Issue Analysis A Public Policy Paper of the National Association of Mutual Insurance Companies August 2006

Auto Insurance Reform Options: How to Change State Tort and No-Fault Laws to Reduce Routing Premiums and Increase Consumer Choice ______

By Peter Kinzler, J.D. ______Executive Summary ______

otorists and insurers have been deeply concerned about rising auto insurance costs Mand premiums in a number of states in recent years and many states have reacted to these concerns by considering reforms. Starting in the early 1970s, 16 states adopted no-fault laws as a way to reduce premiums, although no-fault also promised better compensation by eliminating much of the lawsuit system with its high overhead costs of attorneys and pain and suffering awards. The momentum towards no-fault stopped in the late 1970s, and much of the debate since then has been over whether to reform or repeal the no-fault laws. In most no-fault states where this debate has occurred recently – Colorado and Florida are notable examples – the extant systems were so badly flawed by runaway medical costs or weak thresholds, or both, that they required serious overhauls in order to fulfill no-fault’s promise of fair compensation and lower premiums. All too often, the proposed reforms were transparent attempts to maintain the status quo, leading interest groups and policymakers who would normally support the no-fault concept to reject disingenuous “reforms” in favor of outright repeal. On the other hand, some tort states have considered converting to no-fault, though few have considered reforming their tort systems. This paper finds the “tort versus no-fault” reform paradigm to be a false choice and, instead, offers a series of recommendations to lower premiums and, in some cases, improve compensation and increase choice in both tort and no- fault states.

A. The Case against the Tort System Starting in 1932, numerous studies have criticized the tort system in auto accident cases – under which an injured person can recover only if another party is legally “at-fault” and, generally, the injured person is less at fault – for providing poor compensation at an excessive cost. Specifically, the critics have documented the following:

• The System is Inefficient. It pays more for attorneys’ fees for both parties than for legitimate medical bills and lost wages.

• The System is Overly Costly. The U.S. Congressional Joint Economic Committee (JEC) estimates that consumers could save $47.7 billion a year, a reduction of 56 percent in the bodily injury portion of their premium, were states to adopt a good no-fault system.

Peter Kinzler is President, Kinzler Consulting, Alexandria, Va. He holds a J.D. from Columbia Law School. As a consultant, he specializes in public policy issues related to insurance and legal reform. • The System is Incomplete. offer no-fault insurance, all injured Approximately 30 percent of all people recover economic loss benefits injured persons recover nothing under in a more timely fashion than under the tort system. the tort system. However, weak thresholds allow too many people • The System Allocates Benefits Poorly. with non-serious injuries to file People with minor injuries recover, lawsuits. It is telling that no state on average, several times the amount no-fault law adopted the stringent of their economic loss while people threshold that was written into the with serious injuries recover far less original model state no-fault law. than is needed to pay their economic Weak thresholds raise both the cost of Weak thresholds losses. lawsuits and the cost of no-fault raise both the cost benefits, as injured people inflate their of lawsuits and the • The System Overburdens the Courts. losses in order to sue for pain and Auto insurance cases represent more suffering. cost of no-fault than half of all tort cases in large benefits, as injured counties. • Changes in the Tort and Liability people inflate their Insurance System Filled Some of losses in order to • The System Does Little if Anything the Compensation Gaps but Also sue for pain and to Mitigate Crash Losses. The risk Raised Premiums. Replacing the suffering. of harm to oneself is the major doctrine of contributory negligence, deterrent to reckless driving and which denies recovery if a person liability insurance undermines any contributed in any way to an accident, significant deterrent effect. with comparative negligence was one of several modifications of tort B. Auto Insurance Reform law that enabled more people Efforts of the 1970s and 1980s: to recover. On the insurance side, the introduction of underinsured What Went Wrong motorist coverage, under which one The failures of the tort system led 16 states can recover from one’s own insurer if to adopt no-fault laws during the 1970s. an at-fault driver has insufficient While all of them have resulted in better coverage to pay your losses, increased compensation for injured persons, several the amount of compensation for have failed to deliver on the promise of injured people. These changes in lower premiums. Good no-fault laws require the tort and insurance systems tight “thresholds” (i.e., limits on lawsuits), improved compensation for injured in order to balance out the increased cost people somewhat, but they also of no-fault benefits. Unfortunately, most of produced significant increases in costs. the 16 no-fault states have “weak” thresholds that were inserted into the laws at the urging of the opponents of no-fault, the tort bar. C. Cost Drivers in Tort Weak thresholds subvert the no-fault ideal by and No-Fault States allowing too many lawsuits, generating costs The cost drivers in both kinds of states are that cause premiums to rise. Meanwhile, the same: perverse incentives for injured reforms to the liability insurance systems parties and their attorneys to inflate claims, in tort states also improved compensation combined with rising medical costs. The result (though to a much lesser degree than the no- is that, despite lower accident frequencies, fault laws did), but also increased costs. people are filing more claims for more dollars today than ever before. • The Mixed Success of No-Fault Laws. In all of the 12 states that continue to

 • Cost Drivers in Tort States. Payments unscrupulous inflate their medical for non-economic loss (commonly bills to cross the thresholds and referred to as “pain and suffering”), recover the pain-and-suffering pot of which are roughly based on the gold. In addition, PIP costs are amount of economic loss, remain the unnecessarily high because, for primary motivating force for the most part, they operate outside unscrupulous people and their the mainstream of governmental doctors and lawyers to inflate medical and private health insurance, with bills. The advent of new and more few cost controls. As with the tort costly diagnostic procedures and system, more costly diagnostic tests and greater utilization of, and dramatic the use of chiropractors, physical increases in charges by, chiropractors, therapists and other alternative Weak thresholds physical therapists and other treatment professionals have also raised are the major alternative treatment professionals costs. The IRC estimates that between cause for inflated contribute to increased costs. The 12 and 17 percent of all PIP claims Insurance Research Council (IRC) contain the appearance of fraud or PIP claims, as the estimates that between 18 and buildup. As a result of these abuses, unscrupulous 27 percent of all tort claims contain several states – including New York, inflate their apparent fraud or buildup, primarily Florida and Colorado (which repealed medical bills to increase the recovery of its no-fault law in 2003) – have to cross the noneconomic damages. The annual experienced significant increases in thresholds and cost to consumers is in the billions, costs and premiums that have required perhaps tens of billions, of dollars. legislative changes. Thus far, however, recover the pain- neither New York nor Florida has and-suffering pot • Cost Drivers in No-Fault States. Too been willing to enact—or even to of gold. many states failed to adopt restrictions seriously consider—measures to on lawsuits that were sufficient to significantly tighten their weak lawsuit pay for the increased costs associated thresholds. Colorado did consider with paying no-fault (“PIP”) benefits reforms that included tight thresholds to all injured persons. The result but chose, instead, to repeal its has been that in most putatively no-fault law. no-fault states, more dollars are paid out for tort claims than for D. Changing the Auto Insurance no-fault claims. The RAND Institute Reform Paradigm: Reforms to Lower for Civil Justice (RAND) estimates that limiting lawsuits to claims for Premiums, Improve Compensation of uncompensated economic loss only, Economic Loss and Increase Choice in and not for pain and suffering, would Tort and No-Fault States reduce personal injury costs in Experience suggests that it is time to get past no-fault states by approximately the idea that the only alternative to reform 61 percent. Lower premiums would the costly tort system is to adopt a no-fault enable low-income people to better law, particularly given the prevalence of weak afford cars to get to where the jobs are lawsuit thresholds in nearly all the states that and pay for other vital expenses. They have adopted no-fault systems. Instead, states would permit people with more income should consider reforms to improve both tort to lower their premiums or increase and no-fault laws. coverage for more serious losses. Weak thresholds are the major • Tort System Reforms. Among the cause for inflated PIP claims, as the options that would reduce costs are:

 - Repeal or modification of the - Adopt strong verbal thresholds collateral source doctrine to based on the model state law. discourage people from running up While the savings would not be as medical bills in order to get a tort great as those in a pure no-fault recovery for the same bills, when system, they would be dramatic in health insurers do not track tort states where the thresholds do not claims and recoup what they paid effectively restrict lawsuits to cases their insureds from the successful involving genuinely serious and tort claim. permanent injuries.

- A higher standard to recover - Permit motorists to choose between There are a pain and suffering while the no-fault law in their state and multitude of maintaining the negligence standard pure no-fault. As with the first to recover economic loss. option, it would permit motorists reform options to choose pure no-fault coverage that available to - Early offers that would enable would reduce their premiums address problems consumers to recover economic dramatically, while allowing those in both tort and damages from an insurer in a more who wish to remain in the present no-fault states, all timely fashion, avoiding both the system to do so. Motorists choosing of which would delays and the uncertainties of the existing state option would pay recovery of the tort system. higher premiums commensurate lower premiums with the greater costs associated with and some of which - Full tort versus economic tort the present system. would improve option that would permit motorists compensation to elect to forego pain and suffering - PIP system reforms, of which many and/or consumer damages in return for significantly are discussed, are primarily designed lower premiums. to make the PIP system look choice. more like the typical health All of these tort system reforms would insurance system. Applying normal lower costs by reducing the incentives health care cost containment provided by pain and suffering damages, and measures to the PIP system would the last two would also increase consumer rein in excessive PIP costs. choice. • Choice between Tort and No-Fault • No-Fault System Reforms. Among Systems. This is the reform that the options are the following: would give consumers the most choice and could be implemented in either - “Pure” no-fault: Replace weak state a tort or a no-fault state. Model thresholds with thresholds that legislation exists that would enable permit lawsuits only for people who elect either system to uncompensated economic loss and experience directly the consequences not for pain and suffering. This of their choice, both in terms of cost proposal would come close to a pure and compensation. no-fault system and would reduce personal injury premiums in In sum, there are a multitude of reform states with major metropolitan areas options available to address problems in both by approximately 60 percent or tort and no-fault states, all of which would more. lower premiums and some of which would improve compensation and/or consumer choice.

 Introduction underinsured motorist (UIM) pay for your economic and noneconomic losses when uto insurance reform has been a you are injured by an at-fault driver who is Ahotly debated topic since the 1930s, uninsured or who lacks sufficient liability as commentators have criticized both the insurance to cover all your losses. cost of the system and its effectiveness in In recent years, there have been significant delivering compensation promptly and increases in bodily injury costs which have efficiently when people are injured. Since increased premiums for all motorists but have 1965, the auto reform debate has been been particularly difficult for low-income largely framed as one between retaining drivers. This report will focus on the key the tort and liability insurance system and factors – the systems and medical costs – that replacing it with some form of no-fault are driving increases in the bodily injury In recent years, insurance. portion of the dollar and what can be done This issue analysis examines the there have been to lower costs in the future. It will not focus significant arguments against the tort system and its on the potential savings from permitting rate various no-fault successors in different competition because many other authors have increases in bodily states and identifies the major reasons for already addressed that issue in detail.2 It will injury costs which increasing premiums in both systems. It also not focus on the property damage side of have increased concludes that accepting the tort system the dollar for three reasons: (1) there are few premiums for all as is or replacing it with no-fault is a false incentives for motorists to inflate collision choice in most states. Instead, it argues motorists but have or comprehensive claims because they do been particularly that reform in tort and no-fault states not benefit from such claims (their cars are should be looked at separately. Finally, simply repaired); (2) there are no incentives difficult for low- it offers recommendations to increase for lawyers to encourage fraud in property income drivers. consumer choice and lower premiums in damage claims because these claims are settled tort states and separate recommendations to through a system of subrogation between accomplish the same goals in no-fault states. insurers that does not involve attorneys for A typical private passenger auto the damaged car’s owner and; (3) insurers insurance policy consists of coverages that have taken effective measures to reduce costs afford protection against damage to the by using generic after-market crash parts and vehicle and to individuals. Collision pays for operating their own auto body repair shops. the repair of damage to your vehicle in an accident, regardless of fault. Comprehensive pays for damage to your vehicle or its State Auto Insurance contents from such perils as fire or theft. Bodily Injury Systems Property damage liability pays for damage to uto insurance in the United States is the other driver’s vehicle and property if you Adefined and regulated on a state-by-state are legally at fault in an accident. In 2004, basis, with the federal government playing these coverages represented approximately no role. There are four different types of laws 1 59 percent of the claims dollar. – tort, tort add-on, no-fault, and choice no- The other 41 percent consisted of fault. coverages that protect you in the event of an accident that causes personal injury. A. Tort States Bodily injury liability (BI) protects your A majority of states, 28, operate under the assets when you have to pay for injuries tort system or, more accurately, the tort and to others because you are legally at fault in liability insurance system. Under this system, an accident. Medical payments (MedPay) a person who is injured in a motor vehicle and personal injury protection (PIP) accident is entitled to recover damages for pay for your economic losses, regardless injury from the other driver only if s/he can of fault. Uninsured motorist (UM) and identify and prove that (1) the driver of the

