . — (a) Every insurance company authori"ed to v;rite profes- 
sional liability insurance in the State shall file in the office 
of the Commissioner of Insurance, on or before t;he first day of 
February in each year, in form and detail as the Commissioner of Insur- 
ajice prescribes, a statement showing the items set forth hereinafter, 
as of the preceding thirty first day of December, signed and sv/orn to 
by the chief managing agent or officer thereof, before the Commissioner 
of Insurance or some officer authorir^ed by law to administer oaths. 
The Commissioner of Insurance shall, in December of each year, furnish 
to each of the insurance c;ompanies authorised to write professional 
liability insurance in the State forms for the annual statements. 
Provided, that the Commissioner may, for good and sufficient cause 
shown by an applicant company, extend the filing date of such 
annual statement for such company, for a reasonable period of time, 
not to exceed 30 days. 



Appendix VI 
-18- 

PROFESSIOML LIABILITY INSURERS: AMTUAL STATEMENT 

(1) Number of claims pending at beginning of year; 

(2) Number of claims pending at end of year; 
(5) Number of claims settled paid: 

(a) Highest award 

(b) Lowest award 

(c) Average award; 

(4) Number of claims settled no payment; 

(5) Number of claims to Court in which award paid; 

(6) Number of claims out of Court in which award paid; 

(7) Average amount per claim set up in reserve; 

(8) Total premium collection; 

(9) Total expenses less reserve expenses; and 

(10) Total reserve expenses. 

(b) The information contained v;ithin the reports as required 
by this section is to be used for internal statisbi^-al purposes only. 
Therefore, such information shall be privileged and not be disseminated 
to f;he general public." 

Sec. 8. If any provision of this act or the application thereof 
to any person or circumstances is held invalid, such invalidity shall 
not affect other provisions or application which can be given effect 
without the invalid provision or application, and to this end the 
provisions of this act are severable. 

Sec. 9- This act shall not apply to pending litigation. 

Sec. 10. This act shall become effective on July 1, 1976» 



APPEDTDIX VII 

A BILL TO BE ENTITLED 
AN ACT TO PROVIDE FOR PERIODIC PAYMENTS OP PROFESSIONAL MALPRACTICE 
AV/ARDS INSTEAD OF LIMP SUM PAYMENTS . 
The General Assembly of North Carolina enacts: 

Section 1. Chapter 1 of the General Statutes is amended by- 
adding a new article to read as follows: 

"ARTICLE 44B 
"Periodic Payments of Malpractice Awards. 
"§ 1-5^5.10. Definitions . — Unless a different meaning is re- 
quired by the context, the following terms as used in this Article shn^l 
have the meanings hereinafter respectively ascribed to them: 

(1) "Future damages" means without limitation damages 
for future medical treatment, care or custody, 
loss of future earnings, loss of bodily function, 
or future pain and suffering of the ^judgment 
creditor. 

(2) "Periodic payments" means the payment of money 
or delivery of other property to the judgment 
creditor at regular intervals. 

"§ 1-5^5.11. Periodic payments authorized; procccure . — 
(a) In any action for malpractice arising out of the performance of 
or failure to perform professional services, a superior court may at 
the request of either party, make a specific finding of damages sus- 
tained by the injured party as of the date nf an av/ard and a specific 
finding of future damages, as defined in G.S. 1-54J.10(1), and may 
enter a judgment ordering that money damages or its equivalent 



_2- Appendix VII 

for future damages of the judgment creditor be paid in whole or in 
part by periodic payments rather than by a lump-sum payment if it 
is fo\ind that such future damages equal or exceed one h-undred 
thousand dollars ($100,000). In entering a judgment ordering the 
payment of future damages by periodic pajnments , the court shall make 
a specific finding as to the dollar amount of periodic payments which 
will compensate the judgment creditor for such future damages. As a 
condition to authorizing periodic payments of future damages, the 
court shall require the judgment debtor who is not adequately insured 

J file with the court such bond, collateral or other security as the 
court deems adequate to assure full payment of such damages awarded 
by the judgment. 

(b) The judgment ordering the payment of future damages by 
periodic payments shall specify the recipient or recipients of the pay- 
ments, the dollar amount of the payments, the interval between payments, 
and the number of payments or the period of time over which payments 
shall be made. Such payments shall only be subject to modification 
upon proper motion and findings by the court that a change in circum- 
stances justifies such modification: Provided that money damages 
awarded for ].oss of future earnings shall not be reduced or payments 
terminated by reason of the death of the judgment creditor, but" shall 

oe paid to the estate of the judgment creditor. 

