On January 13, 2021, the Illinois General Assembly passed House Bill 3360. While the original purpose of the bill was to amend a statute relating to mortgage foreclosures and abandoned property, an amendment was added to include a 9% prejudgment interest on all personal injury and wrongful death claims. The two major clauses in the amendment are, “Prejudgment interest shall begin to accrue on the date the defendant has notice of the injury from the incident itself or a written notice” and “For any personal injury or wrongful death occurring before the effective date of the amendatory Act of the 101st General Assembly, prejudgment interest shall begin to accrue on the later of the effective date of the Act or the date the alleged tortfeasor has notice of the injury.”

As of the published date of this article, the bill sits on Governor Pritzker’s desk waiting to be signed or vetoed. A bill passed by both houses of the Illinois General Assembly must be sent to the governor within 30 days. The governor then has 60 calendar days to sign the bill or return it with his veto. If the governor takes no action, the bill will automatically become law after the 60-day period.

The application of this bill to medical professional liability losses will have significant impacts. One clause, “Notice of the injury from the incident itself or a written notice” is not specifically defined and will require additional clarification to quantify the impact of the bill. This clause could be interpreted as the date the incident occurred or the date the incident was reported. Particularly for medical professional liability, this can be of significance due to the latency of medical professional liability claims. It is common in Illinois for claims to be reported a few days before the two-year statute of limitations expires. If this clause is interpreted to mean the date the incident occurred, many claims will create an additional two-year window of prejudgment interest to automatically grow. Claims involving minors or birth injuries are usually not constrained by the two-year statute and can have significantly longer lags between the date the incident occurred and the date the incident was reported.

Potential medical professional liability impacts

The majority of Illinois hospitals have some form of self-insurance. Hospitals and physicians practicing within Cook County typically have higher self-insured retentions compared to their peers outside of Cook County. In addition, Cook County hospitals typically have longer claim development patterns, including longer time between the date the incident occurred, the date the incident was reported, and the date the incident was closed. The claim severities are also higher for hospitals in Cook County.

Based on Milliman’s Illinois hospital professional liability database, we are able to provide some scenarios of the projected impact on hospital self-insurance. The first scenario examines the increase under the application of “notice of injury” relating to the occurrence or accident date while the second scenario assumes the “notice of injury” applies to the claims-made or report date. Our results are based on an average Illinois hospital. Actual results of any individual hospital will vary due to management of claims such as reporting practices, payment practices, risk management practices, litigation and defense practices, and other factors that impact claim development and attitudes. In our estimates, we have assumed that all factors other than the introduction of prejudgment interest will remain unchanged and that the new law will impact both verdicts and settlements.

The average lag from occurrence date to settlement date of a medical professional liability claim in Cook and the Collar Counties is roughly seven years. After applying a 9% annual interest rate, the expected increase in indemnity settlements is 80%, as shown in Figure 1. Indemnity payments represent 90% of the total claim cost in Cook and Collar Counties. The overall increase for claims occurring after the passing of House Bill 3360 is 72%. The lag outside of Cook and the Collar Counties is shorter, roughly five and a half years. Using the same math, the overall increase for other counties in Illinois is 53%.

Figure 1: Impacts on Cost Utilizing Occurrence Date

Figure 2 demonstrates the potential impact of House Bill 3360 if the “notice of injury” applies to the claims-made or report date.

Figure 2: Impacts on Cost Utilizing Claims-Made Date

Other potential impacts

House Bill 3360 could result in other substantial impacts to healthcare and insurance. The following are a few other core areas that could be impacted in addition to the self-insured losses impact described before:

• Increase in insurance premiums and/or less insurance coverage: The commercial insurance market has been hardening over the past couple of years with many renewals having significant premium increases, hospitals taking on higher retentions, and insurers writing less limits. If the costs of the underlying layer of insurance increases due to House Bill 3360, then excess carriers are likely to increase insurance premiums further as additional costs will enter into their layer and their costs will increase. Additionally, carriers could also force hospitals to increase self-insured retentions and offer less insurance capacity. Some insurance carriers have become very selective in the risks they underwrite. Some carriers have exited the medical professional liability market altogether. A significant increase in medical professional liability costs could cause some insurers not to write in Illinois if they find the exposure not to be profitable or too risky. This lack of insurance can cause an issue to both hospitals and physicians.
• Less access to care: If medical professional liability costs become a larger expense, this could put strain on both hospitals and physicians. There is a possibility that hospitals would decide to modify their operations to limit or avoid certain risky procedures or that physicians may decide to no longer provide certain services or no longer practice in Illinois. It may also be more difficult to attract talent.
• Increase in health insurance costs: Any increase in the overall operational costs of a hospital or healthcare in general is likely to be passed along to consumers to some degree. This would mean that health insurance costs and the overall healthcare costs of Illinois citizens are likely to be impacted. In addition, physicians may be more likely to practice defensive medicine to avoid a medical professional liability claim by ordering additional tests and procedures.
• Speed of claims resolution: Plaintiff lawyers believe that the bill will reduce delays of resolution. However, hospitals are concerned that there may be an intentional delay in resolution through extensions or amendments to try obtain an interest penalty. Hospitals also state that they may need to start defending cases earlier when all of the facts may not be known yet.

It is likely that House Bill 3360 may have other impacts than those listed, especially depending on the magnitude of the increased costs. For now, hospitals and physicians are watching this bill very closely.