Judge McKeon Issues First Decision Regarding the Medical Indemnity Fund

As reported in today's Law Journal, Judge Douglas McKeon (Sup. Ct., Bronx County) has now issued the first decision relating to the newly enacted Medical Indemnity Fund.  As we posted in April, the Medical Indemnity Fund was established to pay for future medical costs in medical malpractice cases involving alleged birth-related neurological injuries. In such cases, all future medical expenses will now be paid by the Fund, and not by the defendant or the defendant’s insurer.

In Mendez v. New York and Presbyterian Hospital, Judge McKeon discusses the new statute and how settlements should be approached. In this action the parties agreed to settle the case for $5.5 million with 50% allocated to non-Fund damages and 50% to Fund damages. Pursuant to Public Health Law Sec. 2999-j(14), the defendant must pay as a lump sum (1) the amount allocated to the non-Fund damages and (2) the attorney's fees on the portion allocated to the Fund. Attorney's fees are calculated on the total amount pursuant to Judiciary Law Sec. 474-a. Here that resulted in the defendant having to pay a total of $3,100,000 representing $2.75 million for non-Fund damages, plus $350,000 for the attorney’s fee on the non-Fund damages. The plaintiff receives $2,400,000, which represents $2.75 million for the non-Fund damages minus the attorney’s portion that award.  The plaintiff's attorney's total fee is $700,000.   

A few additional key points from the decision:

1. To be eligible for the Fund, the settlement must include a finding that the plaintiff is a qualified plaintiff, i.e has sustained a neurological injury as a result of medical malpractice.

2.  Medical expenses paid from the Fund are not limited to the dollar value of the settlement. 

3. "The creation of an obstetrical fund was an obvious vehicle by which to achieve the Governor’s dual objective of reducing both Medicaid costs and medical malpractice premiums while, on a human level, providing a lifetime of guaranteed care, geared to obstetrical mishap victims, as well as the comfort which comes to a parent by the knowledge that help will be provided to a handicapped child when mom and dad are gone” (p. 8).   

4. According to Judge McKeon, the Fund obviates the need for a Supplemental Needs Trust (SNT). Without an SNT, the plaintiff can “settle an action for up-front cash, buy a house and receive a lifetime of care without encumbering the cash or the house, which is the legal consequence of an SNT” (pp. 8-9). 

5. “As a general rule the existence of the Fund is not supposed to increase the amount of the settlement. In other words, an action settled pre-Fund for $4,000,000 should settle for $4,000,000 today” (pp. 10-11).  One potential exception identified by Judge McKeon may be where there is limited coverage (p. 11). As Judge McKeon notes, however, this exception is “evolving.”   In our opinion, therefore, decisions will have to be made on a case by case basis.

6. In obstetrical malpractice cases, historically, future medical care and treatment is by far the most costly element of damages, often substantially more than 50% of the total damages (pp. 12-13). While this precedent would justify a greater allocation of a settlement to Fund damages, Judge McKeon notes that certain practical realities must come into play (pp. 13-14). This is because the higher the amount that gets allocated to the Fund, the lower the amount of cash the plaintiff will receive. Thus, when settlements are smaller, consideration can be given to providing a larger cash portion to the plaintiff. Furthermore, according to Judge McKeon, where custodial care will not be necessary, that could be taken into consideration when determining the allocation (p. 15). Generally, however, an allocation of 50-50 is a good rule of thumb.