(c) The judgmeni; ordering periodic payraents shall provide 
that: 

(1) All court approved laxable costs shall be 
paid in a lump sum; 

(2) The fee of an attorney representing the 
judgment creditor shall be subtracted from 



_5- Appendix VII 

the recovery of the judf^nent creditor before 
the periodic payment recovery is computed os 
specified in subsection (b) of this secviun. 
This fee shall be paid in a luXiip sun within twenty 
days of entry of judgment, luiless the judgment 
creditor and his attorney agree to, and the 
court approves as being f;''iuitable, a plan which 
provides for the installment payment of this fee. 
"§ 1-5^5.12. Actual default of judgment debtor . — In the event 
that the court finds that the judgment debtor has exhibited a con- 
tinuing pattern of failing to make the payments as specified in 
G.S. 1-5^5. 11(b), the court shall find the judgment debtor in contempt 
of court and, in addition to the required periodic payments, shall 
order the judgment debtor to pay the judgment creditor all damages 
caused by the failure to make such periodic payments, including court 
costs and attorney's fees. 

"§ I-545.I5. Anticipatory default of judgment debtor . — 
The court may accelerate the periodic payments or reouire additional 
bond, collateral or other security or both upon proper raocion and 
findings that: 

(]. ) the judgment debtor threatens or is about; to 
remove or dispose of his proper '.y v;ith intent 
to defraud the judgment creditor; or 

(2) the prospect of payment by the judgment debtor is 
otherwise impaired. 



-^4^- Appendix VII 

"§ I-545.IA. Lien on real property of .iudKment debtor ; 
recordation . — A certified copy of any judgment or order of any 
superior court of this State issued pursuant to G.S. 1-5'^5.1] , v;hen 
recorded with the clerk of court of any county, shall from such 
recording become a lien upon all real property of the .judgment 
debtor, not exempt from execution, in such counLy, owned by him at 
the time, or which he may afterwards and before the lien expires, 
acquire, for the respective amounts and installments as they mature, 
but shall not become a lien for any sum or sums prior to the date 
they severally become due srid payable, v/hich liens shall have, to 
the extent herein provided and for the period of 10 years from 
such recording, the same force, effect and priority as the lien 
created by recordation of an abstract of a money judgment pursuant 
to G.S. 1-234. 

"§ I-543.I5. Satisfaction of judgment; reversion of security . 
— (a) The certificate of the judgment debtor, certified by him 
under penalty of perjury, that all amo\ints and installments which 
have matured under said judgment prior to the date of su^n ::ertifi- 
cate have been fully paid and satisfied shall, when acknowledged 
and recorded, be prima facie evidence of such payment and sat,isfac bion 
and conclusive in favor of any person dealing in good faith and 
for a valuable consideration with the judgment debtor or his 
successors in interest. 

(b) Vrhenever a certified copy of any judgment qr order 
of any superior courl; issued pursuant to G.S. l-^'^J-.ll has been 



-5- Appendix VII 

recorded with the clerk of court of any comi'^y, Lhe expiration or 
satisfaction thereof made in Lhe manner of an acknowl edgmenl of a 
conveyance of real property may be recorded. 

(c) Following the occurrence or expiral-ion of all 
obligations specified in the periodic payment judgment, any obliga- 
tion of the judgment debtor to make further payments shall cease and 
any bond, collateral or other security given pursuant to G.S. l-5^l-3.11- 
shall revert to the judgment debtor. 

"§ 1-5'^5.16. Reserves for periodic payments . — notwithstanding 
any other provision of law, reserve funds set aside by any indemnitor 
of a judgment debtor for the purpose of drav/ing therefrom the periodic 
payments specified in G.S. l-5''i-5.11 may only be invested pursuant to 
the provisions of G.S. 58-79. !('-)• Any and all interest accrued 
from such reserve funds shall inure solely to the benefit of the 
judgment creditor." 

Sec. 2. If any provision of this act or the application there- 
of to any person or circumstances is held invalid, such invalidity 
shall not affect other provisions or application of this act which 
can be given effect v;ithout the invalid provisions or application, 
and to this end the provisions of this act are severable. 

Sec. 5. This act shall become effective on July 1, 1976. 



