The Massachusetts Charitable Immunity Cap
Is It Time For It To Go?
By WENDY L. PFAFFENBACH
On Feb. 23, a Suffolk Superior Court jury held Northeastern University liable for the death of an 18-year-old woman.
The woman had visited the university’s clinic six times during the winter of 1993, complaining of dizziness, nausea and flu-like symptoms.
Each time the young woman visited the clinic she was examined by a nurse and sent home with directions to rest, drink fluids and take Tylenol. When the clinic’s doctor did review her chart, she was again released without any tests.
Fifteen days after her last visit to the clinic, the young woman died of acute myelogenous leukemia.
Although the university argued that the woman’s leukemia was so advanced that diagnosis would have been futile, the jury ordered Northeastern to pay the woman’s parents $4 million in damages.
But, as is common in any Massachusetts case involving a charitable organization, the sizable award was an illusion.
In accordance with the state’s charitable cap, the amount was instantly reduced to $20,000.But the charity cap may not be around for too much longer.
Critics say the cap is too low and no longer safeguards the entities it was designed to protect.
Several efforts are currently under way to change the law, which hasn’t wavered since its inception in 1971. Most agree that change is due, and will likely come soon.
The Cap
In 1876, the Supreme Judicial Court found that a public hospital could not be held liable to an individual injured by an agent of that hospital. The court reasoned that the hospital held its limited funds in trust for benefit of the general public, and to divert those funds, for the sake of a lone individual’s benefit, would be unlawful.
The doctrine of charitable immunity, announced in that case, lasted for nearly a century until the SJC ruled in the 1969 case of Colby v. Carney Hospital that if the Legislature did not take steps to update the anachronistic doctrine, the court would.
In response to the court’s prodding, the Legislature enacted G.L.c. 231, Sect. 85K, in 1971, providing that the liability of charitable institutions for torts committed while carrying out an institution’s charitable purposes shall not exceed $20,000.
For the past 20 years, various groups have tried to lift the cap, raise the cap or change the type of institution protected by the cap. But throughout all the lobbying the cap has remained steadfastly set at $20,000.
However, experts say one of the many bills filed in the Legislature this year seeking to alter the cap will probably break through.
Defining Charity
The historical rationale for the cap is that any judgment in excess of the cap would deter from the charitable purposes of the institution.
Thus, if people knew their donations were going to defend lawsuits instead of to further the purposes of the charity, they would be dissuaded from giving.
“Most charities operate through gifts from solicitation,” says William T. McGrail of Westboro, former general counsel for the Massachusetts Hospital Association. “When people contribute to a charity, they don’t do so with the expectation that their contribution will land in a plaintiff’s pocket.”
Although the outward face of charities might have changed, the rationale for the cap still holds true, agrees Richard Averbuch of Boston, senior director of policy and communications for the Massachusetts Hospital Association.
“Hospitals are charitable institutions,” he says. “Many of the services [we provide] haven’t changed.”
But plaintiffs’ lawyers claim this argument fails when one considers the complex structure and power of modern “charities.”
Timothy G. Lynch of Boston, a plaintiffs’ lawyer who also sits on the board of a local charity, says that it’s nonsensical to argue that all donations must go to the charitable purposes of an institution when the donating public knows that a good deal of its gifts go to fund six-figure executive salaries and the extreme overhead costs of large non-profit organizations.
A CEO’s salary, however, should not affect, and may further, an institution’s charitable purpose, says McGrail.
“Being an executive for a non-profit doesn’t mean that you take a vow of poverty,” he notes. “If you are a capable CEO, your skills are as important to a [non-profit] as they would be to General Motors.”
But if the institution can afford to pay its CEO a six-figure salary, it can also afford to pay a significant judgment to someone injured by its negligence, plaintiffs’ lawyers claim.
Furthermore, say critics, the modern law isn’t exactly protecting bankrupt nuns so they can afford new bible covers, but rather insulating powerful institutions from responsibility for their actions.
“Harvard [which is protected by the cap] has more resources than most institutions,” says Miriam Weizenbaum of Providence, counsel for the plaintiff in the recent Northeastern case. “It has the sophistication of a large corporation and the non-financial resources to raise and protect its money.”
More importantly, these institutions operate extensively in the public domain and have little accountability to the large public they come into contact with, she adds.
The situation is especially acute in the health care field, where it seems Massachusetts is the only state that allows an HMO to claim charitable immunity, says Valerie A. Yarashus of Boston, chairwoman of the Massachusetts Academy of Trial Attorney’s State Legislation Committee.
