SOURCE: Alaska Public Media

The Alaska Supreme Court ruled Friday that a 46-year-old law limiting financial awards in medical malpractice lawsuits is unconstitutionally biased against Alaskans with medical insurance.

The 57-page decision, approved unanimously by the court but written by Justice Dario Borghesan, was issued following a six-year legal struggle by a woman who was injured during gallbladder surgery and could increase compensation received by insured Alaskans who are injured by medical malpractice.

Between 2012 and 2022, 197 malpractice cases resulted in payments to victims in Alaska, according to statistics kept by the U.S. Department of Health and Human Services.

In brief, the overturned law states that if a person wins a malpractice claim, the value of any insurance payout or other compensation — known technically as “collateral source compensation” — must be subtracted from the financial award they receive if they win the lawsuit.

Since the law was passed, the court noted, most private insurance companies have begun using  “mandatory subrogation” clauses in their contracts. 

These clauses mean that if a plaintiff wins a malpractice award, an insurance company may claw back what it paid to the injured person.

“This ‘double deduction’ means that the plaintiff, instead of receiving a windfall, comes up short,” the court said.

“For example, a severely injured person unable to continue working a strenuous, high-paying job might have incurred $500,000 in medical bills, covered by his insurer, and lost $500,000 in future income,” the court said. It then added that under the law: “the person may not recover the $500,000 paid by the insurer. Thus the defendant, who has caused $1 million in damages, is on the hook for half the cost of its negligence. As for the $500,000 the person could recover as compensation for lost income, the insurer may exercise its contractual right of reimbursement and take the entire amount. This person would end up far worse than someone who had no insurance at all.”

That was the situation with the woman injured during gallbladder surgery. According to figures she submitted to the high court, she received $349,049.87 from insurance but was awarded $250,000 in damages, less than the maximum the insurance company could claw back.

In court, attorneys representing the sued Alaska doctor argued that insurance is a voluntary contract, and that the woman who was injured had different options.

“Their power to select among plans or negotiate plan provisions is negligible at best,” the court concluded. “In reality, most people have little freedom to choose the terms and conditions of their health insurance coverage.” 

Because of the different treatment offered by the law and the lack of power to choose an alternative, the court concluded that the 1976 law violates the clause of the Alaska Constitution that entitles everyone to equal protection under the law. The justices remanded the lawsuit to a lower court for further proceedings.