APPENDIX VIII 

MARKET SURVEY OF MEDICAL MALPRACTICE INSURANCE 
IN NORTH CAROLINA AS OF DECEMBER, 1975 

By 

John L. Henderson 
Member of the N. C. Professional Liability Insurance Stady Commission 



In my recent market survey on the availability of medical malpractice insurance 
in North Carolina, the results lead me to conclude that there is a very limited market 
for the writing of this type of Insurance in our State. 

Submitted as supporting evidence is the following: 

Below are portions of the testimony of Frederick W. Kilbourne, who is the 

President of Booz-Allen Consulting Actuaries, a division of Booz, Allen & Hamilton, a 

management consulting firm. This testimony was given at the trial testing the 

constitutionality of the Reinsurance Exchange on November 6, 1975. 

There is a long list of problems faced by these companies 
[entering the Exchange.] First of all they must write a line 
of business that most of them are not equipped to write. 
They must, or should tool up so-to-speak, for medical mal- 
practice, which is a highly specialized line. They face a 
probability, based on recent history in this State, of having 
to divert a considerable amount of executive and adminis- 
trative time to dealing with the problems, not only of medical 
malpractice as a difficult line, but also of North Carolina as 
a difficult State in medical malpractice insurance. Finally, 
they face the probability of severe financial losses if the rate 
levels promulgated are indeed those that are going to be 
affected. (Page 329) 

In my opinion if all physicians and surgeons liability 

insurance in North Carolina were written through the Exchange 

at ISO rates in effect early in 1975, the aggregate loss to the 

insurance companies participating in the Exchange, would be 

in excess of $5, 000, 000 per year, (Page 333) 

In my opinion the high ISO rate levels are themselves 
inadequate to the risk of writing physicians and surgeons 
liability insurance in North Carolina. It would be my expect- 
ation that a company that wrote that line of insurance in North 
Carolina, in the future, using the new rates as set forth in the 
October 27th order, would probably lose money rather than 
earn money. (Page 336) 



Appendix VIII 
-2- 

The rate filings that I have reviewed include projections of 
claim frequency trends that are based on hlstoricrJ statistics 
running tlirough various periods of tiitie, but in no case does 
this include statistics including 1975. Based or review of 
the Exhibits that are referred to and then; has becsn a sub- 
stantial amount of press attention to medical mripr-iciice in 
1975, and I would expect that there are patients who are now 
aware of medical malpractice who, under the identical cir- 
cumstances a year ago, would i.ot have been aware of the 
existence of the coverage; and that therefore the current claim 
frequency, or the previous claim frequency in this line would 
increase to some extent as a result of that increased aware- 
ness. If I could give you a little ba^^i .ground; roughly speaking, 
medical malpractice claims result only h\ about onv procedure out 
of perhaps, approximately 10,000 procedures performed by 
doctors in the State, leaving 9,999 proccdtires tb9.t do not result 
in medical malpractice claims. It is probable that there is a 
sufficient basis for a claim in some additional number out of 
that 10, 000 beyond the one that historically has resulted in a 
claim. It would be my expectation that the number of "one" 
would increase to some extent. (Page 342) 

Mr. Kilboume also worked with the Auditor General of California in preparing an 

interim report on medical malpractice insurance. I submit quotes from the summary of 

that report because I believe the conclusions are illustrative of what may rc'u- in this 

State unless neecessary changes are made. 

The seven insurance companies we reviewed collected $26!^ 
million in physicians' malpractice insurance premiums in 
California during the 15 year period 1960 through 1974 and 
paid out approximately $115 million in claims and claim 
expenses from this revenue through December 31, 1975 

On the basis of our review of the payments made by the 

companies we reviewed and the trend of these payments, wo 

estimate that these carriers will ultimately pay out $183 

million more than they collected in premiums foT* physicians' 

malpractice Insurance coverage for the years 1960 through 

1974. This projected loss does not include any provision for 

insurance companies' indirect expenses, investment eariai -tr 

on premiums held, inflationary factors in the amoimts of 

physician malpractice claims, or increases in claim frequency. (Page 1) 

Premiums paid by California doctors for medical malpractice 

insurance have increased dramatically over the past fifteen 

years but have not kept pace with increasing claim costs. (Page 5) 



Appendix VIII 

The medical profession in California over the past fifteen 
years has paid am inadequate amount for its medical mal- 
practice insurance coverage. (Page 6) 

As further evidence of the limited malpractice insurance market in North 
Carolina, I submit excerpts from the Judgment of Judge James II. Pou Bailey, 
dated November 7, 1975, in which he found the Reinsurance Exchange unconstitu- 
tional on its face. 