 other vehicle was legally at fault and (2) the the name no-fault. Because there are no injured person was either not at fault or restrictions on the right to sue and the less at fault than that driver. That is the tort benefits are simply added on to the tort part of the system. The “liability insurance” system, it is more appropriate to call them part of the system flows from the fact that tort add-on states. the states require motorists to purchase BI Eight of the 10 add-on states are insurance to pay claims when one is legally nearly identical to the 28 tort states in at fault. other important respects. They do not Because the tort system does not pay require the purchase of no-fault benefits for people who are injured by either their (it is optional)3 and the amount of no-fault own negligence or when there is no at-fault coverage, if purchased, is similar to or less driver—such as when a motorist skids on than the average amount of MedPay coverage the ice and is injured when the car hits a ($5,000)4 carried by most drivers in a tort 5 Proponents of no- tree—all states permit motorists the option state. to purchase MedPay coverage. As discussed Thus it is probably more accurate to say fault believed it was above, MedPay pays one’s medical bills, there are 36 tort states and two tort add-on politically essential without regard to fault. states. Oregon and Delaware are different that the costs of Additional insurance is also available to from the other eight states because the the no-fault system address two other shortcomings of the tort purchase of PIP coverage is mandatory and not exceed, and system. First, if the injured person cannot the level of no-fault benefits -- $15,000 for identify the at-fault motorist or that person one person and $30,000 for two or more in preferably reduce, is uninsured, then the injured person’s Delaware and $39,500 in Oregon -- is far those of the tort only source of recovery is from one’s own higher than the average amount of MedPay system it was UM coverage. Second, an injured person’s coverage.6 replacing. recovery, even if s/he prevails in a lawsuit or through a settlement, is, as a practical C. No-Fault States matter, usually limited to the amount of Nine states have no-fault laws that combine BI insurance carried by the at-fault driver. the purchase of mandatory no-fault benefits Often in a serious injury case, the other with a restriction (a “threshold”) on the driver does not carry enough BI coverage right to sue for non-economic damages, to pay for all the losses. Insurers offer UIM commonly called “pain and suffering.” The coverage to fill this gap. In both situations, no-fault portion of the law was designed the injured motorist recovers from her/his to improve compensation for injuries by own insurer, but only if one can establish assuring timely payment of economic that the other person was legally at-fault. losses to all injured persons. The threshold limitation on lawsuits was the trade-off for a B. Tort Add-on States better compensation system. It is necessary to Ten states operate under what are often reduce the cost of lawsuits sufficiently so that called add-on no-fault systems, in which all the total bodily injury costs of the no-fault insured injured people, regardless of fault, system—for both the no-fault benefits and are entitled to receive PIP (no-fault) benefits for lawsuits that cross the—won’t exceed that for medical and work loss, up to the limits of the pre-existing tort system. Proponents of of their policies. The benefits are “added on” no-fault believed it was politically essential to any benefits an injured person might be that the costs of the no-fault system not entitled to receive through the tort system. exceed, and preferably reduce, those of the Because they do not contain any restrictions tort system it was replacing. on the right to sue – the basic trade-off in All but one of the original no-fault laws no-fault states of limiting litigation to pay contained “monetary” thresholds, whereby for the added cost of no-fault benefits for a person can sue for pain and suffering if all injured persons – they do not warrant the economic loss exceeds a specific dollar

 amount, such as $500 or $1,000. One state, States from the beginning of auto insurance Michigan, adopted a “verbal” threshold until 1971 and the only option in 36 states under which one could sue for pain and today—has functioned. suffering only if the injury fit into one of There is a long history of criticisms of the several defined categories of serious injury. tort system. In 1932, a Columbia University Since the adoption of these laws in the study of compensation for auto accident 1970s, Florida, New York, New Jersey and victims concluded: Pennsylvania have changed from monetary thresholds to verbal thresholds and Kansas, The generally prevailing system of Massachusetts, Hawaii, Minnesota, North providing damages for motor vehicle Dakota and Utah have increased the amount accidents is inadequate to meet existing of their dollar thresholds in an effort to conditions. It is based on the principle control costs. Only Kentucky has kept of liability for fault which is difficult its dollar threshold where it was when it to apply and often socially undesirable adopted its no-fault choice system in 1974. in its application; its administration through the courts is costly and slow, D. Choice No-Fault States and it makes no provision to ensure the Three states permit motorists to choose financial responsibility of those who between two forms of insurance. In are found to be liable. Kentucky, motorists can choose between the tort system and a no-fault system which [N]o system based on liability for fault permits lawsuits if the injured person has is adequate to meet existing conditions.8 $1,000 or more in medical expenses. Pennsylvania and New Jersey have Tort States Tort Add-On States No-Fault States Choice States amended their laws to permit a choice Alabama Arkansas Florida7 Kentucky between tort add-on and no-fault Alaska Delaware Hawaii New Jersey systems. In Pennsylvania, all motorists Arizona Maryland Kansas Pennsylvania must purchase PIP benefits but they California Oregon Massachusetts can reduce their auto insurance costs if Colorado South Carolina Michigan they accept a limit on their right to sue Connecticut South Dakota Minnesota for pain and suffering. Georgia Texas New York In New Jersey, motorists may make Idaho Virginia North Dakota Illinois Washington Utah the same election between tort add- Indiana Wisconsin on and no-fault laws. New Jersey has Iowa one additional wrinkle which permits Louisiana motorists to purchase a “basic” no- Maine fault policy with lower PIP benefits Mississippi in order to reduce their premiums Missouri further. Montana Nebraska Nevada The Case against New Hampshire the Tort System New Mexico North Carolina hen motorists purchase auto Ohio Winsurance they are concerned Oklahoma about two matters—cost and Rhode Island compensation. This section addresses Tennessee how the tort and liability insurance Vermont system—the only auto insurance West Virginia system in place throughout the United Wyoming

 The Columbia study then recommended its performance and the logic of its adoption of a no-fault solution: operation, it does little if anything to minimize crash losses.11 The Committee favors the plan of compensation with limited liability The DOT recommended that the states and without regard to fault, replace their tort laws with no-fault.12 analogous to that of the workmen’s Let’s examine these critiques in detail, compensation laws. Such a plan considering whether they still apply to the would eliminate the use of the tort system today. principle of negligence, would place the burden of economic loss Any system that A. The System Is Inefficient on the owner or operator to whose Any system that requires attorneys for both requires attorneys activity the loss is chiefly due, plaintiffs and defendants to adjudicate fault for both plaintiffs would provide for an equitable before compensating accident victims is and defendants distribution of the insurance fund going to be an inefficient compensation to adjudicate according to the extent of the system. According to the IRC’s latest data, fault before economic loss, and would provide the vast majority of bodily injury liability a prompt remedy at small cost to dollars are paid out to claimants who retain compensating 9 the injured person or his family. attorneys: 47 percent of bodily injury liability accident victims claimants retained attorneys and those is going to be Professors Robert E. Keeton and Jeffrey claimants received 79 percent of all such an inefficient O’Connell authored the next major critique dollars paid to injured persons.13 compensation of the tort system in auto accidents in 1965 As Figure 1 shows, the JEC has found in a book entitled Basic Protection for the system. that it takes 25.5 cents in attorneys’ fees Traffic Victim: A Blueprint for Reforming to deliver 55.6 cents of economic and Automobile Insurance.10 The book also noneconomic damages (including 16.3 cents was highly critical of the tort system and in fraudulent and excessive claims) to auto recommended replacing it with a no-fault accident claimants.14 Attorneys are paid insurance system. More than any single more than injured people receive for their document, the book became the basis legitimate medicals bills and lost wages.15 By for 16 states and the Commonwealth of contrast, health insurance systems deliver Puerto Rico adopting no-fault laws during their benefits without any attorneys’ fees. the 1970s, as well as for nearly a decade of consideration of no-fault legislation at the B. The System Is Overly Costly federal level. The JEC’s estimate of cost savings under The U.S. Department of Transportation Auto Choice legislation – 56 percent on the (DOT) thereafter conducted an exhaustive bodily injury portion of the premium with 26 volume study of the tort system and a maximum total potential savings of $47.7 published its findings in 1971. The DOT billion per year – demonstrates the potential summarized its indictment of the tort system for savings under one particular reform as follows: proposal.16 The magnitude of these savings support the argument that the system is [T]he existing system ill serves overly costly. Other reforms discussed later in the accident victim, the insuring this analysis could also result in significantly public and society. It is inefficient, lower premiums for policyhoders. overly costly, incomplete and slow. It allocates benefits poorly, C. The System Is Incomplete discourages rehabilitation and This finding is based on the fact that overburdens the courts and the approximately 30 percent of all injured legal system. Both on the record of persons receive no compensation from the

 tort system.17 The largest single category of and undercompensating those with serious cases is single-car accidents, such as where a injuries. car skids on the ice and hits a tree, where no For example, RAND found that people one is legally at fault. with economic losses between $1 and $2,000 recover on average 250 percent of those D. The System Is Slow losses, i.e., 2 ½ times the amount of economic This finding is based on the fact that it loss (with the excess over 100 percent being takes a long time for a successful plaintiff to considered recovery for pain and suffering). recover, as there are no interim payments in On the other hand, RAND found that those the tort system and many of our courts have with economic losses of $25,000-$100,000 significant backlogs. For example, a U.S. recover on average 56 percent of those losses Department of Justice study of the largest and those with losses over $100,000 recover 75 counties found that 26.2 percent of auto on average only 9 percent of their economic tort cases took two to four years to resolve losses.2 and 6.9 percent took more than four years to There are two main reasons for this resolve.18 profile: (1) the incentives provided by pain A recent IRC study also documents and suffering damages, whereby plaintiffs how slow the tort system is. It found that in the tort system receive payments for pain only 16 percent of bodily injury claimants and suffering which are roughly based on the received their first payment within 30 days amount of economic loss; and (2) the limited and only another 15 percent received their amount of bodily injury liability insurance first payment within 31-90 days. By contrast, carried by motorists. in first party PIP claims in no-fault states, Here is how these factors play out to where losses are paid as they occur rather produce the inequitable profile of recoveries. than in one lump sum at the end of tort claim, 35 percent of PIP claimants received Figure 1 their first payment within Distribution of the Bodily Injury Liability Premium one month of the time they reported the injury to their insurer and an additional Attorneys fees Fraudulent and 45 percent received their (plaintiff and defense) excessive claims first payment within 31-90 25% 16.3% days. At the other extreme, 27 percent of bodily injury claimants did not receive their first payment until more than one year later, as contrasted with 4 percent of Other overhead Medical bills PIP claimants.19 expenses and lost wages 7.1% 19.3% E. The System Allocates Benefits Poorly Taxes and fees All of the studies cited 2.3% above and many more Commissions and point out that the tort brokerage costs Pain and suffering related system allocates benefits 9.5% to actual economic loss poorly, overcompensating 20% those with minor injuries Source: Joint Economic Committee

 to pay off in cases of relatively small Figure 2 losses. First, it costs insurers more to Compensation of Auto Injuries Under the Tort System litigate or have prolonged negotiations than to pay off in cases involving a few 300% thousand dollars. Second, it is often 250% difficult to determine the difference 250% between necessary and unnecessary diagnostic exams and chiropractor 200% visits. From the perspective of the plaintiff and his or her attorney, if 150% the defendant is insured, they know there is a guaranteed pot of money, the 100% mandatory BI limits, from which to

