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Friday, December 26, 2003

TORT "REFORM" IN THE AUTOMOBILE AREA: WILL IT SAVE YOU MONEY IN THE END?

The Insurance industry's lobbyists in Washington advocate for aggressive changes in existing tort law-- a body of law that has developed over centuries, taking into account the common, everyday experiences of victims and the changes thrust upon them as the result of somebody else's negligence. Victims' rights are under attack on many fronts, from President Bush to local politicians who buy into the insurance industry's myth-making. Below is an article from The Center For Economic Justice, which may be found at
http://www.cej-online.org, outlining one injustice perpetrated on victims of "reform" in Texas in the form of huge profits reaped by the insurance companies. These money making up these profits was supposed to have benefited the consumers in the form of lower premiums. There are similar studies in many other states.

Auto Insurance Overcharges 1997

[Charts are available showing the auto liability loss ratios from 1990 -1997, as well as the 1997 loss ratios by company.]

Texas auto insurers continued to earn record windfall profits in 1997, topping the excess profits in 1996. After keeping $900 million in windfall profits in 1996, Texas auto insurers in 1997 reaped $1.2 billion in additional windfall profits on liability insurance. So far, the result of tort reform has been a $2 billion windfall to Texas auto insurers.

Losses Have Dropped: After the legislature passed so-called tort reform legislation in 1995, the amount insurers paid for losses on auto liability insurance dropped dramatically. Although the legislature intended that insurers pass those savings on to consumers, insurers kept the money. CEJ performed a loss ratio analysis to calculate the estimate of the overcharges. CEJ used data provided by insurers to the Texas Department of Insurance. The loss ratio measures the percentage of the premium dollar that actually benefits consumers through the payment of losses. The Department of Insurance has set 74% as a reasonable loss ratio.

1996 Overcharges: Although the loss ratios for liability coverages -- the coverages affected by tort reform legislation -- was a dismal 56%, insurers paid out only 56% of the premiums to consumers. This resulted in a $900 million windfall profit to insurers in 1996 alone because insurers could have charged substantially lower rates to earn a reasonable profit with a 74% loss ratio.

1997 Overcharges: Although the loss ratios for private passenger auto insurance hit record lows in 1996, the loss ratios in 1997 were even lower. In 1997, the loss ratio for liability insurance dropped to 52%. This means that Texas consumers were overcharged $1.2 billion in 1997 for auto liability insurance. The combined effect of the first two years of tort reform legislation was a $2 billion windfall profit to Texas insurers.

Tort reform legislation affects the liability portion of an auto insurance policy. Thus, the Center for Economic Justice analyzed the loss ratios of liability coverages after tort reform. CEJ also analyzed the loss ratios of auto insurers for all coverages. While these other coverages showed more reasonable profit levels, the profitability of these other coverages did not offset the $2 billion overcharge.

Insurers with the most excessive auto liability insurance profits in 1997 alone:

State Farm $ 424,242,109
Allstate $ 135,079,827
Farmers $ 118,953,626
USAA $ 71,345,872
Progressive $ 68,237,533





Nobody arguing against changes in tort law is anti-capitalist. Quite the contrary. We believe that the market will accommodate for profits and losses; the same forces of free-market economics that make certain efficient companies prosper make certain that awards in tort cases are fair, just, and reasonable. The numbers you read in the press rarely, if ever, reflect the actual recoveries of victims. All awards are subject to appellate review on a number of levels and on a number of theories. There is a governor on the system. There are no "run-away jury" awards that are collectible. In all cases, pecuniary (economic) damages or losses must be proven by a preponderance of tangible evidence. Further, the intangible awards for pain, suffering and loss of enjoyment of life are governed by the principles of fairness and reasonableness. These awards are subjected to strict scrutiny and compared to past sustained awards in similar cases. Judges make the ultimate determination of what is "fair and reasonable", not juries.

On that note, what do you believe would be fair and reasonable compensation for the following potential case: A 29 year old construction worker, with a wife and three children, is rendered quadriplegic after falling from a scaffold that was improperly constructed and did not have proper safety devices in place. This worker is ordered by his foreman to work in a position that made hooking up to a safety line impossible. Further, no safety line is available, anyway. Another worker who refuses to work on that platform is fired. He has no brain damage, and is completely mentally intact. Just as a starting point for your consideration, the cost of his everyday care for the rest of his natural life expectancy will be approximately $15 million dollars. Remember, tort reformers want to put a cap on what they call "pain and suffering" (the complete legal phrase is "pain, suffering and loss of enjoyment of life). Most proposals would cap these non-economic losses at anywhere from $250,000 to $750,000.

First question: Who should bear the cost of this injured victim's life-care--the negligent parties (who are required by law to have insurance to cover just such a scenario), or the taxpayers who would ultimately have to pay for his healthcare if he received no award for his economic losses? (Tort reformers are quietly attacking the foundation of the laws in New York State that allow injured construction workers to recover even economic damages.)

Second question: What amount of money is enough to compensate this young man for his loss of enjoyment of life? Remember, this 29 year old husband and father of three will be a prisoner in his own body for the rest of his natural life. Tort reformers say these non-economic losses should be capped below $1 million dollars. With enough money, such a "prisoner" would be able to hire the right professionals to allow him to get out to attend a family picnic, or a sporting event for one of his children. These activities are not covered by "pecuniary (economic) losses"; they are considered non-economic. However, they are the very definition of "loss of enjoyment of life".

Please email your responses to alwphd@optonline.net.











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