Because of the volatile nature of the medical malpractice 
insurance business and the rapidly mounting number and 
and severity of medical malpractice insurance claims, 
companies attempting to write medical malpractice insur- 
ance coverage without adequate experience and expertise 
and without qualified and experienced personnel could 
easily suffer serious losses in this line of insurance. (Page 6) 

A number of the companies which pre^/lously wrote medical 

malpractice insurance have withdrawn from the market, 

both coiuitrywide and in North Carolina, and no company 

will accept all of the medical malpractice insurance business 

tendered to it. The great majoritj' of the plaintiffs do not 

write medical malpractice insurance and are unwilling to do 

so. (Page 7) 

The most recent medical malpractice insurance experience 
data of ISO in North Carolina has been as follows: 

Over the past eight years, the frequency with which claims 
have been brought against physicians and surgeons, country- 
wide, has increased approximately 12% per year. The rate 
of increase has picked up in most recent years. In tht; past 
three years the annual rate of increase in claims frequency 
has averaged approximately 25%. 

In North Cai'olina the annual chiinge in claim frequency is 
slightly in excess of the countrywide trend. It h^.d averaged 
13. 5% over the eight year period. In the past three years 
there has been a very drastic increase in frequency of claims. 

On a countrywide basis, hospitals have also shovvn an increase 
in claims frequency of approximately 12% annually over each 
of the last seven or eight years. For North Carolina, the 
corresponding rate of increase is approximately 16%. 



Appendix VIII 
-4- 

With respect to the severity of claims, the dollar value 
of claims paid countrywide, has increased 10% per year 
over each of the most recent five calendar years. The 
North Carolina rate of increase over the same period has 
been 21% per year, so that the trend in the severity of 
claims has been significantly higher in North Carolina than 
covmtiywide. 

The trend with respect to defense costs, countrywide, 

increased at approximately the same rate as paid losses. (Page 9) 

Although North Carolina has had one of the lowest medical 
malpractice insurance rate scales in the countrjs the 
history of medical malpractice insurance regulation in 
North Carolina since January 1, 1973, with respect to 
rate filings shows numerous significant facts: 

(a) In the vast majority of cases, no public 
hearings have been called by the Commissioner 
of Insurance. 

(b) In many cases the filings have been dis- 
approved by the Commissioner of Insurance 
without public hearing. 

(c) In many cases the filings have been ignored, 
and no action taken by the Commissioner of 

Insurance. (Page 12-13) 

During the past week, I have had telephone conversations with several companies. 

These conversations, excerpts from which follow, lead me to believe the market will 

continue to be tight. 

We are currently providing a market for physicians and 
surgeons and hospitals. We are limiting our excess 
limits on those classifications to $1, 000,000. We are 
not a market for miscellaneous medical malpractice 
insurance. There has not been a rate increase for mis- 
cellaneous malpractice since 1967 and we will not come 
back into the market using those rates. It is our under- 
standing that ISO filed for new rates for miscellaneous 
professional liability November 1, and a hearing will be 
held about December 17, 1975. Should these rates be 
approved we would be interested in coming back into the 
market in most cases. (St. Paul) 

Our present plans are to handle our renewals at 25% 
above the new ISO rates, on a consent to rate basis only, 
for physicians and surgeons. Our rates for miscellaneous 
forms of malpractice will be the new ISO rates. We are 
not a market for any new business; however, we are trying 
to handle renewals for tlie very limited number of risks that 



Appendix VIII 
-5- 

We are not going to write any professional liability insurance 
in North Carolina even though we were a principal writer at 
one time. Our surplus has been depleted and we are with- 
drawing from the market on a countryAS'ide basis. (Shelby Mutual) 

We will not be a mai'ket until litgation concerning the 
Reinsurance Exchange has been finalized, and then 
probably not at all. (The Hartford Group) 

We are not interested in writing a high hazard type of risk 
where rate making is subject to lengthy disputes and 
temporary approval. (Aetna Life and Casualty) 

All of our business is in the Facility. We are not writing 
any new business, and do not wish to go back into the 
market, (The Continental Companies) 

I also spoke with a number of insurance agents across the state who have written 
malpractice insurance. None of them know of a viable market expect the St. Paul 
companies. 