Economic Loss Economic 56% recover. In the majority of states, that 50% amount is $20,000-$25,000 for one injured person. These factors are the Compensation as a percent of as a percent Compensation 9% main reason why people with minor 0 injuries recover on average far more $500 to $1,000 $25,000 to $100,000 Over $100,000 than their economic loss. Size of Economic Loss At the other end of the injury Source: Carroll, et al. scale – where economic losses are significant – there are two major In cases with minor injuries, the injured constraints on the recovery of damages. person and his or her attorney have an The first is the limited amount of liability incentive to build up economic loss in order insurance coverage by the average driver to recover pain and suffering damages. which, incidentally, is caused by the high Courts and juries often use a multiplier of cost of even low limits of coverage. When economic loss as a proxy for noneconomic one considers the coverage carried by all loss because it is impossible to place a motorists – from those who drive uninsured to those who carry the minimum amount In the tort system, specific dollar figure on pain and suffering. As the RAND data in Figure 2 show, required by state law to those who carry people with minor a person with $500 of medical bills could higher limits – the average amount today is injuries often expect to recover approximately $1,250, approximately $75,000. The second major recover pain and including $750 for pain and suffering. constraint on recovery is the cost of the suffering while However, should that person decide to plaintiff’s attorneys’ fees, typically about have an MRI and make 15 or 20 visits to one-third of the recovery.22 So, for example, those with serious if a person with $100,000 of economic chiropractors and physical therapists, s/he injuries rarely do, could well wind up with economic losses of loss is injured by the average driver, s/he with the average $5,000 instead and then, according to the can recover a maximum of $75,000. That recovery for serous RAND data, recover approximately $10,000. inadequate gross recovery is then reduced by injuries falling far RAND found that the ratio of payment-to- the attorney’s $25,000 fee, resulting in a net economic loss started dropping after about recovery of $50,000 – one-half of the injured below economic person’s economic loss. And that is in the loss. $10,000 and then fell below 100 percent of economic loss shortly after $25,000.21 Other best case scenario, where the injured person beneficiaries of this system include doctors is completely free from fault so that there is and lawyers, with plaintiffs’ attorneys no reduction for comparative negligence. typically receiving one-third of the entire In sum, in the tort system, people settlement. with minor injuries often recover pain and Insurers, who are legally obligated to suffering while those with serious injuries defend their insureds, have strong incentives rarely do,23 with the average recovery for

10 serous injuries falling far below economic reform efforts, both the switch to no-fault loss. auto insurance in 16 states during the 1970s and changes in the tort system in the states F. The System Overburdens that retained the tort system. The section the Courts analyzes the reforms from both a cost and Auto cases continue to occupy a significant compensation perspective. amount of judicial time. In 2001, tort cases represented 66.7 percent of the civil A. The Sham of Tort Add-on Laws trials disposed of in the nation’s 75 largest Not surprisingly, the trial bar, which stood counties. Auto cases were the single largest to lose billions of dollars a year in fees if category, constituting 53 percent of all tort the states adopted true no-fault laws, had a cases.24 different perception of why compensation was In 2001, tort cases inadequate for injured people. They claimed represented 66.7 G. The System Does Little if that most injured persons sued because percent of the civil insurers treated them badly. They contended Anything to Mitigate Crash Losses trials disposed of that “(m)ost people with smaller claims just The tort system is designed to accomplish want their losses paid” and if insurers simply in the nation’s 75 two purposes – compensation and paid them without a hassle, injured people largest counties. deterrence. The inadequacies described would experience the “happiness factor” and Auto cases above might be tolerable if the system not file suits.26 deterred reckless driving, thereby reducing were the single Their solution was the add-on system the number of accidents over what they largest category, – “add-on” medical and work loss benefits would be under a no-fault system. However, constituting 53 for all and you would not have to place any the most comprehensive study of accidents limits on lawsuits because people with minor percent of all tort in tort and no-fault states found no injuries would accept the payments and not cases. correlation between the presence of no-fault file suits. auto insurance and a state’s fatal accident The theory might have worked to some or overall accident rate or the rate of driver degree, except for one problem – the trial negligence.25 bar did not propose doing away with the The conclusion make sense because (1) pain and suffering payments in minor injury the risk of death or serious bodily injury cases. The result was a more expensive system from reckless driving is a serious deterrent, because injured people used their PIP benefits and (2) liability insurance undermines any to finance their lawsuits, i.e., the guaranteed significant deterrent effect of the tort system compensation for economic loss meant that by paying the losses of the at-fault party. The they could afford to wait longer to pursue only civil penalty for reckless driving is an additional amounts through a lawsuit. The increase in the motorist’s premium, exactly longer they could afford to wait, the more the same as the penalty for reckless driving leverage shifted to their side. In 2001, both in a no-fault system. tort add-on states were expensive: Delaware ranked third and Oregon 22nd in injury loss The Auto Insurance Reform costs.27 Effort of the 1970s and 1980s: What Went Wrong B. The Mixed Success of State No-Fault Laws review of how the tort and liability The theory behind no-fault was simple. No- A insurance system works in theory and fault would provide a trade-off of guaranteed practice reveals many shortcomings, but prompt recovery of economic loss for all it begs the question of whether alternative injured persons, regardless of fault, in return approaches would be preferable. This for eliminating lawsuits for people with minor section examines the experience of state injuries. In essence, the tort system would

11 be changed from a lottery to primarily a The first state no-fault law in the country system of health and accident insurance. The was adopted in Massachusetts in 1970. It 30 percent who received nothing under the was a modest law by any standard—$2,000 tort system would all be entitled to recover of no-fault benefits and a dollar threshold economic loss benefits and the thresholds under which an injured person could sue would eliminate enough of the lawsuit system for pain and suffering29 if s/he had more costs to keep the total personal injury costs than $500 of medical expenses. The original at or below the costs of the pre-existing tort bill introduced by Representative Michael system. Dukakis had a far more restrictive threshold, That was the theory, before it entered but the weak $500 threshold was substituted the realm of politics. In practice, many of the for the original one by other legislators on laws have failed to keep premiums in check. behalf of the trial bar. Many of the laws The main reason for this lies in the thresholds From 1970 to 1975, 16 states and Puerto that the trial bar succeeded in weakening, Rico adopted no-fault laws. All but one of have failed to as a matter of self-interest, before the laws them, Michigan, included a dollar threshold. keep premiums in were adopted. Also, in recent years the cost The main problem with these thresholds was check because of of no-fault benefits has risen, sometimes that they did not eliminate enough of the tort thresholds that the dramatically, in the wake of fraudulent system to pay the cost of the new no-fault trial bar succeeded schemes and the buildup of claims. The fraud system, thereby resulting in higher premiums and buildup is often designed to breach the than intended by the authors. In the most in weakening. threshold and qualify for a lawsuit. dramatic example of an unbalanced law, New It is important to note that, on the Jersey required the purchase of unlimited compensation side, no-fault states achieved medical benefits while permitting suits for their stated goal of paying more injured pain and suffering if a person incurred as people more promptly. A U.S. Department little as $200 in economic loss. of Transportation study in 1985 documented Dollar thresholds had other problems these improvements in compensation: as well. Instead of limitations, they often became targets. In Hawaii, for example, Significantly more motor vehicle the threshold was approximately $8,000 accident victims receive auto in the mid-1990s. The high dollar amount insurance compensation in no- resulted in many people with injuries below fault States than in other States; that amount running up unnecessary … compensation payments under medical expenses to reach the threshold, no-fault insurance are made far thus resulting in not only more BI costs but more swiftly than under traditional in more PIP costs as well. A RAND study auto insurance; [and]… no-fault demonstrated this effect dramatically. It insurance systems pay a greater showed that Hawaii PIP claims for soft tissue percentage of premium income injuries rose quickly and then flattened to injured claimants than do out, just as was the case in New York with traditional liability systems.28 its verbal threshold.30 However, while New York claims continued to fall, Hawaii 1. Weak Dollar Thresholds claims suddenly “turn up again and rise When the trial bar could not defeat no-fault sharply through the threshold. The Hawaii reform efforts outright or convince states to distribution peaks above the threshold, and adopt sham tort add-on laws, they worked finally, fall off.”31 The study concluded that, to weaken the thresholds in the no-fault laws “compared to New York, the distribution of so that more lawsuits for pain and suffering adjusted medical costs in Hawaii is shifted would remain than the no-fault proponents substantially to the right [higher], as one supported. would predict given the incentives built into the state’s insurance system.”32

12 Another problem with dollar thresholds of tort claims for personal injury is that they are inequitable. A $500 medical arising from the maintenance or use bill in New York City, the original threshold of motor vehicles…. Savings from in the state, required far less medical care the elimination of controversies than a $500 bill in the upstate town of Glens over fault and the abolition of Falls. Thus, under a dollar threshold system, actions for less-than-severe pain as between people with similar injuries and and suffering will be used to pay medical treatment, one might be entitled to for the extensive benefits (which sue for pain and suffering but not the other. included payment for all reasonable Today, most no-fault states that retain medical and rehabilitation expenses a dollar threshold are rural ones where the without limit) provided under basic buildup of claims is far less than it is in reparation insurance. An IRC survey states with large metropolitan areas. found that Again, the no-fault proponents of strong 54 percent of 2. Undermined Verbal Thresholds verbal thresholds ran into the reality of trial suspicious PIP Early on in the no-fault debate, proponents lawyer power in legislatures when they tried supported the adoption of verbal or to enact verbal thresholds such as the one in claims appeared descriptive thresholds, whereby one could UMVARA. The one state that came close to to involve buildup sue for pain and suffering only if the injured adopting the model law was Michigan, whose in response to person suffered a serious and permanent law authorizes unlimited medical benefits the availability of injury. The idea was to define the nature, and includes a verbal threshold that is similar pain and suffering not the cost, of the injury, thereby reducing but uses the standard of “serious impairment damages once one claims buildup and restricting lawsuits of body function,” instead of “significant only to the most serious injury cases. If permanent injury.” The result is the one state crosses a weak successful, the theory went, the cost of BI where the cost of PIP benefits far exceeds the threshold. coverage would drop so much that people costs of lawsuits. In 2005, for example, the could afford to purchase a high level of average loss costs for lawsuits as a percentage PIP benefits and dramatically improve of PIP benefits and BI costs combined was compensation for serious injuries. only 17 percent.34 This concept was memorialized in 1972 by the National Conference of 3. Weak Thresholds and High PIP Costs Commissioners on Uniform State Laws Given that most thresholds have significant in its model no-fault law, the Uniform weaknesses that can be exploited, it follows Motor Vehicle Accident Reparations Act logically that much of the buildup of PIP (UMVARA). Section 5(a)(7) of UMVARA claims is intended to enable injured people called for a threshold that permitted lawsuits to file claims for pain and suffering. An IRC for pain and suffering damages only if the survey confirmed that suspicion. It found that damages were in excess of $5,000 and only 54 percent of suspicious PIP claims appeared “if the accident causes death, significant to involve buildup for the sake of inflating the permanent injury, serious permanent general damages settlement, i.e., in response disfigurement, or more than six months of to the availability of pain and suffering inability of the injured person to work in an damages once one crosses a weak threshold, occupation.”33 and 37 percent of such claims were built up in The commentary accompanying this order to overcome tort thresholds.35 provision describes its centrality to the no- Inadequate medical cost controls also fault reform: played a significant role in the phenomenon of rising PIP costs that started in the mid to This is the key provision of the late 1990s. This issue is examined in detail in a Act, designed to eliminate the bulk later section.

