OLR Research Report

December 8, 2003




By: George Coppolo, Chief Attorney

Saul Spigel, Chief Analyst

You asked whether any states have established a no-fault medical malpractice system.


Compensation programs that do not rely on negligence determinations are popularly referred to as “no-fault” systems. In fault-based models, the claimant must prove: a duty of care, negligence in the performance of that duty, and injuries caused by the negligence. No-fault systems eliminate the requirement of proving negligence. The workers' compensation schemes in operation in all states are an example of the no-fault model.

While several other countries have established a no fault system for medical malpractice, no state has established an across-the-board no-fault medical malpractice system. But Florida and Virginia have established a voluntary no-fault system for children born severely impaired because of neurological injuries suffered during the birthing process.

Florida and Virginia

In response to increasing costs of medical malpractice insurance and insurers withdrawing from the market in the late 1980s, Virginia and Florida both created funds to compensate families for the lifetime medical expenses they incur when their child is born severely impaired because of neurological injuries suffered during the birthing process. Infants were singled out because lawsuits associated with these cases have a relatively high success rate and successful cases tend to result in large monetary awards. The fund and claims process is an alternative to malpractice litigation. If a family that volunteered for the program is eligible for coverage, it cannot pursue a malpractice claim; if it is found ineligible for coverage, it can then litigate.

In both states the fund is capitalized by annual assessments from physicians and hospitals. In both, physicians who participate in the program pay $ 5,000 per year and hospitals pay $ 50 per live birth. Participation in both states is voluntary. Doctors and hospitals that participate do not have to face malpractice suits if an infant is found eligible for compensation. All other physicians in the states pay $ 250. Virginia also assesses liability insurers. Florida initially capitalized the fund with a $ 20 million state appropriation.

If eligible, a family receives payment for all necessary and reasonable expenses for medical, hospital, rehabilitative, residential, and custodial care and services; special equipment or facilities; and related travel, except those expenses that have already been paid by a private insurance policy or a government program. The family is also compensated for the cost of filing the claim, including attorney's fees. In Virginia, the family is compensated for the child's lost earnings, while in Florida parents receive an award of up to $ 100,000.

In Virginia, the Workers' Compensation Commission determines whether a child is eligible; in Florida it is an administrative law judge from the State Management Department.

The funds must maintain actuarial soundness over a long period. Virginia's fund is sound for the next 25 years but may face problems after that according to a 2002 study by the Joint Legislative Audit and Review Commission. That study determined that the program overall was beneficial for ob/gyns and hospitals and that eligible children fared better than they would have under the tort system with a malpractice award cap.

Florida's fund has more assets than liabilities at this time. Its law also contains a mechanism for tapping an insurance trust fund, assessing insurers, or closing claims applications if the fund is no longer sound.

Other Countries

Several medical no-fault systems in medicine operate internationally. Collectively, Denmark, Sweden, Finland, and New Zealand have accumulated nearly 80 years of experience in operating administrative systems that replace medical malpractice litigation. Medical no-fault schemes were introduced in New Zealand in 1974, and in Sweden in 1975.

The health care systems in these countries differ significantly from that in the United States, with a heavier reliance on public payment and provision of services. Mechanisms for funding their compensation systems also differ from the doctor paid insurance that characterizes the United States malpractice system. New Zealand's system, for example, draws from general taxation revenue, while Sweden's draws on premiums charged to regional councils and doctors.

VIRGINIA (VA STAT. 38. 2-5000 TO -5021)

The Virginia Birth-Related Neurological Injury Compensation Act (NICA) was enacted in 1987 in response to malpractice insurance availability problems facing obstetricians. The program pays for the medical expenses, lost earnings, and attorneys' fees of children whose birth resulted in severe neurological injuries.

The program is intended as an alternative to the traditional tort system for compensating injuries. The program was designed as a “no-fault” system; a finding of malpractice is not needed in order for a child to receive compensation.


To be eligible for compensation, (1) the infant must meet the law's definition for a birth-related neurological injury and (2) must have been delivered by a participating physician or in a participating hospital. A child is eligible if oxygen deprivation or mechanical injury to his brain or spinal cord during labor, delivery, or resuscitation (1) permanently disables motor function, (2) leaves him developmentally or cognitively disabled, and (3) requires him permanently to need assistance in all activities of daily living (e. g. eating, bathing, toileting).