Furthermore, I have spoken with respresentatives of Lloyds of London, and have 
been informed that they offer no primary or excess market for physicians, surgeons or 
hospitals at this time. 

Surplus lines brokers in some cases do have an excess market available if the 
underlying limits are written at anywhere from 200, 000/600, 000 to 500, 000/1, 500, 000. 
The problem is that these excess markets are not being used significantly because of 
the difficulty of obtaining underlying coverage with a company the excess writer considers 
responsible. 

For a number of risk classifications, such as nurse anesthetists, the market 
seems to rest with their trade association. This creates problems because one must 
be a member of the association in order to qualify for insurance. This is not considered 
a readily available market for these classifications. 

There are other outlets that I might have investigated; however, they are not a 
viable factor in the market, and the limited amount of business that they have written 
in the malpractice field has been on an accommodation basis. 



Appendix VIII 
-6- 

I wholeheartedly concur with the evidence submitted above. I am of the opiiii'.)n 
that as insurance companies consider (1) the existing overall market problems, (2) the 
improbability of rapid legislative change, and (3) the publicity which has produced a 
claims-conscious public, they are reluctant to broaden a market for professional liability 
insurance in North Carolina. Furthermore, this limited private market will place an 
even greater burden upon the recently-created, doctors' Medical Liability Mutual 
Insurance Company, inasmuch as this company must accept all health care risks 
applying to them for this vital coverage. 

In closing, I further conclude that we, as a commission, must generate substantial 
legislative reform. The general public and the insurance Industry are relying on this 
Study Commission to take the lead in recommending these reforms. We must also 
experience better response to changing market conditions by various regulatory agencies, 
if the availability of professional liability insurance is to radically improve. 

Respectfully submitted, 

John L. Henderson 



October 29, 1975 
REPORT TO 

REPRESENTATIVE ERNEST MESSER, CHAIRMAN 
PROFESSIONAL LIABILITY INSURANCE STUDY COMMISSION 
FROM: JOHN INGRAM — NORTH CAROLINA COMMISSIONER OF INSURANCE 

Uninterrupted health care is now guaranteed by three 
choices of malpractice insurance: 1) Medical Mutual Company 
writing "occurrence" coverage 2) North Carolina Hospital 
Association "self-insurance" plan and 3) St. Paul's "claims- 
made" coverage. 

We had to go several extra steps to reach accord with 
St. Paul, including the rewriting of earlier orders issued 
regarding St. Paul and medical malpractice insurance. I had 
to allow St. Paul's "claims -made" form with open ended Guide 
"A" rates. Please see attached orders for details. 

Because of the extra steps which had to be taken to 
meet St. Paul's demands to re-enter the medical malpractice 
insurance market in our state, it is essential that every 
doctor, hospital or other professional health care provider 
fully understand the St. Paul "claims-made" form and what it 
means . 

They must understand the choice between St. Paul's 
"claims-made" form and the Medical Society's Mutual Company's 
"occurrence" form and the Hospital Association's "self- 
insurance" plan. 

For example, in the case of St. Paul the Commissioner 
of Insurance does not have prior 'approval of the Guide "A" 
rates. I quote from a letter from St. Paul's attorney: 



Page #2 Appendix IX 

"Guide 'A' rates are rates that may be charged 
for a reporting endorsement, and may be charged at 
any time by St. Paul without the prior approval of 
the Commissioner of Insurance. The rates testified 
to in the hearing on September 22 and 23, 1975 are 
merely examples and are not binding on St. Paul 
and may be changed at any time by St. Paul without 
the prior approval of the Commissio; .r of Insurance." 

A doctor who is considering buying professional liability 
insurance should realize that he or she has a choice between 
"claims-made" and "occurrence-type" coverage. The North 
Carolina Medical Society has formed a Medical Mutual Company 
which now is binding "occurrence" coverage. 

Other factors related to this choice which should be 
considered are these: 

A. 1. The Medical Mutual Company has assured the 
Commissioner that it will totally insure all 
doctors, hospitals, nurses and all others in 
health care professions. 

2. St. Paul has said it will not insure all 
doctors, hospitals, nurses and other professionals ' 
in health care. 

B. 1. The Medical Mutual Company will write it rrtes 
approved by the Commissioner of Insurance. 

2. St. Paul would not agree to prior approva"'. by 
the Commissioner of Insurance of Guide "A" races. 

C. 1. The Medical Mutual Company will protect or an 
"occurrence" basis against all claims which occur 

in the policy year even though reported in subsequent 

years. 