13 4. The Balance between Thresholds and bodily injury liability costs combined and PIP Benefits was 61 percent of the premium.38 That figure The U.S. Department of Transportation is well above the 17 percent in Michigan and studied the relationship between the level anything but a primarily first party system. of no-fault benefits and the tort threshold in no-fault states in the mid-1980s and C. Changes in Tort Laws and concluded that there is a direct correlation: Insurance Coverage Have Improved Compensation But at a Cost – Higher There is a close relationship between the percentage of automobile Premiums for Motorists accidents which are removed from The most telling the tort system by the threshold, and 1. Tort Changes Increased the Number of People Who Could Recover but Also failure of most the total amount of money that can Increased Premiums threshold no-fault be paid to accident victims in the form of no-fault (PIP) benefits and While most of the reform attention was laws is that they to third-parties in the form of bodily focused on no-fault insurance during the do not eliminate injury liability (BI) damages, without 1970s, most tort states amended their laws enough of the tort an adverse effect…in the form of an to address the compensation gap issues system to keep the increase in premium rates beyond raised by Professors Keeton and O’Connell the rate of inflation… .”36 and others. Many of these changes were cost of premiums recommended by the American Bar in line. 39 The study suggested that “no-fault Association (ABA), whose goal was to insurance works best when there is a cost- assure the continued role of both plaintiff stabilizing balance between the PIP benefits and defense attorneys in resolving auto provided to automobile accident victims and personal injury cases. the number of lawsuits permitted against The most prominent change, which was third-party wrongdoers.”37 [Emphasis adopted in almost all states, was the abolition added] of the doctrine of contributory negligence Several no-fault states have changed whereby an injured person is not entitled to from dollar thresholds to verbal thresholds compensation through the liability system if since their enactment in the 1970s. However, s/he contributed in any way to the accident. in no case has a state coupled the concepts of “Reform” took the form of modified serious and permanent in all of its categories comparative negligence, whereby one can still and this trial lawyer-implanted defect has recover if the other driver was more than 50 resulted in laws that pay more dollars for percent responsible for the loss. The injured lawsuits than for PIP benefits, a far cry from person’s recovery is lessened to the degree of the intentions of the creators of the no-fault one’s own fault. concept and of the state legislators who Many states stopped there, but others sought enactment of true no-fault laws. adopted the doctrine of “pure” comparative In sum, the most telling failure of most negligence. This doctrine permits a person to threshold no-fault laws is that they do not recover damages even if s/he was more than eliminate enough of the tort system to keep 50 percent responsible for the accident, to the the cost of premiums in line. For example, extent that the other driver was partially at in contrast to Michigan, New York has a fault. For example, if Driver A is 90 percent more modest benefit level of $50,000 in at fault, say he was drunk, but Driver B the aggregate but a verbal threshold that was 10 percent at fault, both drivers can permits lawsuits when “permanent [but not recover. If Driver A’s losses were $50,000, he necessarily serious] loss of use of a bodily could recover 10 percent of that amount or organ.” Its average loss costs for lawsuits as $5,000. If Driver B’s losses were $500, s/he a percentage of the cost of no-fault benefits could recover 90 percent of that amount

14 or $450. Thus, under the doctrine of pure system.40 Twenty years later, RAND found comparative negligence, in this example, that the number had dropped to 30 percent.41 the driver who was overwhelmingly at The single largest category of uncompensated fault would recover more than 10 times the victims now is those involved in single car amount that the driver who was minimally crashes. at fault could recover. By contrast, in a And, as mentioned above, there was no simple comparative fault state, only Driver B effort to make changes to offset the increased could recover and s/he would recover $450. costs. How steep was the cost? In 1978, one the This example makes it clear how such nation’s top actuaries estimated that adopting changes improved compensation for injured the tort system changes recommended by the people. What state legislators ignored was ABA would increase the average premium by the costs associated with them. Under the 58 percent.42 The five changes included in the In 1978, one admittedly harsh contributory negligence package were a change from contributory to the nation’s regime, no one would have recovered comparative negligence; abolition of host/ top actuaries because both of the drivers were at fault to guest statues; removal of statutory limits in some degree. By contrast, under modified wrongful death actions; universal compulsory estimated that comparative negligence, the system costs automobile liability insurance with mandatory adopting the tort would be $450. Under pure comparative uninsured motorist coverage; and an increase system changes fault, the system costs would be $5,450. in the required bodily injury coverage from recommended by These improvements in compensation, $10,000/$20,000 to $50,000/$100,000. Most the ABA would however worthy or warranted, were not states adopted the first four changes and increase the cost-free. The costs were passed along to raised the required limits but not as high as all policyholders in the form of higher the ABA recommended. average premium premiums. by 58 percent. The changes in the doctrine of 2. Insurance Changes Increased the Amount contributory negligence are just one of Recoveries but Also Raised Premiums example, albeit the most dramatic one, At the same time, the insurance industry of the tort system changes that improved tried to address the compensation gaps compensation in tort states, mostly in the by selling underinsured motorist (UIM) 1970s and 1980s. coverage. It provides that if one’s tort recovery Most states also swept away other is insufficient because the other driver lacks antiquated doctrines that restricted recovery adequate BI insurance to cover your loss, then for injured persons. They abolished “host/ you can file a claim based on fault against your guest” statutes, under which a person (guest) own insurer to recover the difference between riding in a friend (host)’s car could not sue your loss and the at-fault driver’s coverage, up the friend if her or his negligence caused an to the limits of your UIM coverage. accident that injured the guest. States also If changes in doctrines such as abolished other immunity statutes—family, contributory negligence increased the number governmental and charitable—under which of people who could recover, then UIM one could not sue anyone in these categories coverage increased the amount they could regardless of their culpability. Most states recover. also removed statutory limitations on For example, assume that an at-fault recovery in wrongful death actions. driver injures you and your losses amount All of these changes did increase the to $50,000. If the other driver has 15/30 BI number of people who could recover in coverage, then the maximum you can recover auto accidents. The increase can be seen is $15,000. If you carry 50/100 in UIM, from the different findings in the 1971 DOT then you can file a claim against your own study and the RAND study 20 years later. insurer for the remaining $35,000 in loss, In the DOT study, 54 percent of all injured the difference between the other driver’s BI persons had no recovery under the tort coverage and your loss. If you use an attorney

15 in both cases, then your $50,000 recovery legal system, which encourage unnecessary will be reduced by her/his fee, approximately costs in all cases in tort states and encourage $17,000. In this example, UIM increases your these same costs in order to breach the weak net recovery from $10,000 to approximately tort thresholds in many no-fault states, and $33,000. At the same time, the $35,000 you (2) rising medical costs. recover from your UIM is an insurance cost The new factor in increasing auto that all policyholders pay for through higher insurance costs in the 1990s and 2000s is the premiums. explosion of medical costs, driven by new Whatever the policy merits of these technology and the use and cost of non- changes, they addressed only one of traditional medical providers. the issues associated with bodily injury Public and private health insurers have The new factor in liability coverage—compensation. They developed a number of ways to control increasing auto did not address the issue of the cost of auto costs, such as deductibles, copayments, insurance costs in insurance. They improved compensation but discounted charges for medical providers also raised the cost of auto insurance. and prescription drugs, health maintenance the 1990s and 2000s This had at least two adverse societal organizations, medical fee schedules and is the explosion results. First, it sometimes prevented low- protocols. Despite all these measures, the of medical costs, income people from being able to afford to public continues to struggle with the cost of driven by new drive, a matter that took on more and more health insurance. technology and significance over time as many jobs moved The problem is even worse for auto the use and cost from central cities where there often was insurance. While it, too, pays billions of mass transit to the suburbs where most often dollars for injured motorists’ medical costs, of non-traditional one could only get there by car. Second, to auto insurance generally lacks the cost medical providers. the extent that some low-income people controls found in health insurance. elected to drive uninsured, when they were Legal system and medical cost at fault in accidents, the injured motorist containment issues play out differently in the had to resort to her or his own UM or UIM tort and no-fault systems because of their coverage for compensation, thereby raising different natures, but the only way to assure premiums for drivers who did purchase reduced system costs and, in turn, lower coverage. policyholder premiums is to address both of The actual impact of these changes is them. hard to measure as they have been in place One final note before turning to the for a considerable period of time. However, specifics of cost drivers. This analysis focuses they are important to remember in any on costs and ways to reduce them, not on debate in which one of the options is to compensation. In comparing compensation replace an existing no-fault system with the under one system versus better compensation tort system. After all of these tort system under a variation of the same system, the changes, repeal of a no-fault law would not equation is simple: the more compensation result in a return to your grandmother’s tort you provide, the more costly the premiums. system. Instead, it would represent a change For example, a tort and liability insurance to a far more expensive tort and liability system with pure comparative negligence insurance system than grandmother grew and minimum liability requirements of up with. 50/100 would provide better compensation to injured persons than a system with Cost Drivers in Tort and No-Fault contributory negligence and 15/30 minimum States: The 1990s and 2000s liability. However, this correlation does not hold true in comparing tort to no-fault he main cost drivers in both tort and systems because a higher percentage of Tno-fault states today are basically the the insurance dollar can be paid to injured same: (1) pain and suffering damages in the people in a good no-fault system because

16 fewer dollars are paid to attorneys. A fewer serous injuries (and that auto good no-fault system can provide more accident rates were decreasing)? One compensation for economic loss for the possible explanation is an increased same or lower premiums than the tort litigiousness among auto accident system can. claimants, or an increased motivation The rest of this section examines in to seek general damages awards for more detail state cost experience in tort and injuries during this time. Because BI no-fault states before the subsequent section claims allow for pain and suffering, or examines reforms that would lower costs general damages awards, these awards and thus consumers’ premiums. Most of can motivate accident victims to file the cost discussion is based on information BI claims even for relatively minor culled from recent studies by the IRC. The injuries. [Emphasis added]47 Because BI claims data for these studies is based on a 2002 allow for pain closed claim study of 72,354 claims. The The IRC data confirm this suspicion. and suffering, or studies are multitudinous and complex The IRC found that “more than two-thirds of and this paper will only address the major suspicious BI claims (68 percent) appeared general damages conclusions. For those who wish to delve to involve buildup for the sake of inflating awards, these more deeply into the details, I encourage general damages.”48 Thirty-three percent of awards can you to read them all. suspicious claims were to get more money motivate accident for the medical provider and 12 percent to victims to file BI A.Cost Drivers in Tort States overcome a no-fault threshold. claims even for The Ongoing Incentive of Pain and Five percent of suspicious BI claims Suffering Damages and 10 percent of suspicious UIM claims relatively minor Perhaps the most striking IRC finding is were because the claimant had multiple injuries. that while the seriousness of auto injuries benefit sources, i.e., “claimants can collect has decreased between 1987 and 2002,43 money from more than one payment source largely as a result of new safety features (for example, auto insurance, workers’ such as airbags and anti-lock brakes and compensation and health insurance plans) for the increased usage of seat belts, the cost the same damages. These additional sources of fewer injuries has risen significantly and heighten the incentive to exaggerate reported often dramatically. This conclusion is true losses.”49 for both tort and no-fault states. The IRC uses property damage (PD) Higher Costs for Non-Traditional Providers claim frequency as a proxy for auto and Greater Use of More Expensive accident rates. From 1980 to 2003, PD Diagnostic Procedures Are Driving Higher claim frequency dropped an impressive 20 Medical Costs percent.44 During the same period, however, What are the main components of fraud and there was a 19 percent increase in bodily buildup in tort claims? They are the same as injury (BI) claim frequency.45 in the no-fault systems—increased usage and The IRC study found that, “Taken costs of chiropractors and physical therapists together, these findings suggest that BI claim and of more expensive diagnostic procedures, frequency increases have been influenced as well as more attorney involvement. For by claiming behaviors.”46 The IRC study example, while the CPI—Medical Care index recognizes the key role of pain and suffering rose 22 percent between 1997 and 2002, the in the filing of fraudulent and excessive BI average total claimed medical expenses rose 39 claims: percent in Texas, 25 percent in California and 24 percent in Illinois, but only 9 percent in Why had BI claim rates increased Washington.50 …when other evidence suggests With respect to medical providers, there that auto accidents were producing was little change in the providers seen and