Doctors and hospitals participate in the program voluntarily; in return they do not have to face malpractice lawsuits arising from these situations. As a condition of participation (1) hospitals must agree to submit to state Health Department review of their obstetrical services and (2) doctors and hospitals were, when the law was first enacted, required to work with the department to develop a program for providing obstetric services to indigent women and then participating in that program's implementation.

Program Benefits

The program pays:

Program Funding

The program is funded through assessments on participating physicians and hospitals, nonparticipating physicians, and liability insurers. Participating physicians pay $ 5,000 a year; participating hospitals pay $ 50 for each live birth there in the prior year (up to $ 150,000 per hospital), and nonparticipating physicians pay $ 250 a year.

Liability insurers pay an amount the State Corporation Commission determines is needed to keep the compensation fund actuarially sound. Each insurer is assessed based on its proportion of all liability premiums written in the state. An insurer's assessment cannot be more than one-quarter percent of its direct premiums.

Program Administration

Several agencies have responsibilities for various aspects of the program. The Workers' Compensation Commission (WCC) determines whether a claimant is eligible for compensation. It receives claims petitions, which the Health or Health Professions departments, or both, investigate depending on whether a hospital or physician is the subject of the claim. The WCC holds hearings, determines whether a child has a qualifying injury and whether a participating doctor or hospital was involved, and determines how much compensation an eligible child receives.

A Birth-Related Neurological Injury Compensation Fund board of directors administers the program and the fund. It develops an operating plan, invests the fund, and provides for claims payments and risk reinsurance. It can also acquire real and personal property and place it in trust for claimants. (The board purchased houses for some claimants' lifetime use; this benefit was eliminated in 2000. )

The State Corporation Commission determines insurers' fund assessments and approves the board's operating plan.

An academic assessment of NICA's first decade, published in 2000, indicates mixed results. NICA, it says, “appears to have delivered favorable results in a number of key areas. ” It distributed compensation relatively efficiently, equitably, and generously to nearly 100 infants. Malpractice claims relating to severe obstetrical injury decreased in frequency and average size, although the authors could not specify how much of this decrease could be attributed to NICA. They found the assessment level was sufficient to fund the plan and that a high proportion of Florida's obstetricians were participating. They also found that NICA's staff had gained considerable experience in helping and supporting beneficiaries' families.

But, the authors determined NICA's role in compensating medical injuries was, “at best, a modest one. ” Almost the same number of severe birth-related injuries received malpractice payments of $ 250,000 or more in the 10 years under study, as was the case before NICA was enacted. They attributed this assessment to provisions in the NICA law that make NICA the exclusive remedy for claims only if the injury meets its narrow eligibility criteria. For NICA's first 10 years, this feature led to questions over whether a family could pursue both NICA and malpractice claims simultaneously, a Supreme Court decision that essentially permitted

simultaneous claims, and finally, legislative action in 1998 requiring an administrative law judge to first determine NICA eligibility before a malpractice claim could be filed.

Program Evaluation

The legislature's Joint Legislative Audit and Review Commission (JLARC) evaluated the program in November 2002. It determined that the program overall was beneficial for ob/gyns and hospitals and that children in the program fared better than they would have under the tort system with a malpractice award cap.

As of October 2002, 75 children had been found eligible for benefits. JLARC found that their annual compensation exceeded the tort system's annual awards and expenses for severe birth injury cases, which it estimated at $ 10. 8 million. Program beneficiaries had received $ 25. 3 million since 1992 when the first distribution was made, an average of $ 62,000 per year per participant. But mothers who were injured during delivery were unable to receive compensation.

As of July 2002, 500 physicians and 27 hospitals were participating in the program. They paid in about $ 15. 2 million a year. But JLARC found that the fund was not actuarially sound. While its December 31, 2002 balance was $ 84. 7 million, it had more than $ 88 million in unfunded liability. Actuarial projections could not guarantee lifetime support for all current claimants.

