The belief that the only way to reform the costly tort system is by adopting a no-fault law is a false choice, according to a new public policy paper issued an insurance industry association.
The National Association of Mutual Insurance Companies’ paper, titled, “Auto Insurance Reform Options: How to Change State Tort and No-Fault Laws to Reduce Premiums and Increase Consumer Choice,” argues that states should consider reforms to improve both tort and no-fault laws. The result could be both increased consumer choice and significantly lower premiums, NAMIC says. The policy paper was written by Peter Kinzler.
The debate over whether tort systems adequately compensated automobile accident victims and were efficient dates back to 1932, Kinzler notes, when a Columbia University study found that “no system based on liability for fault is adequate to meet existing conditions.”
However, it was another 40 years before 16 states adopted no-fault systems. While this resulted in better compensation for injured persons, several states failed to deliver on the promise of lower premiums.
“Good no-fault laws require tight thresholds (i.e., limits on lawsuits), in order to balance out the increase cost of no-fault benefits,” Kinzler writes. “Unfortunately, most of the 16 no-fault states had ‘weak’ thresholds that were inserted into the laws at the urging of the opponents of no-fault, the tort bar. Weak thresholds subvert the no-fault ideal by allowing too many lawsuits, and generating costs that cause premiums to rise.”
Kinzler also notes that replacing the doctrine of contributory negligence, which denies recovery if a person contributed in any way to an accident, with comparative negligence has been one of several modifications of tort law that enabled more people to recover. He also says that the introduction of underinsured motorist coverage, under which one can recover from one’s own insurer if an at-fault driver has insufficient coverage to pay your losses, increased the amount of compensation for injured people.
“These changes in the tort and insurance systems improved compensation for injured people somewhat, but they also produced significant increases in costs,” says Kinzler.
“Experience suggests that it is time to get past the idea that the only alternative to reform the costly tort system is to adopt a no-fault law, particularly given the prevalence of weak lawsuit
thresholds in nearly all the states that have adopted no-fault systems,” Kinzler says. “Instead, states should consider reforms to improve both tort and no-fault laws.”
Among the options that would reduce costs in the tort systems would be:
* Repealing or modifying the collateral source doctrine to discourage people from running up medical bills in order to get a tort recovery for the same bills, when health insurers do not track tort claims and recoup what they paid their insureds from the successful tort claim;
* Adopting a higher standard to recover pain and suffering while maintaining the negligence standard to recover economic loss;
* Making early offers that would enable consumers to recover economic damages from an insurer in a more timely fashion, thus avoiding both the delays and the uncertainties of recovery of the tort system; and
* Establishing a “full tort” versus “economic tort” option that would permit motorists to elect to forego pain and suffering damages in return for significantly lower premiums.
“All of these tort system reforms would lower costs by reducing the incentives provided by pain and suffering damages, and the last two would also increase consumer choice,” Kinzler says.
As for no-fault reforms, the options should include:
* Replacing weak state thresholds with thresholds that permit lawsuits only for uncompensated economic loss and not for pain and suffering;
* Adopting strong verbal thresholds based on the model state law;
* Permitting motorists to choose between the no-fault law in their state and pure no-fault;
* Applying normal health care cost containment measures to the PIP system; and
* Letting drivers have the option of choosing between tort and no-fault systems.
Kinzler concludes by noting that there are “a multitude of reform options available to address problems in both tort and no-fault states, all of which would lower premiums and some of which would improve compensation and/or consumer choice.”
A copy of the paper can be downloaded at: http://www.namic.org/insbriefs/061004AutoReform.pdf
Source: National Association of Mutual Insurance Companies
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