17 the number of visits but some significant Overall, nationally, the IRC estimates increases in the amounts charged by that between 18 and 27 percent of all BI chiropractors and physical therapists in claims contain the appearance of fraud or some states. For example, the average per- buildup, as compared to between 12 and 17 visit charge for a chiropractor in Washington percent for PIP.55 The high fraud and buildup increased from $117 to $158, or 35 percent. rates are a direct cause of the 121 percent In Texas, the average per-visit charge for a increase in BI claim severity and the 161 physical therapist increased from $135 to percent increase in BI loss costs, compared to $229, or 70 percent.51 It’s hard to imagine a 123 per cent increase in the CPI – All Items, that many, if any, private health insurance which the IRC found between 1980 and plans reimburse physical therapists for 2003.56 Among claimants charges that exceed the rates of many What is the cost of claims abuse? The who were not attorneys. IRC estimates the cost at between 10.7 seriously injured, While increases in the cost of medical percent and 15.1 percent for BI or between providers varied widely among the states $2.4 billion and $3.4 billion in 2002, with an claimants and many increases in provider charges were additional $300 - $500 million for UM/UIM represented by reasonable, the average total charged for claims abuse. The total cost of claims abuse attorneys claimed newer diagnostic tests jumped dramatically for all bodily injury coverages is more than three times as in all four states in the IRC study of double the IRC estimate of $1.3 billion to much average California, Illinois, Texas and Washington. $1.6 billion for PIP abuse. One should keep economic loss as The average total charge for MRIs rose 36 in mind, of course, that the IRC measured percent in California, while the cost of a CT PIP costs in only 22 states (no-fault and add- nonrepresented scan rose 82 percent. Most of the states also on states) as contrasted with the BI costs of claimants. experienced a significant jump in the use of all 50 states.57 the more expensive diagnostic procedures, RAND, using earlier1992 IRC data and a accompanied by a reduction in the use of different methodology, estimated that “excess x-rays. Overall, the increases in the cost of consumption of health care in the auto diagnostic procedures varied among the four arena in response to tort liability incentives states: the average per claimant costs for all accounted for about $4 billion of health care diagnostic procedures increased 63 percent resources in 1993.”58 When pain and suffering in Texas, 37 percent in California, 24 percent damages and insurance overhead costs were in Washington and 14 percent in Illinois.52 added to excess medical claims, RAND Attorney involvement in claims is estimated that “excess medical claims cost associated with claimant use of more auto insurance purchasers across the country providers and diagnostic procedures $13-$18 billion dollars. Put another way, the and claimed higher economic losses: costs generated by excess medical claiming “They [claimants] visited more medical added $100-$130 to every auto insurance professionals, incurring costs that were at policy.”59 least 170 percent higher than nonrepresented claimants.”53 While one would anticipate B. Cost Drivers in No-Fault States higher costs because such cases might Overall Performance of No-Fault Laws involve more serious injuries, it is important Recent dramatic increases in some states in to note that among claimants who were treatment costs, in severity and, on a few not seriously injured (where the most occasions, in the overall costs of PIP coverage serious injury was either a neck or back has led some to question the efficacy of sprain or strain), “claimants represented no-fault laws in holding down costs. As a by attorneys claimed three times as much result of these increases, New York, Florida average economic loss as nonrepresented and New Jersey have amended their laws claimants.”54 to reduce PIP costs. The most recent Fast Track data support the general conclusion

18 that these efforts have been successful at paid for by limiting the cost of lawsuits. lowering PIP costs; in some cases rolling There are two other matters to keep in them back to levels not seen in 10 years. One mind in assessing no-fault laws. First, many state, Colorado, repealed its no-fault law and of them were adopted in states with high replaced it with the tort system. vehicle densities, such as New Jersey and New In deciding how to address any York, which will always have higher costs problems with the PIP system, it is than more rural states for the same no-fault important to understand the context. The or tort system. Second, because many of the PIP system is primarily a health insurance proponents of no-fault in the 1970s sold it as a system and health costs have been rising way to reduce premiums, no-fault systems are well beyond the average increase in the often measured against tort systems on costs Consumer Price Index. Because of that, the alone. Such a comparison fails to take into In assessing Bureau of Labor Statistics developed an account the other virtues of no-fault systems, concerns about index, CPI – Medical Care, to track health including the fact that it is a more equitable state no-fault laws, care costs separately. Moreover, as discussed and faster way to compensate injured people previously, the PIP payment system is far for their economic losses it is essential to more generous than most health insurance In sum, these are tricky waters and it is keep in mind that plans, with few cost containment elements best to keep in mind the tale of the six foot tall no two no-fault and a requirement to pay a penalty, economist who drowned in a stream whose systems are alike, including attorneys’ fees, if a claimant average depth was three inches. Most of the or even close. prevails in a suit for overdue benefits. 12 no-fault and choice laws are operating fine. Despite the generosity of the PIP What we are talking about is a limited number system, there was relatively little fraud and of states in which PIP and sometimes BI costs buildup during the first 25 years or more have skyrocketed in recent years, at least for of its existence, i.e., from 1971 to the late brief periods of time. 1990s. Even with the recent problems, in the Let’s now examine the three main causes aggregate, PIP loss costs increased less than for the problems in some of these states, the CPI – Medical Care index from 1980 to how the states have responded and whether 2003, 247 percent compared to 297 percent, their changes have been effective at reducing while the increase in PIP claim severity was costs. This analysis will enable us to evaluate comparable at 298 percent.60 the likely implications of different ways to In assessing concerns about state no- remedy the problems, from changes in the fault laws, it is essential to keep in mind that no-fault system to a return to the tort system. no two no-fault systems are alike, or even In examining the wealth of data and trying close. Benefits range from $3,000 in Utah to draw policy conclusions, it is important to to unlimited medical and rehabilitation keep in mind the admonition of the IRC: benefits in Michigan. Thresholds range from $1,000 in Kentucky to a strong verbal It is difficult to draw incontrovertible threshold in Michigan. In general, logically, conclusions about the effectiveness higher benefit levels are more costly than of tort versus no-fault in controlling lower levels. Similarly, thresholds that limit auto insurance costs based solely on lawsuits for pain and suffering to very these data. One reason is that some serious injuries will reduce the BI portion no-fault states have relatively low tort of the premium more than thresholds that thresholds. The claim environment of present targets for the unscrupulous to run such states may resemble de facto tort up PIP bills unnecessarily and thus permit states and allow frequent BI claims to far more lawsuits than the proponents of enter the auto insurance system.61 no-fault anticipated. Weak thresholds violate the basic trade-off of a good no-fault system The first problem is weak tort thresholds. – guaranteed benefits for all injured parties Because lawsuits are supposed to be restricted

19 in order to pay for the cost of PIP benefits, As almost always in this discussion, it one would expect BI costs to be relatively is dangerous to draw universal conclusions low in no-fault states and, in general, that from the data because they vary from state is correct. However, the no-fault state of to state. In this area, it is worth noting that Massachusetts has the highest BI loss costs while the appearance of fraud and buildup in the country. That is the result of three in PIP and BI claims was significantly above factors. One, its no-fault law permits a the country average in Massachusetts, Florida person to sue for pain and suffering if the and New York, it was well below average in person suffers $2,000 of medical expenses. Michigan, Pennsylvania and Kansas.69 Such a low threshold represents barely a As discussed in the section on cost speed bump to a lawsuit, even if one does drivers in tort states, the appearance of fraud While the not inflate one’s medical expenses. Two, in or buildup and estimated excess payments appearance of substantial part because of its urban density, are lower for PIP claims than for BI claims.70 fraud and buildup Massachusetts has the highest accident The primary reasons for buildup among in PIP and BI rate in the country which would make it PIP claims with suspected appearance of a high cost state regardless of the nature buildup are as follows: 57 percent are built up claims was of its insurance system. Three, it has an to get more money for the medical provider, significantly above active plaintiffs’ bar, as suggested by the fact 54 percent to inflate the general damages the country average that is has the highest ratio of attorneys to settlement and 37 percent to overcome the in Massachusetts, population of any state.62 tort threshold. The first reason has to do with Florida and New As a result, Massachusetts had the the fact that the PIP system remains the last highest BI loss cost per insured car of any health insurance system in the United States York, it was well state, tort or no-fault, in 2003, $223.82.63 that remains largely free of the constraints below average In sharp contrast, Michigan, with its rich found in other health insurance systems in Michigan, benefit levels and a tight threshold, had and many doctors seem to use the generous Pennsylvania and BI loss costs of only $56.81.64 Of course, payments from no-fault to compensate Kansas. Michigan’s rich benefit package was far for constrained payments from other costlier than that of Massachusetts, with only forms of health insurance. This problem is $8,000 in benefits. Michigan PIP loss costs exacerbated by the fact that claimants have per insured car were $239.07, while those of little interest in controlling costs, unless they Massachusetts were only $48.19.65 are likely to bump up against PIP benefit The second problem, the lack of control limits and by the fact that claimants often of medical costs, which is a significant factor assign their claims to the medical providers.71 in higher BI costs, is an even bigger problem The second reason for built up claims, for PIP. The IRC found increased usage to inflate the general damages awards, is a of and charges for chiropractors, physical result of the incentive of pain and suffering therapists and alternative professionals such damages, just as it is in a tort state. The last as message therapists and acupuncturists, reason, to breach the threshold, reflects the more usage of costly diagnostic treatments fact that most no-fault states have inadequate and attorney representation-driven costs.66 thresholds and too often have become For both PIP and BI claims for similar targets for the unscrupulous rather than injuries, claims with the appearance of the limitation on the number of lawsuits fraud or buildup had significantly more necessary to make the no-fault trade-off treatment by these non-traditional medical work to keep costs from rising when no-fault professionals, as well as more use of MRIs benefits are provided for all injured persons. and EMGs, than claims with no appearance For all the increases in medical care and of fraud or buildup.67 Other common factors the resultant significant increases in average associated with fraud and buildup included economic losses, it is noteworthy that these delays in seeking treatment, reporting injury losses do not automatically translate into and filing claims with an insurer.68 higher insurer payouts. Between 1997 and

20 2002, the annualization rate of inflation, as the trial bar, managed to weaken the threshold measured by the CPI – Medical Care index, so that many non-serious injuries have was 4.0 percent. Average PIP losses jumped continued to result in lawsuits. 6.9 percent per year but the average payment In 2002, more than half of the BI rose only 4.5 percent, a rate not much higher claimants in New York overcame the threshold than the medical CPI.72 although they had not sustained a serious The third major problem is attorney injury and payments to those claimants involvement. While one would expect accounted for 28 percent of BI payment represented claimants to incur more medical dollars.75 expenses because their injuries are likely to The most common bases for suing, be more serious than those of unrepresented for both serious and non-serious injury BI claimants, it is worth noting that the IRC claimants, were 90 days of disability and has found that attorney involvement results permanent loss of use of a bodily function,76 In 2002, more in significantly higher medical losseseven two categories that are easy to exploit. An than half of the BI when claimants with the same injury and easily “exploitable” threshold is the main claimants in New disability status are compared. In its study reason why the cost of BI coverage has been York overcame of BI claimants in Colorado, Florida, higher than the cost of PIP coverage since the Michigan and New York, the IRC found that adoption of the no-fault law. In the fourth the threshold represented claimants whose most serious quarter of 2005, BI was 60 percent of the although they injury was a sprain or strain and had fewer pure premium (the amount of the premium had not sustained than 10 days of restricted activity “incurred needed to pay expected losses) and PIP was a serious injury 77 medical losses that were almost 60 percent only 40 percent. and payments to higher in Colorado, more than 400 percent Nevertheless, it was a dramatic rise in those claimants higher in Florida, and almost 600 percent PIP costs starting in 1997 that triggered higher in New York than nonrepresented legislative action in New York. Between the accounted for claimants.”73 As noted above, attorneys are fourth quarter of 1996 and the fourth quarter 28 percent of BI even involved in significant numbers in of 2000, the pure premium for PIP rose by an payment dollars. representing PIP claimants, a notion that is astounding 74 percent.78 antithetical to the whole concept of no-fault. What caused this increase, what did New Once again, Massachusetts leads all no- York do about it and how have the changes fault states in this category, with attorneys affected PIP loss costs? representing 53 percent of all PIP claimants The data show significant jumps in the in 2002. New Jersey was a close second at 45 cost of minor injuries, largely focused in the percent.74 New York metropolitan region. Between 1997 Let’s briefly examine the experience and 2002, average PIP losses for claimants in some of the no-fault states that have whose most serious reported injuries were had problems recently so that one can neck or back sprains increased 84 percent, identify reforms that are tailored to the from $3,831 to $7,041.79 Between 1996 and circumstances giving rise to the problems. 2000, there was a 68 percent increase in claim severity.80 Some other statistics jump out. The New York: A Broken PIP System Fixed percentage of PIP claimants reporting three The New York law has been flawed since or more different injuries increased from 34 its inception. With $50,000 in benefits, its percent to 47 percent in the New York City initial $500 threshold was inadequate to area between 1997 and 2000.81 The percentage reduce the number of lawsuits sufficiently of claimants receiving treatment from four to pay for the cost of the no-fault benefits. more different types of medical providers It didn’t take New York long to realize this in the New York City area increased from 9 problem and, in 1977, New York replaced percent to 27 percent.82 More than half of its dollar threshold with a verbal threshold. New York City metropolitan area claimants Unfortunately, the opponents of no-fault, who received physical therapy visited physical

