A New Jersey Supreme Court decision handed down last month that eliminates a “serious life impact” test under the auto insurance verbal threshold will dramatically increase automobile insurance losses and rates in that state, according to an actuarial firm that has studied the matter.
According to Pinnacle Actuarial Resources, the increases in bodily injury and uninsured and underinsured motorists costs that might result for drivers selecting the verbal no fault threshold option are between 34 percent and 57 percent, or approximately $98 to $163 annually per car.
The decision in DiProspero v. Penn, et al., (A-66-03), and a companion case, Octavio Serrano v. Jacqueline Serrano, et al. (A-99-03), concluded that the New Jersey Auto Cost Reduction Act does not imply a “serious impact” requirement for those seeking to sue for damages for non-economic losses. As a result, claimants will retain the opportunity to sue for losses such as pain and suffering.
When the Automobile Insurance Cost Reduction Act was passed in 1998, its language did not specifically include a “serious impact on one’s life standard,” which had been applied since 1992 as a matter of case law after first being set forth in Oswin v. Shaw. However, the courts continued to apply this standard in conjunction with the requirements in AICRA after it was enacted in 1998.
The Supreme Court has now ruled that this additional “serious impact” requirement should not have been imposed under AICRA by the courts. In reviewing the history and language of the AICRA statute, the court determined that state lawmakers did not intend to carry forward the serious life impact test. New legislation would be required to do this, the justices held.
The life impact test makes it more difficult for motorists to sue. The Oswin court concluded that in addition to proving that an injury fit into one of what at the time were nine statutory injury categories of the verbal threshold, the accident victim also had to prove the injury resulted in a “serious life impact.”
Critics of the ruling said that removing the life impact criteria will open the door for more lawsuits and increase costs in the system, contrary to what the legislature intended when it passed AICRA in 1998.
“The Supreme Court has effectively gutted the verbal threshold and potentially opened up the flood gates for litigation in non-serious injury cases,” stated David Snyder, American Insurance Association vice president. The AIA filed an amicus brief with the court on this case in conjunction with the Property Casualty Insurers Association of America and Insurance Council of New Jersey.
Policyholder advocates have sought to quiet the industry’s alarm, noting a person must still overcome obstacles in order to sue. “The injured still have to meet the six criteria and those are tighter than they were before 1998,” said Cynthia M. Craig, one of the attorneys for plaintiffs and an expert on N.J. auto insurance law.
While some cases that had been turned away because of the life impact test may now proceed, that’s not likely to be many cases, maintained Craig, who is with the firm of Blume, Goldfaden, Berkowitz, Donnelly, Fried & Forte. “It’s not opening any floodgates,” she said.
Rising costs
But AIA’s Snyder said that the removal of the test would result in the six criteria being interpreted “very” technically. “The effect is to create significantly rising costs,” he warned.
Insurance companies maintain that the ruling undermines efforts to revive the private auto insurance market in the state and jeopardizes cost savings promised to drivers.
“The court’s decision threatens the recent progress that has been made to replace one of the worst automobile insurance markets in the country with one that offers more choice and lower costs,” Snyder said.
But plaintiff attorney Craig noted that under AICRA, insurers gained more control over medical treatments, a new advantage that should help them contain payments.
The New Jersey Insurance Department said it was reviewing the decision for possible impact, if any, on the marketplace.
The Pinnacle cost analysis, conducted on behalf of the Save Choices for New Jersey Drivers group, was published in the Fall 2004 Journal of Insurance Regulation, based on claims from May 1 through June 30, 2003.
AICRA provides policyholders with the choice of lower premium payments in exchange for limiting their right to sue for non-economic damages. The statute’s “limitation on lawsuit” threshold restricts an accident victim from suing unless the victim suffers a bodily injury that results in death; dismemberment; significant disfigurement or significant scarring; displaced fractures; loss of a fetus; or a permanent injury other than scarring or disfigurement.
In reversing the appellate court, the high court ruled that the plain language of the statute does not contain a serious life impact standard. “Nothing in AICRA’s preamble, its legislative history, or its policy objectives suggests that the legislature intended this court to write in that standard,” the justices said.
The court said it declined to add the life impact test, claiming that is the job of lawmakers.
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