JLARC reported that the program's effects on insurance availability and obstetric services were mixed. In 1987, the law had an immediate impact on malpractice insurance availability-one of the state's major liability insurers lifted its moratorium on new ob/gyn policies soon after the program was created. And liability rates for ob/gyns since were lower than in other states, which benefited both participating and nonparticipating physicians.

But insurers still did not provide obstetric coverage in some rural areas of the state, which meant those services were not readily available there. And, while the 1987 law required the Health Department, doctors, and hospitals to develop and implement plans to ensure poor women had access to obstetric services, JLARC found no indication that these plans were in effect. It did find a generally increasing level of Medicaid coverage for poor women, but it could not attribute this increase to the compensation program.

A summary of the JLARC report is available at http: //jlarc. state. va. us/Summary/Rpt284/BirthInj. HTM, and the complete report is at http: //jlarc. state. va. us/Reports/Rpt284. pdf

FLORIDA (FL STAT. ANN. 766. 302 TO 316)

The Florida legislature created the Birth-Related Neurological Injury Compensation Association (NICA) in 1988 following the recommendation by a task force examining malpractice insurance and tort reform. NICA is modeled on Virginia's program.


Like Virginia, NICA covers children who were brain-damaged during a birthing process by oxygen deprivation or a mechanical injury. An infant must be permanently and substantially mentally and physically impaired. Children suffering from genetic or congenital abnormalities are not eligible. A participating doctor in a participating hospital must have delivered the infant.


NICA pays for necessary and reasonable care, services, drugs, equipment, facilities, and travel, except for those covered by private insurance or government programs. It also pays the child's parents a one-time cash award of up $ 100,000; a death benefit up to $ 10,000; and reasonable expenses for filing the claim, including attorney's fees.

Program Funding

The compensation fund was initially capitalized with a $ 20 million appropriation from the legislature. It is maintained by annual assessments on participating physicians ($ 5,000) and nurse midwives ($ 2,500), all other physicians ($ 250) and hospitals ($ 50 per live birth). Kenney Shipley, NICA's executive director, reports that nonparticipating physicians vocally oppose their assessment.

If these assessments are insufficient to maintain the fund, NICA can tap $ 20 million from an Insurance Regulatory Trust Fund. It has not had to do this, although it maintains this amount on its books as an asset. If the fund becomes actuarially unsound, NICA can also assess casualty insurers based on their proportion of premiums to the states' total. It has not had to do this either; Shipley asserts that doing so would be politically unpalatable.

The law permits NICA to cut off applications for new claims if its liability for existing claims reaches 80% of its available assets.


An administrative law judge in the Department of Management Services' Division of Administrative Hearings determines whether a claimant is eligible for NICA compensation.


Shipley reports that 161 claims have been accepted as of June 30, 2002. The fund's balance sheet on that date shows NICA with $ 299 million in reserve against those claims (about $ 1. 85 million per claim) and approximately $ 320 in assets. Shipley notes that changes in technology and the level of care eligible children receive leads to longer life expectancies and, consequently, higher lifetime costs. If those 161 claims were successfully litigated with average awards of $ 3 million, Shipley contends insurers' aggregate liability would have been in the half-billion dollar range. Attorneys she, notes would have received one-third to one-half that amount, while attorney's fees represent only 7% of NICA's pay outs.

Florida's recent tort reform law requires the legislature to study eligibility requirements for NICA coverage and report by January 1, 2004.


In 1974 New Zealand abolished tort law remedies for all personal accident injuries and replaced it with a no-fault compensation scheme administered by a state monopoly. The scheme was based on five principles from the 1967 Woodhouse Royal Commission Report. They are:

Benefits are provided without proof of “fault” no matter how or where the accident occurred, whether at work, home, on the road, or while participating in a recreational or sporting event. In return, the common law right to sue for damages for personal injury (except for punitive or exemplary damages) was abolished. The Accident Compensation Commission (ACC) administers the system.

The universal scheme was built on pre-existing funding sources, workers' compensation and compulsory automobile liability insurance.

The system now has six accounts: Employers; Earners; Non-Earners; Motor Vehicle; Subsequent Work Injury; Medical Misadventure. When initially set up, the primary focus was on providing compensation and promoting rehabilitation. Increasing costs have led to concerns that the behavioral assumptions underlying the scheme are inadequate. As a result the scheme has been continually reviewed.