21 therapists more than 25 times, compared procedures for investigating and decertifying to just one-third of claimants in the rest health care providers who engage in of the state.83. Claims with a moderate or deceptive billing or fraudulent practices. high degree of suspicion of fraud were six Such providers would be banned from to 18 times higher in the New York City receiving payment for medical services under metropolitan area than in the rest of the the no-fault law.89 state. While 18 percent of New York City The reforms have worked. Since metro area claims had a high suspicion of pure premium peaked in 2001 (except fraud, 40 percent of such claims were viewed for one quarter in 2002), it has dropped as highly suspicious in Brooklyn.84 precipitously. As of the fourth quarter of The other key ingredients were delays 2005, it was actually below the level in 1996.90 While the news in reporting injuries and in submitting Most of this drop occurred from 2003 to with respect to claims. About twice as many New York 2005. the effectiveness City metropolitan area claimants delayed While the news with respect to the reporting their injuries for more than 30 effectiveness of PIP reforms is excellent, BI of PIP reforms days and those claims were associated with costs continue to be much more costly to is excellent, BI far more visits to medical providers and New York motorists than PIP costs because costs continue to diagnostic tests. The same was true for of the weakness of the threshold. They could be much more claimants who waited more than 45 days see dramatically lower overall bodily injury costly to New York after their first treatment to submit their premiums were the state to adopt some of 85 motorists than PIP medical bills. the reforms outlined in the last section of this According to the New York Insurance paper. costs because of Frauds Bureau, the no-fault system was the weakness of the attracting a hardened criminal element, with Colorado Repeals Its No-Fault Law threshold. many of the suspects in fraud cases having Colorado’s law was flawed from the multiple prior arrests for such crimes as gun beginning. By the early 2000s, after being possessions, narcotics violations, robberies, amended, it had roughly $130,000 of benefits etc.86 but only a $2,500 threshold. The DOT II New York took several steps to address study in 1985 had warned that the system the problems. In 2002, “the legislature was out of balance, i.e., had a threshold that implemented Regulation 68, which was too weak to prevent premiums from decreased the amount of time claimants have rising beyond the level of inflation: “A low to report auto injuries (from 90 to 30 days) threshold…results in balance in a very low- and to submit related medical bills (from benefit State…but not in higher-benefit 180 to 45 days).”87 The rationale behind the States like…Colorado.”91 reform was to give insurers more time to The threshold was so low that insureds review claims and it has worked. didn’t even need to build up their claims In addition, the New York Insurance in most cases to qualify to sue for pain Frauds Bureau and local prosecutors began and suffering. It is not surprising that the to work together, insurers ran a media IRC found that, in 2002, 45 percent of PIP awareness campaign and federal, state claimants were eligible for a liability claim, a and local law enforcement officials jointly figure that was higher than such notoriously conducted long term investigations that litigious states as New York and Florida.92 uncovered scams using medical clinics, However, it was not the cost of BI runners and jump-ins. No-fault arrests by coverage that led the Colorado legislature the New York Insurance Frauds Bureau rose to repeal its law. Starting in the late 1990s, from 50 in 2000 to 182 in 2002 and fraud PIP losses and costs skyrocketed. Between reports began to fall by 2004.88 1997 and 2002, average PIP economic losses New York also enacted legislation and PIP payments more than doubled.93 requiring the state to set standards and The reason? The IRC described it this way:

22 “Colorado no-fault laws required insurers would have reduced PIP coverage to $25,000, to cover virtually any type of medical instituted a verbal threshold and eliminated treatment, creating an opportunity for abuse treatment of chiropractic and non-traditional of the system and contributing to the jump medical treatments. The estimated savings for in medical losses.”94 the total package was 47 percent to 60 percent It is instructive to look at just a of the personal injury premium.101 couple of changes in claimant behavior Colorado did not adopt either of the between 1997 and 2002. In 1997, 7 reform proposals and, instead, on July 1, 2003, percent of Colorado claimants used returned to the tort system. What has been alternative treatment professionals, such the experience since then? A 2005 survey of as acupuncturists and massage therapists. premiums found savings on the personal By 2002, the percentage had jumped to injury coverages ranging from 17.3 percent to Colorado no-fault 18 percent and even included bills for hot 27.5 percent, depending on the city, between laws required 95 102 tubs and fish tanks for vision therapy. June 2003 and July 2005. insurers to cover In addition, the average total charge per Discussions with state officials indicate claimant for alternative professionals that there was considerable initial consumer virtually any rose by 69 percent increase.96 There were confusion about the changeover, much of type of medical also dramatic jumps in usage and average which was no doubt caused by the fact that treatment, creating charges for chiropractors. Between 1997 the changeover to tort took place in only six an opportunity and 2002, the number of claimants visiting weeks. Consumers struggled to understand for abuse of chiropractors jumped from 27 percent to the new coverage and to decide whether to the system and 34 percent and the average total charge buy such optional coverages as MedPay. per claimant went from $2,085 to $4,804, Since 2003, the number of consumer contributing to the an increase of 130 percent.97 The effect complaints filed with the Insurance jump in medical on payments to PIP claimants was huge: Department has declined. This is not losses. the increase in average total payment rose surprising as premiums have declined and from $4,614 in 1997 to $10,118 in 2002, an cost is always a major source of consumer increase of 119 percent.98 complaints. The Colorado Legislature, faced with a Meanwhile, the legislature has examined sunset of its no-fault law in 2003, considered the implications of the return to tort on two reform alternatives. One option other parts of the health system. In 2005, the would have given Colorado motorists a General Assembly established an Interim choice between its then-present no-fault Committee on Auto Insurance that, among system and a system with a threshold that other things, looked at the impact of the would have permitted lawsuits only for change on trauma care and other emergency uncompensated economic loss. The JEC care facilities, as well as on the transfer of had estimated the average personal injury some auto insurance costs to the health savings for those who chose the new option insurance system. Subsequently, members at 51 percent.99 However, the savings introduced bills to require first party coverage would likely have been less because the for emergency care and mandatory offers JEC estimate was based on 1997 IRC data, of other first party benefits similar to PIP before the huge increases in PIP costs. Using benefits. None of these bills passed. the 2002 IRC data, the savings from the But the legislature was asking the reduction in BI premium would likely have right questions. The return to tort has been closer to 28 percent,100 with additional lowered costs but it has also recreated the savings on the PIP side because motorists problems discussed earlier with respect could no longer breach the threshold by to compensation. Had Colorado adopted increasing their economic losses. either of the no-fault reform proposals, The legislature also considered a second consumers likely would have experienced reform option that, among other things, greater reductions in premiums than they

23 have had with the return to the tort system in PIP benefits from $40,000 to $20,000, and have maintained the significantly better a medical fee schedule and other cost compensation system that no-fault provides. containment provisions, the savings would be 23.3 percent.106 By contrast, the study Minnesota: Reform or Repeal? estimates a cost savings of 7.8 percent if the Minnesota is also debating reform versus state repealed law and motorists purchased repeal of its no-fault law. While space $2,500 in MedPay.107 It should be noted constraints do not permit more than a that repeal would also substantially reduce cursory analysis of the situation, it is worth compensation for injured Minnesota noting that even though the average pure motorists. premium for both PIP and BI decreased One thing is clear between 1996 and 2005,103 the average PIP Summary in the no-fault loss rose by 27.2 percent and the average BI One thing is clear in the no-fault states states that have loss rose by 13.9 percent during this same that have experienced or are experiencing period,104 largely because of the law’s weak dramatic increases in PIP costs—the primary experienced or threshold and disproportionately generous source is the growth in medical costs. As the are experiencing PIP benefits. As a result, the average IRC data demonstrate: dramatic increases Minnesotan pays among the highest auto in PIP costs—the insurance premiums in the Upper Midwest. The growth in medical losses primary source The chart below shows average premiums appears to be caused by shifts is the growth in and national rank for Minnesota and four towards more expensive treatment neighboring states based on data from 2003: alternatives and by increases in medical costs. the charges for services provided. Average National One theory [for the increases] State Premium Rank* is that some participants in the

medical care system, with their Minnesota $836.12 18th revenues under pressure from South Dakota $563.18 50th cost-controlling measures from North Dakota $536.30 51st governmental and private health Wisconsin $620.15 44th insurance plans, are depending on Iowa $580.15 49th one of the few remaining sources Source: Insurance Information Institute, The I.I.I. Fact Book 2006 (New York, NY, 2006), pp. 43-44. Minnesota and North of unmanaged care – auto injury Dakota are both no-fault states. The others are traditional tort insurance – to fortify their balance states. sheets.109

Recent studies show how changes to New York has taken effective steps to the existing law could significantly reduce address the problems while Florida and premiums for Minnesota motorists. Minnesota are debating between reform and The JEC estimates that moving to a repeal, although PIP pure premiums has threshold that permits only lawsuits for increased only 2 percent in Florida over the uncompensated economic loss would past three years and has actually declined by save the average motorist 69 percent, or 11 percent in Minnesota during the same 105 $240, per year. Further, a recent actuarial time period. Colorado, on the other hand, study estimates that if the state switched chose to repeal its no-fault law. to a verbal threshold, the premium savings As no-fault states continue to consider for the average policyholder on the state how to address difficulties on both the PIP mandated liability coverages (personal and BI sides of their systems, it is important injury and property damage coverages to keep in mind the IRC’s admonition about combined) would be 6.8 percent. If a verbal reform versus repeal: threshold were coupled with a reduction

24 It is difficult to draw incontrovertible Though certain legislative changes in conclusions about the effectiveness of Florida’s auto insurance laws would tort versus no-fault in controlling auto have an effect on premium cost, insurance costs based solely on these the correlation between population [trend] data. One reason is that some density and auto-premium cost is no-fault states have relatively low tort unlikely to be eliminated regardless of thresholds. The claim environment of whether Florida utilizes a no-fault or such states may resemble de facto tort tort system.114 states and allow frequent BI claims to enter the auto insurance system.”110 In sum, the major cost drivers in no-fault states are increasing medical costs, fraud and One needs to be careful not to use buildup of medical claims and weak tort While fraud and simple state-to-state comparisons of auto thresholds. The problems are connected. buildup is driven injury loss costs to assess which system While fraud and buildup is driven in part in part by weak would be less costly in a particular state by weak cost controls in the PIP system, the because factors other than state insurance major reason for fraud and buildup is to take cost controls in laws and benefit levels influence loss costs. advantage of the pain and suffering payments the PIP system, Some of the key ones are the inclusion of that are available if one can run up enough the major reason large urban centers, more traffic congestion, medical costs to cross the threshold. for fraud and higher accident rates and higher costs of buildup is to take 111 living. Changing the Auto Insurance advantage of the With these admonitions in mind, it Reform Paradigm: State Auto is noteworthy that the IRC trends study pain and suffering found that, “Regions with the highest auto Insurance Laws Vary and So Should payments that injury loss costs in 2001 included states Reforms to Lower Premiums are available if with relatively large concentrations of one can run up ince 1965, auto insurance reform efforts, urban population. These states were also enough medical geographically concentrated on the east Sat both the state and federal levels, have coast.”112 The top 10 highest auto injury loss primarily taken the form of replacing the costs to cross the jurisdictions included the no-fault states of tort system with no-fault insurance. In more threshold. New Jersey, New York, Florida and Colorado, recent years, two states – Pennsylvania and the tort states of Rhode Island, Connecticut, New Jersey – amended their no-fault laws Alaska and Louisiana, the add-on state of to provide motorists with a choice between Delaware and the District of Columbia (not tort add-on and no-fault. There was also in that order), which permits one to choose a failed federal effort to give motorists a tort or no-fault after the accident occurs. choice to decide whether to buy tort-based Most of the lowest cost states were in the auto insurance or a no-fault system with Midwest, with the two lowest being North modest benefits and the right to sue for Dakota and Kansas, both no-fault states. uncompensated economic loss only, with What they have in common is relatively low individual states having the right to reject urban population percentages.113 application of the federal law. After noting a similar correlation During the same time, while changes in between population density and the tort law and insurance coverage significantly cost of auto insurance, a Florida Senate increased the cost of BI insurance, there have report reached a conclusion about reform been few efforts to reduce costs in the 36 tort in Florida that would also apply to all and two tort add-on states. legislative reforms in high density states: This section of the paper attempts to take the lessons learned from experience in both tort and no-fault states and to suggest some options for reform of state laws that