This leads to the absurd situation where a patient covered by Aetna U.S. Healthcare Inc., a for-profit organization, may recover what a jury awards, but a patient covered by Fallon Community Health Plan, Inc., a non-profit, is limited by the $20,000 cap, she notes.
According to some lawyers, the fact that so many seemingly powerful, profit-driven organizations are protected by the cap means that the definition of “charity” needs to be revisited.
“Whether it is a for-profit or non-profit isn’t the strict meaning of charity,” says Karen R. Ristuben of Boston. “An institution can be recognized as a non-profit and still be making enormous profits.”
But redefining “charity” in accordance with how much money an institution manages is not the answer, says McGrail.
“Providing a definition for a ‘true’ charity is difficult,” he says. “Is it how much revenue you generate? Does this mean that the local Boy Scout troop is in, but the national is out?”
Nevertheless, attempts have been made to limit the scope of the cap.
House Bill 2937, “An Act to Clarify the Charitable Purposes of Certain Organizations,” would limit the cap to an entity that “derives more than 50 [percent] of its income from charitable gifts or donations.”
According to Yarashus, the bill uses the same method to define “charity” as does the state of Maine, and “should sort out what people think of as real charities.”
In terms of health care, a charity should be an institution that “would provide the vast amount of its resources and income to the poor or uninsured or needy patient, or give free services,” says Ristuben.
Raising The Cap
Will redefining “charity” be too slippery a task for the Legislature?
“It becomes a difficult task — it’s not the way to go,” claims McGrail. “But I don’t think I could argue that $20,000 is a proper cap.”
Indeed, across the board attorneys say that the $20,000 cap should be reexamined.
“No one can say with a straight face that the present cap is just and fair to all parties,” says Martin W. Healy of Boston, general counsel for the Massachusetts Bar Association.
Even the hospital community “recognizes that the cap may not make sense in today’s economy,” notes Averbuch.
But although the hospital community might recognize that the cap needs to be raised, it strongly objects to some of the arguments for why the cap should be raised.
“Immunity breeds irresponsibility,” says Healy, a sentiment echoed by a number of plaintiffs’ lawyers.
But the notion that the cap leads to irresponsible behavior irks the health care community.
“To think that a non-profit provides less than quality service simply because of the cap … is pure nonsense,” according to McGrail.
Averbuch points to the Massachusetts Coalition for Prevention of Medical Errors — a voluntary effort “to sit down and improve health care systems for patient safety” — as one example of how the health care community strives for patient safety regardless of any lawsuit threat.
Still, “as long as hospitals have the $20,000 [cap] they aren’t going to do the things necessary to maintain patient care,” insists Lee J. Dunn Jr. of Boston, former general counsel for Northwestern Memorial Hospital in Chicago.
These arguments underscore yet another touchy issue involved with the cap: public policy ramifications.
How High?
Regardless of arguments for or against the effects of the cap, the more difficult task may be determining just how high the cap should be raised. “We’ve made our case and the Legislature is sympathetic to raising the cap. To what detail and level remains to be seen,” says Healy.
The cap should be set at the limit of a charity’s insurance liability policy, says Lynch.
Because most charities already carry significant insurance policies, a plaintiff could recover the full amount of any existing policy without harming the charity, he adds.
Furthermore, if the cap is left low, and charities nevertheless continue taking out insurance policies, the cap will serve the insurance companies, according to Douglas K. Sheff of Boston, president-elect of the Massachusetts Academy of Trial Attorneys.
In fact, considering that most charities already have significant insurance policies, as the cap currently stands “it’s not a cap for charitable institutions, it’s a cap for insurance companies,” Sheff adds.
A number of states that have abolished the charitable immunity cap for health care organizations have done so specifically because of organizations’ use of insurance, notes Dunn.
“[Because of insurance] the issue of a lawsuit breaking a charity isn’t going to happen,” says Ristuben.
But raising the cap to the limit of a non-profit’s insurance coverage will bankrupt a great many institutions, argues Averbuch.
“Right now two-thirds of hospitals are losing money,” he says, adding that if the cap is raised too high, “insurance coverage costs will sky-rocket right at the time when hospitals and health care providers are struggling just to maintain viability.”
On the other hand, a $150,000 cap “would be a scratch on Goliath,” says Healy.
“If the Legislature is to act, I would hope they would act in a more significant way,” he says.
For instance, the $500,000 cap, currently proposed by the MBA, is substantial but still “a bargain basement cap,” according to Healy.
But no matter where the cap is set, at this point, most practitioners agree that the $20,000 limit won’t be around for much longer.
“It’s been a decade-long battle … and the issue is not going away,” says Healy. “The Legislature will eventually have to change the cap.”