2. St. Paul will protect on a "claims-made" basis 

only against claims occurring in the policy year, 

not against claims occurring the policy year which 

are reported in a subsequent year. 

v 

D. 1. The Medical Society's Mutual Company has 
assured the Commissioner it will abide by House 
Bill 74. 

2. St. Paul has been granted an injunct.i.'^ exemption 
from the provision of House Bill 74. 

E. 1. The Medical Society Mutual Company is a North 
Carolina company operating only in North Carolina. 
2. St. Paul may still withdraw anytime it chooses, 

a fact which was brought out by the Study Commission. 



Appendix IX 
Page #3 
Everyone in health care now has a clear-cut choice between: 

1. St. Paul's "claims-made" form with its open end 
Guide "A" rates and not subject to approval of the 
Commissioner and 

2. the North Carolina Medical Society's "occurrence-type" 
coverage with rates approved by the Commissioner of 
Insurance and 

3. the Hospital Association's self-insurance plan. 

Every member of the health care professions should be encouraged 
to consider these choices which are now open to them, and to 
weigh them carefully. 

If anyone should have any questions or need additional 
information regarding fe-hese choices, I would like for them 
to call our Consumer Insurance Information Division at this 
toll-free number 1-800-662-7975. 

The reasons these choices must be carefully weighed is 
because in the long-run it is the citizens of North Carolina 
who must pay higher medical malpractice insurance rates 
through increased hospital room rates or physicians' fee. 



APPENDIX X 

A BILL TO BE ENTITLED 
AN ACT TO CREATE THE NORTH CAROLINA HEDICO-LEGAL BOARD FROM V/HICH 
PRETRIAL SCREENING PANELS MAY BE SELECTED TO HEAR MALPRACTICE CLAIMS. 
The General Assembly of Nortii Carolina enacts: 

Section 1. Purpose . — The General Assembly of North Carolina 
recognizes that the mere filing of a malpractice action, whether 
meritorious or not, causes substantial harm to the reputation and 
practice of the health care provider concerned. The General Assembly 
also recognizes that persons having legitimate complaints against 
health care providers have often encountered difficulty in main- 
taining their claims with expert testimony in court. Therefore, the 
purpose of this act is to prevent where possible the filing in court 
of actions against health care providers for professional malpractice 
in situations where the facts do not pemiit at least a reasonable 
inference of malpractice; and, on the other hand, to make possible 
the fair and equitable disposition of such claims against health 
care providers as are, or reasonably may be, well founded. 

Sec. 2. North Carolina Medico-Legal Board; membership and terms . 
— (a) There is hereby created the North Carolina Medico-Legal Board 
for the purposes and with the powers as set forth in this act. The 
Board shall consist of 30 attorneys, licensed to practice law pur- 
suant to General Statute Chapter S'^ , and 50 health care providers. 
The President of the North Carolina State Bar shall appoint the 
attorney members and the President of the North Carolina Medical 
Society shall appoint the health care provider members to the Board. 
Members so appointed shall serve terms of one year and shall be 



Appendix X 
-2- 

persons who demonstrate a capacity for objectivity, are dedicated to 
the concepts of fair decision after hearing and due process of law, 
and who are of high standing and integrity in their respective 
professions. In making their appointments to the Board, the res- 
pective Presidents shall attempt to create as even a statewide 
geographical distribution of appointees as possible, the purpose of 
which is to minimize travel and subsistence expenses of Board 
members when serving on the Medical Review Panels provided for in 
Section 3 of this act. 

(b) Any appointment to fill a vacancy on the Board created 
by the resignation, dismissal, death or disability of a member shall 
be for the balance of the unexpired term. At the expiration of each 
member's term, the appropriate President shall reappoint or replace 
the member with a member of like qualifications. The Board shall 
designate annually by election one of its members as chairman and one 
of its members as vice-chairman to serve throughout the remainder 

of their terms. 

(c) The Presidents of the North Carolina State Bar and the 
North Carolina Medical Society shall compile and maintain current 
lists of the Medico-Legal Board members and shall file said lists 

in the Offices of the Secretary of State, the Clerk of the North 
Carolina Supreme Court and the Clerk of the North Carolina Court 
of Appeals. On or by December 1 of each year, the Presidents shall 
update the lists and file such revised lists in these offices. 

Sec. 5. Medical Review Panels . — (a) Provision is made for 
the establishment of Medical Review Panels to be selected from the 



Appendix X 

-3- 

Medico-Legal Board and review all malpractice claims against health 
care providers. 