25 would increase the efficiency of the system, in practice, collateral sources reduce fraud and waste and lower premiums often do not spend the time and for consumers and, in some cases, improve resources to track tort claims, consumer choice and victim compensation which can take years to resolve. and reduce court congestion. These reforms The downside of the could produce a win-win situation for collateral source doctrine is that it consumers and insurers. creates an incentive for motorists After suggesting tort system reforms, to build up their medical costs. If the paper then offers reforms to the no-fault successful in their tort claim, they laws. Finally, the paper discusses the potential can not only recover pain and benefits of permitting consumers to choose suffering damages but also receive A review of state between the tort and liability insurance double recovery for their medical tort laws indicates system and an effective, balanced no-fault expenses—once from the health that the last 30 system. insurer and once from the tort claim—when the health insurer years have seen A. Tort System Reforms fails to pursue its right to recover changes in the A review of state tort laws indicates that the what it paid its insured from the legal and insurance last 30 years have seen changes in the legal insured’s recovery as a plaintiff in systems that have and insurance systems that have increased a lawsuit. increased costs and costs and thus premiums. There has been If the collateral source thus premiums. little or no effort to enact tort reforms doctrine is repealed, the injured person would be made whole There has been that would reduce costs. In addition, fraud and buildup in medical costs continues for her/his economic loss (from little or no effort to in response to the incentive of pain and health insurance and/or the tort enact tort reforms suffering damages. The cost of dishonest settlement) but elimination of that would reduce claims practices, which is greater than the duplicative recovery would mean costs. cost of similar practices in no-fault states, lower auto insurance costs. It runs into the billions of dollars annually and would also lower health insurance so reforms that reduce these incentives could costs by eliminating one of the result in significantly lower premiums for incentives for plaintiffs to run up motorists. unnecessary medical bills. How What follows is a brief description of large might the savings be? The reform options. answer on the auto insurance side is suggested by the IRC finding 1. Repeal of the collateral source that five percent of suspicious doctrine. Tort law does not permit BI claims and 10 percent of defendants to deduct from a suspicious UIM claims appear to judgment the amount that the involve buildup to take advantage injured person has received or of multiple benefit sources.115 is entitled to receive from other sources, such as health insurance 2. Modify the collateral source and workers’ compensation. The doctrine to permit collateral sources rationale is that the defendant to recover directly. Alternatively, should not be the beneficiary of one could couple repeal of the the plaintiff’s foresight and cost doctrine with a direct right in purchasing such coverage. The of subrogation (assuming the collateral source is entitled to rights of the injured person) by recover any amount paid to the the collateral source against the plaintiff that is duplicated by the defendant. Such an approach plaintiff’s tort recovery. However, would preserve the original

26 goal of the doctrine but lower “negligence” recovery of economic auto and health insurance costs damages plus a reasonable by eliminating the plaintiff’s attorney’s fee, this proposal incentive to run up medical bills. would make the injured person Subrogation would also reduce economically whole. costs because it is less costly To make sure that truly bad than litigation because insurers actors – such as drunk drivers, typically handle such claims those who seek to intentionally between themselves and rarely injure another and those who wind up in court. wantonly or recklessly ignore the rules of the road – are held for 3. Requiring a higher standard their behavior, the reform would Approximately of misconduct for recovery of retain suits for pain and suffering 14 to 15 percent noneconomic damages: Permit in situations where the plaintiff of motorists drive plaintiffs to recover economic can establish that the defendant’s damages plus a reasonable conduct was grossly negligent. uninsured. Yet attorney’s fee where they can The proposal would reduce when they are establish negligence only. Permit premiums significantly because involved in an plaintiffs to recover noneconomic it would eliminate most pain and accident, in almost damages also when they can suffering damages and because all states, they are prove that the defendant was the incentive to pad bills would legally entitled to grossly negligent. As has been disappear in most cases. discussed previously, pain and recover damages suffering payments provide 4. “No pay/no play”: Penalize from an at-fault huge incentives to run up uninsured motorists for their motorist. unnecessary medical bills. Paying unlawful behavior by prohibiting noneconomic damages also them from suing for noneconomic seems particularly inapt with damages. Despite the fact that respect to auto accidents because many states impose significant they rarely involve any intention penalties on unlawfully uninsured to inflict damage. motorists, approximately 14 to To the contrary, most 15 percent of motorists drive motorists have every incentive uninsured.116 Yet when they are to drive safely because reckless involved in an accident, in almost driving can result in serious all states, they are legally entitled to bodily injury or death to oneself. recover damages from an at-fault This incentive is far stronger than motorist. Not only do most people the incentive provided by the find that result inequitable, it is fact that the motorist’s premium also unfair that insured motorists may go up if s/he is found to be pay higher costs for those who legally at fault in an accident, the drive uninsured because insureds real world penalty for reckless have to purchase UM coverage to driving. Not surprisingly, most cover their own losses when they studies show that factors outside are hit by an uninsured motorist. the control of the driver – such Five states – Alaska, California, as inexperience or environmental Michigan, New Jersey and conditions – are responsible for Louisiana – have adopted no causing accidents. pay/no play laws. They provide By assuring a person an incentive for the uninsured injured by someone else’s legal to purchase insurance without

27 leaving them destitute in the economic and noneconomic event of an accident caused damages if the plaintiff believed by the fault of another driver that the defendant’s conduct was (because such an uninsured more than “accidental” and the could still recover for economic plaintiff was willing to take the loss). It would send the proper risk and spend the time needed signal about the responsibilities to maintain a lawsuit. However, of driving and could also reduce to encourage people to accept premiums. For example, RAND the benefits of early offers in estimated that the adoption of most cases, the injured party a no pay/no play law in Texas could recover in a suit only if s/he Early offers would would have reduced the average met higher standards of proof reduce system Texas driver’s auto insurance (beyond a reasonable doubt) and 117 costs significantly. premiums by 3 percent. conduct (gross negligence) than are required today. The injured party 5. Early offers: Authorize the insurer Early offers would reduce would have no, or at of an at-fault driver to make a system costs significantly. least a significantly timely offer to pay the injured The injured party would have diminished, person her/his net economic loss no, or at least a significantly incentive to run plus a reasonable attorney’s fee. If diminished, incentive to run up unnecessary economic costs. Most up unnecessary the injured motorist turns down the offer, s/he could recover in a noneconomic costs would be economic costs. lawsuit only by proving, beyond eliminated. And both defendants Most noneconomic a reasonable doubt, that the and plaintiffs would have far less costs would be defendant was grossly negligent. need for attorneys and their fees. eliminated. And This reform would benefit For a detailed description both defendants the injured person in many ways. of an early offer proposal and A statutory early offer would the rationale behind it, see and plaintiffs would guarantee prompt payment the Committee for Economic have far less need – in a few months rather than Development report entitled for attorneys. the years if often takes in the Breaking the Litigation Habit: tort system – for economic loss Economic Incentives for Legal not covered by other sources. It Reform (2000). would eliminate the uncertainty as to recovery (some recover and 6. Choice to opt out of pain and some don’t) and the amount, suffering: A motorist would have which would be standardized the option to elect not to sue for (but now varies widely based pain and suffering in the event of on such factors as the particular an accident. In turn, the motorist judge, jury, plaintiff, defendant would be immune from suits for and locale within a state). It pain and suffering. The consumer would also limit the need and payback from opting out of the cost of attorneys’ fees for both pain and suffering lottery would plaintiffs and defendants and save be dramatically lower premiums. even more money by eliminating Today, only Pennsylvania, noneconomic damages (which New Jersey and Kentucky offer are largely associated with minor consumers a choice between auto injuries in the tort system). insurance coverages. They permit The proposal would preserve a choice between no-fault and tort the plaintiff’s ability to sue for add-on systems, not between two

28 tort choices, as in this proposal. and liability insurance is for low- Tort and liability insurance income people. The study found in the 36 tort and two tort add- that they spent 31.6 percent of on states that utilize the tort their income on auto insurance, system is a standardized product with many putting off buying basic that permits motorists few necessities such as food, health options in terms of BI coverage. services and housing costs in Most of those options relate to order to pay their auto insurance the level of protection against premiums.118 being found at fault, i.e. whether The most difficult intellectual to buy the basic coverage (most problem in a choice system is how typically, 25/50), or higher limits to connect insurance coverages The most difficult to protect one’s assets. equitably when motorists involved This choice approach in an accident have chosen intellectual problem would bring competition to different coverages. This problem in a choice system auto insurance in the form of was solved by Professor Jeffrey is how to connect an election as to whether to O’Connell and Robert H. Joost insurance coverages retain a right to sue for pain and in the context of a tort versus no- equitably when suffering or not. The savings fault choice back in 1986119 and its for those electing the economic solution would work equally well motorists involved loss-only option would come in the context of a tort-versus-tort in an accident have primarily from the elimination choice. chosen different of payments for pain and The two systems would be coverages. suffering and attorneys’ fees linked through an expanded UM associated with such suits. This coverage to assure recovery for option would also reduce the a driver who is not at fault and incentive for people to run has chosen to stay in the pain up unnecessary medical bills and suffering tort system. When because they would not be accidents involve only people rewarded with pain and suffering who stay in the full tort system, damages. Lower medical bills nothing would change from how would, in turn, add to premium they are handled today. When savings. accidents involve only people who Everyone who elected have elected to opt out of the pain this option would see lower and suffering system, they could premiums. It might be sue each other on a fault basis for particularly attractive to uncompensated economic loss people with good health and and a reasonable attorney’s fee disability coverage who already only under the state’s tort rules. have economic loss protection The problem that O’Connell and and wouldn’t have to pay for Joost solved was how to assure duplicative coverage. It would each party of their choice in inter- likely also be attractive to low- system accidents – between people income people who might prefer who elect different insurance to spend their limited resources options – without distorting the on more essential items. For costs of the underlying insurance example, a study of people systems. living at half the poverty level Here is how it would work in a county around Phoenix, in an economic tort versus full AZ, shows just how costly tort tort context: The person who has