In 1979, it was decided to review the scheme and assess its overall cost. The review also took into consideration employers' concerns that they were subsidizing the cost of non-work claims. A Cabinet Committee recommended that (1) claimants should meet part of the cost of the first two visits to the doctor and (2) lump-sum awards for minor injuries, pain and suffering, and loss of enjoyment of life be abolished except for serious cosmetic disfigurement.

As a result, several amendments were made to the Act in 1982. These included: changing from a fully-funded to a “pay-as-you-go” system: first week compensation paid by employers for work accidents was reduced from 100% of pre-injury earnings (exclusive of overtime) to 80 % (including overtime); the ACC was given the power to refuse to pay compensation to people injured while committing a crime; and compensation for work-related motor vehicle accidents were no longer funded from the Earners Account but from the Motor Vehicle Account. The maximum compensation for the loss or impairment of bodily function was increased from $ 7,000 to $ 17,000. However, the compensation paid for pain and suffering and loss of enjoyment of life remained at the 1974 level of $ 10,000.

Employer pressure in 1992 led the government to set up another review committee. The Accident Rehabilitation and Compensation Insurance Act 1992 was aimed at controlling premium costs its objective being: “to establish an insurance-based scheme to rehabilitate and compensate in an equitable and financially affordable manner those persons who suffer personal injury. ” Lump-sum compensation was abolished, and compensation for work-related motor vehicle accidents was transferred from the Earners Fund.

Despite considerable discussion of the scheme, there have been virtually no empirical studies of its impact by independent researchers. Most studies have been internal.


The key element of Swedish compensation model is the concept of avoidability. System designers recognized that compensating all injuries arising from medical care would be prohibitively expensive. Thus, only subsets of medical injuries are eligible for compensation.

Adjudicators ask whether (1) an injury resulted from treatment, (2) the treatment in question was medically justified, and (3) the outcome was unavoidable. If the answer to the first query is “yes,” and the answer to either the second or third query is “no,” the claimant receives compensation.

Patients who believe they have been injured as a result of medical care are encouraged to apply for compensation using forms available in all clinics and hospitals. Doctors and other health care personnel are actively involved in approximately 60 to 80% of claims, alerting patients to the possibility that a medical injury has occurred, referring patients to social workers for assistance, and helping them to lodge claims-the sort of assistance U. S. doctors often provide workers' compensation claimants.

Once a claim is made, the treating doctor prepares and files a written report about the injury. An adjuster makes an initial determination of eligibility and then forwards the case for final determination to one or more specialists who are retained by the system to help judge compensability. Approximately 40% of claims receive compensation. Patients who are dissatisfied with the outcome may pursue a two-step appeals process consisting of review of the determination by a claims panel followed by an arbitration procedure.

Successful claims are paid in a uniform manner using a fixed benefits schedule and include compensation for both economic and non-economic losses. But before patients are eligible for compensation, they must have spent at least 10 days in the hospital or used more than 30 sick days. This “disability threshold” eliminates the minor claims.

The Patient Insurance Compensation Fund, from which all claims are paid, has undergone reforms since it was created in 1975. One example is legislation enacted to rein in fund expenditures. The legislation replaces the scheme's injury thresholds with thresholds linked to the level of damages awarded in compensable claims (those insured claims where a “deductible” applies). Another reform imposed an upper limit on damages (cap) of 200 times the base sum for each “loss events. ” The “base sum” is a unit amount that allows funds that are redistributed by Sweden's various social insurance programs to be a adjusted annually for inflation and changing certain medical eligibility criteria narrowed categories of compensable injury. For example, wound infections had been compensated from the outset of the program. But, adjusters have become strict about the type of infections that are eligible, specifying that infections caused by a patient's own bacteria do not meet avoidability criteria and will not be compensated. In effect, this removes “dirty” wound infections from consideration.

Fund administrators explain that the overriding consideration in efforts to control costs through eligibility and benefit reductions is the need to recognize the interconnectedness of social insurance schemes in Sweden. Because medical injury compensation now plays a “fill-up” function in relation to compensation provided through other schemes, benefit reductions in these other schemes requires increased outlays from the Patient Insurance Compensation fund unless commensurate changes are introduced.

GC: ro