(b) No action against a health care piovider may be com- 
menced in any court of this State before the claimant's proposed 
complaint has been presented to a Medical Review Panel established 
pursuant to this act and an opinion is rendered by the panel. 

(c) The Medical Review Panel shall consist of three 
attorneys and three health care providers. One attorney shall act in 
an advisory capacity and as chairman of the panel, but shall have no 
vote. The Medical Review Panel shall be selected in the following 
manner: 

(1) Only attorneys and health care providers appointed 
to the Medico-Legal Board pursuant to this act shall be available for 
selection. 

(2) Each party to the action shall have the right to 
select one health care provider and one attorney, and unon selection, 
said health cajre provider smd attorney shall be required to serve. 
The two attorneys thus selected shall select the third health care 
provider panelist. The two health care providers thus selected 
shall select the chairman of the panel, as provided for in this 
subsection. 

(5) Where there are multiple plaintiffs or defendants, 
there shall be only one health care provider and one attorney 
selected per side. The plaintiff, whether single or ...-.Itiple, shall 
have the right to select one health care provider and one attorney; 
and the defendant, whether single or multiple, shall have the right 



Appendix X 

-4- 

to select one health care provider and one attorney. 

(4) A panelist so selected shall serve unless for good 
cause shown he may he excused. To show good cause for relief from 
serving, the panelist shall be required to serve an affidavit upon 

a judge of a court having jurisdiction over the claim. The affidavit 
shall set out the facts showing that service would constitute an 
unreasonable burden or undue hardship. The court may excuse the 
proposed panelist from serving. A panelist who has served on five 
Medical Review Panels within the preceding 12 months shall not be 
required to serve. 

(5) If there is only one party defendant, other than a 
hospital, one of the health care provider panelists selected shall be 
from the same class of health care provider as the defendant. 

(5) Within ten days after notification of a proposed 
panelist by the plaintiff, the defendant shall select a proposed 
panelist. 

(7) Within ten days of any selection, written challenge, 
without cause, may be made to the panel nominee. Upon challenge, a 
party shall within ten days select another panelist. If two such 
challenges are made and submitted by a party, the appropriate 
President shall appoint a panel consisting of three qualified panelists 
and each side shall strike one and the remaining member shall serve. 

Sec. 4. Evidence; panel hearings and opinion of the panel . 
— (a) The evidence to be considered by the Medical Review Panel shall 
be promptly submitted by the respective parties in written form 
only. The evidence may consist of medical charts, x-rays, lab 
tests, excerpts of treatises, affidavits or sworn statements of wit- 



Appendix X 

-5- 

nesses including parties and any other form of evidence allowable 
by the Medical Review Panel. Affidavits or sworn statements of 
parties and witnesses may be taken prior to the convening of the 
panel. The chairman of the panel shall advise the panel relative 
to any legal question involved in the review proceeding and shall 
prepare the opinion of the panel as provided in Section ^(d). A 
copy of the evidence shall be sent to each member of the panel. 

(b) Either party, after submission of all evidence and 
upon ten days notice to the other side, shall have the right to 
convene the panel at a time and place agreeable to the members of 
the panel. Either party may question the panel concerning any 
matters relevant to issues to be decided by the panel before the 
issuance of their report. The chairman of the panel shall preside 

at all meetings. Meetings shall be informal and without stenographic 
record. No person shall record or otherwise communicate jv publish 
the proceedings of said meetings or any portion thereof. 

(c) The panel shall have the right and duty to request ^11 
necessary information. The panel may consult with medical authorities. 
The panel may examine reports of such other health care providers 
necessary to fully inform itself regarding the issue to be decided. 
Both parties shall have full access to any material submitted to the 
panel. 

(d) After reviewing all evidence and after any examination 
of the panel by counsel representing either party, the ^inel shall, 
within 30 days, render its opinion which shall be in writing, be 
signed by the panelists, and shall state v/hether or not: 

(1) there are reasonable grounds to believe that the 



Appendix X 

-6- 

act or acts of the defendant health care provider were not in 
accordance with the practices and procedures for services which were 
provided in the same or similar commimities by similar health care 
providers at the time of the alleged act or acts giving rise to the 
claim; and 

(2) there is a reasonable medical probability that the 
plaintiff was injxired thereby; or 

(5) there is a material issue of fact bearing on 
liability for consideration by the court or jury. 

Sec. 5. Statute of limitations tolled; filing of request for 
review of claim . — The filing of the request for review of a claim 
shall toll the applicable statute of limitations to and including a 
period of 90 days following the issuance of the opinion by the medical 
review panel. The request for review of a claim under this act 
shall be deemed filed when a copy of the proposed complaint is de- 
livered or mailed by registered or certified mail to the Commissioner 
of Insiirance, who shall immediately forward a copy to each health 
care provider named as a defendant at his last and usual place of 
residence or his office. 

Sec. 5. Opinion of panel not admissible; witnesses from 
panel; immunity of panelist s. — Auy report of the opinion reached by 
the Medical Review Panel or part thereof shall remain confidential 
and not be admissible as evidence in any action subsequently brouglit 
by the plaintiff in a court of law. Either party shall have the 
right to call, at his cost, any health care provider member of the 
Medical Review Panel to appear as an expert witness in a subsequent 
court action. If called, the witness shall be required to appec^r 



Appendix X 

-7- 

and testify, provided that he qualifies as an expert witness. 
Panelists shall have absolute immunity from civil liability for 
all communications, findings, opinions and conclusions made in 
the course and scope of duties prescribed by this act. 

Sec. 7« Recommendations by panel after opinion rendered . — 
(a) In any case where the panel has determined that the acts com- 
plained of reasonably might be professional negligence and that the 
plaintiff reasonably may have been injured thereby, the panel shall 
further determine whether the interests of justice would be served 
by cooperation by the panel and the North Carolina Medical Society 
with the plaintiff in retaining a health care provider or providers 
qualified in the field of health care involved, who will consult with 
and testify on behalf of the plaintiff, upon his payment of a 
reasonable fee, to the same effect as if the said health care provider 
or providers had been employed originally by the plaintiff. If the 
panel resolves such determination in the affinnative, it shall so 
state in its opinion and shall make the necessary recommendations 
to the Medical Society. If the panel also determines that a review 
of the fitness of the health care provider to practice his profession 
is desired, it shall forward such recommendation to the appropriate 
licensing, registration or certification board. 

(b) In any case where the panel has determined that there is 
no reasonable possibility that the acts complained of constituted 
professional negligence and/or no reasonable medical probabilit;/ 
that the plaintiff was injured thereby, the panel shall further 



Appendix X 

-8- 

determine whether or not it should recommend to the plaintiff's 
attorney that he should thereafter refrain from filing any court 
action based upon the matter reviewed by the panel unless said 
attorney is personally satisfied that strong and overriding reasons 
compel such action to be taken in the interest of his client, and 
that it would not be done to harass or gain unfair advantage in 
negotiation for settlement. If the panel recommends such refraining 
from filing a court action, it shall forward a copy of the recommen- 
dation to the North Carolina State Bar. It is not intended that 
submission of any case to the panel shall be considered as a waiver 
by the attorney or his client of their ultimate right to decide 
for themselves whether the case shall be filed in a court of law; 
however, every attorney who represents a client before the panel 
shall weigh the panel's conclusions in the greatest professional 
good faith. 

(c) All recommendations made pursuant to this section 
shall remain confidential and shall not be communicated by any 
person to anyone other than the persons, organizations or agencies 
named in this section. 

Sec. 8. Per diem and travel expenses . — Each member of the 
Nedical Review Panel shall be paid at the rate of $25.00 per diem, 
not to exceed a total of $100.00, for all work performed as a 
member of the panel during the hearing provided for in Section 4^ 
of this act, exclusive of time involved if called as a witness to 
testify in court, and in addition thereto, reasonable travel expense. 
Each side shall pay one-half of the fees of the panel including 



Appendix X 
-9- 

travel expenses, miless the panel determines that the claim was 
frivolous and for the purpose of harassing the defendant or gaining 
unfair advantage in negotiation for settlement, in which case the 
plaintiff shall be assessed the fees of the panel. 

Sec. 9. Applicability . — The provisions of this act shall apply- 
only to causes of action arising on or after the effective date of 
this act. 

Sec. 10. Severability . — If any provision or clause of this 
act or application thereof to any person or circ\imstances is held 
invalid, such invalidity shall not affect other provisions or 
applications of the act which can be given effect without the invalid 
provision or application, and to this end the provisions of this 
act are declared to be severable. 

Sec. 11. Effective date . — This act shall be effective on 
July 1, 1976.