29 elected to opt out of the pain and today’s tort system.120 On the other suffering system (the “economic hand, the economic loss driver loss” driver) would give up the would also get exactly what s/he right to sue an at-fault “full tort” bargained for, a system without driver for pain and suffering and, pain and suffering damages and in return, would be immune from substantially lower premiums.121 being sued for pain and suffering In sum, those who opt out of if s/he were at fault in an inter- the pain and suffering system could system accident. To assure the full anticipate dramatic savings on tort driver her/his expectations, their BI liability coverage, probably the full tort driver who is not on the same order of magnitude Those who opt out at fault in an accident with an estimated by the JEC for a no-fault of the pain and economic loss driver could system without noneconomic suffering system recover only uncompensated damages – 56 percent on personal 122 could anticipate economic loss and a reasonable injury coverages – while those attorney’s fee from the at-fault who remain in the full tort system dramatic savings driver. However, the full tort would pay the same or a little less on their BI liability driver could file a claim against than they do today. coverage. her/his UM coverage for pain Letting people vote with their and suffering, just as s/he does pocket books is a quintessentially today when the other driver is American value. The societal uninsured. interest in compensation would be RAND, in the context protected by permitting people in of a tort/no-fault choice bill, the economic loss-only system to determined that this device recover damages that would make would enable both drivers to get them economically whole. The what they bargained for without tort system’s interest in deterrence either being disadvantaged would continue to be effectuated economically. The reason why through the insurance system is simple. While the full tort just as it is today, with increased driver would pay more for the premiums for bad driving under expanded UM coverage, s/he both choices. would pay less for BI coverage All of these reforms would reduce because the full tort driver would fraud and abuse in the tort system and not be responsible for paying the lower costs for insurers and thus result economic loss driver damages for in lower premiums for consumers. pain and suffering when s/he was Some of them would also provide at fault in an accident. The full greater predictability of outcome and tort driver would get what s/he timeliness of payment. wanted, the right to recover pain and suffering when the other B. No-Fault System Reforms driver was at-fault. The only Because there are no “pure” state no-fault difference would be that the full laws, laws that permit no lawsuits, “no-fault” tort driver would recover from is somewhat of a misnomer. All state no- her/his UM coverage instead of fault laws contain two forms of bodily injury the other driver’s BI coverage. coverage. The first, PIP or no-fault, is really an RAND found that, in a tort/no- accident and health policy that compensates fault choice system, the tort one without regard to fault for medical and driver’s premiums would actually work loss costs. The second, BI liability, is be slightly less than under a tort coverage for accidents that breach

30 the threshold. The rules for such suits are costs as people stop running up medical bills determined by the tort law of the specific in order to breach weak thresholds. state. While most of the proponents of Threshold Reforms the early state no-fault laws and their 1. “Pure” no-fault: Replace weak state subsequent reforms did not advocate for thresholds with thresholds that pure no-fault, they did support the basic permit lawsuits for uncompensated trade-off of cost-effective no-fault laws: a economic loss only and not for tight enough restriction on lawsuits to pay pain and suffering. This proposal, for the cost of the PIP benefits. When this based on the savings estimates balance is lost, premiums are higher than of the JEC, would go further, but they need to be. The weakness of most no- not all the way, towards pure no- Replace weak state fault laws is apparent in the fact that the BI fault than any state law has gone. thresholds with portion of the premium is more expensive It is designed to reduce the cost thresholds that than the PIP portion. The good news is that of unnecessary lawsuits and the permit lawsuits for this problem is easily fixable, with enough PIP fraud associated with running political will, by tightening weak thresholds. up unnecessary medical bills to uncompensated Reforms that approach pure no-fault breach the threshold. Removing economic loss only contain enormous potential to reduce costs the pain and suffering incentives and not for pain without sacrificing the promise of no-fault of the tort system would eliminate and suffering. to provide timely economic loss benefits the major reason the IRC found to all injured people. One can get some why people inflate their medical sense of what weak thresholds are costing bills in no-fault states. consumers by examining the estimates of To see how effective this potential savings by the JEC for a law that reform would be in states that would limit lawsuits to uncompensated are either considering reforms to economic loss only. For all states, tort and their no-fault laws or whose no- no-fault, the JEC estimates that savings on fault laws have been the subject of the bodily injury portion of the premium multiple reform efforts through – BI, UM/UIM and PIP or MedPay – would the years, one need only look at the average 56 percent or a potential annual JEC estimates of the impact of this national total of $47.7 billion. The savings reform on the average personal in no-fault states would be substantial. injury savings (PIP and BI liability For example, the average premium savings coverages combined, but not the in North Dakota, which presently has the property damage coverages— nation’s lowest premiums, would be 69 collision, comprehensive PD— percent or $133. In New York, which has the which would be unaffected by highest premiums, the average driver would the change). The JEC estimates save 61 percent or $409.123 savings of 61 percent in Florida, The reform proposals in this section are 69 percent in Massachusetts, 61 split into two categories. The first are ones percent in Michigan, 69 percent that would tighten the thresholds to reduce in Minnesota, 62 percent in New lawsuits. The second are ones that would Jersey, 61 percent in New York and address the PIP fraud that has resulted in 52 percent in Pennsylvania.124 Had higher premiums in some no-fault states in the State of Colorado adopted this recent years. The proposals are not exclusive threshold instead of repealing its and, used in combination, would reduce no-fault law, the JEC estimates costs more than if adopted alone. Also, they it would have reduced the cost are connected in that tighter thresholds not of the average personal injury only reduce BI costs, they also reduce PIP premium by 51 percent, a savings

31 far higher than that found in a the nation’s lowest premiums. 2005 insurer survey of premiums While there is thus little push to in different parts of the states125 change North Dakota’s law, its – and motorists would have still citizens would experience even had $130,000 in guaranteed PIP lower premiums with a verbal benefits in the case of a very threshold. serious injury. Florida, New Jersey, New For people who value pain York and Pennsylvania all have and suffering coverage, they verbal thresholds that could be could purchase it on a PIP basis. tightened to the benefit of their Such coverage for a defined list insurance consumers. All of these Trial attorneys of serious injuries would be less laws were weakened – and thus have sometimes expensive than tort BI coverage made more expensive – for the succeeded in and more valuable to the injured benefit of trial lawyers, not for undermining person because it would assure the benefit of policyholders. As compensation, regardless of fault. described earlier, it was the failure thresholds through Also, the dramatic reduction of any of them to couple “serious” litigation. For in cost from adopting this pure or “significant” with “permanent” example, in 2005 no-fault system would enable that is the fatal flaw in all of them. attorneys won a motorists to increase their PIP Lawsuits seeped through such case in the Supreme coverage for economic loss if they intended cracks as “permanent” wished. where an injured person, for Court of New Jersey example, could in the extreme that weakened 2. Verbal thresholds: Replace sue for a minor percentage previous court weak thresholds with verbal permanent loss of use of a pinkie. interpretations of thresholds that limit lawsuits for The result has been that in all of the threshold. noneconomic damages to cases these states, the cost of BI remains of “death, significant permanent well above the cost of PIP, an injury, serious permanent absurdity for a no-fault state. disfigurement, or more than 6 In addition to putting months of complete inability of “poison pills” into legislation to the injured person to work in an weaken thresholds, trial attorneys occupation,” as proposed in the have sometimes succeeded in model state law in 1972. It makes undermining thresholds through little sense for a state to utilize litigation. For example, in 2005 a dollar threshold. As pointed attorneys won a case in the out previously, they are unfair Supreme Court of New Jersey to people in low-cost areas of a that weakened previous court state, erode with inflation over interpretations of the threshold. time and too often become The Court had previously targets instead of true thresholds, interpreted the prior threshold resulting in higher PIP costs than law that enumerated statutory necessary as unscrupulous people categories that qualified for run up unnecessary medical bills pain and suffering suits also to so that a lawsuit can be filed. require a showing that the injury They work adequately to keep caused a “serious life impact.” In costs down in states that are not effect, the Court added “serious” urban and have a limited amount to the statutory “permanent” of PIP benefits, such as North requirements. Dakota, a no-fault state with In 1998, the New Jersey

32 Legislature enacted a new law fraud and buildup. Most of it has that was deigned to reduce been by people with non-serious insurance premiums by, among injuries and much of it has been other things, overhauling the designed to enable people to existing threshold. Despite the breach the threshold. Replacing expressed goal of the new law, these weak thresholds with strong in DiProspero v. Penn et al., 183 verbal ones would lower both N.J. 477; 874 A. 2d 1039; 2005 BI costs, because there would N.J. LEXIS 604 (Sup. Ct of N.J., be fewer lawsuits, and PIP costs, June 14, 2005), the Supreme because more visits to the doctor Court of New Jersey decided that would not improve the chances of the Legislature did not intend being able to maintain a claim for The recommended to carry forward the judicially- pain and suffering. Moreover, the verbal threshold added serious life impact recommended verbal threshold would not deny standard, basing its decision would not deny truly seriously truly seriously primarily on the fact that the injured people of the opportunity Legislature did not incorporate to sue for pain and suffering. As injured people of this specific language into the with the pure no-fault threshold, the opportunity to new statute. The result in the with lower premiums, motorists sue for pain and case was to permit the plaintiff could afford to purchase higher suffering. to pursue a pain and suffering levels of PIP benefits to protect claim in a case of back and neck against serious injuries. pain. It would also make sense to Regardless of the accuracy have a judge decide whether a of the Court’s interpretation of particular injury fits into one of the intent of the Legislature, the these categories as a matter of law result will be more successful rather than make it a question of lawsuits, including many for fact for a jury. injuries that while permanent, How much would the savings are not serious, and higher be? While no actuarial estimate premiums. Of course, the has been done for all the states, the Legislature could have avoided savings would likely be substantial. the problem entirely had it adopted the model state 3. Pain and suffering schedule: law provision requiring a Establish a fixed dollar amount showing that an injury is both for death and defined cases of “permanent” and “significant.” very serious injuries. Legislators The Court’s decision leaves in could identify precisely which doubt whether the threshold injuries they believe warrant suits will be strong enough to keep for noneconomic damages and premiums in line, given the then establish a fixed schedule of substantial PIP benefits in the damages for everyone who has an law. injury that fits into a particular While premium increases category. The schedule could for PIP coverage in Florida, replace the threshold and set New Jersey, New York and the amount of damages for all Pennsylvania over the last decade people with such injuries who are not out of line with medical can establish the fault of a driver. inflation, all of these states have Alternatively, a state could make experienced significant PIP the noneconomic benefits available

33 to persons with such injuries on state PIP systems remain outside of the a no-fault basis through the PIP mainstream of cost control developments system. in health care. Some doctors seem to view Many workers’ compensation the PIP system as a way to compensate statutes contain such schedules, themselves for perceived shortfalls in often tied to a formula based on the revenue from the cost controls of Medicare, nature of the injury multiplied by Medicaid, workers’ compensation and the injured worker’s weekly wage. private health insurance. Because it rarely Because it is hard to argue that has an impact on the injured person who, similarly injured people experience in some cases, never even sees the bills, auto different amounts of pain and accident victims have little or no incentive to The first principle suffering, at least not based on monitor and control their medical bills. of PIP reform one’s income, should a state choose should be to make to adopt this approach, it should What follows are a few suggestions to the PIP system seriously consider establishing alleviate the fraud and create a fairer PIP specific amounts for all people payments system for insurers and providers, look more like in each category of injury. This to the ultimate benefit of injured persons and other health care was the approach taken by Ken policyholders: insurance systems. Feinberg, the Special Master of the Federal September 11th Victim 1. Make private health insurance Compensation Fund of 2001. “primary” to auto insurance, i.e., have health insurance pay the medical bills 4. Choice: Give motorists a choice of injured persons before PIP dollars between the existing no-fault law and are expended. In most no-fault states a no-fault law with a threshold that today, an injured motorist recovers permits lawsuits for uncompensated from her/his PIP insurer and only economic loss only and not for pain recovers from private health insurance and suffering. This approach would if s/he exhausts the PIP benefits. work similarly to the tort-versus-tort While there is a good intellectual choice discussed in the tort options rationale for this approach, tied to the section. The potential savings are principle of internalizing costs within enormous, as cited in option 1 above. the system that causes them, the fraud and buildup that have resulted Reforms to Reduce PIP Fraud now overwhelm the rationale for the The first principle of PIP reform should original approach. One way to rein in be to make the PIP system look more like this free-wheeling PIP medical system other health care insurance systems. There would be to require those injured appears to have been relatively little PIP in auto accidents to exhaust their fraud and buildup for the better part of 25 private health benefits first. Thus, years after the first no-fault law went into people would look to their private effect in Massachusetts in 1971. PIP fraud health insurance system – with and buildup became a significant problem its deductibles, copayments and in several no-fault states starting generally often managed care – for recovery, in the mid to late1990s. While IRC data and regardless of the source of their injury studies suggest that much of the fraud and or illness. buildup is associated with efforts to breach This system would result in state thresholds, a problem that can be higher costs for private health solved largely by tightening the thresholds, insurance but such costs would be a substantial portion of it appears to be a more than offset by lower costs for result of the fact that, for the most part, auto insurance. The reduction would

34 be greater because benefits would be they lower PIP costs. paid out in the first instance through As always, one must be careful a system that contains traditional not to set reimbursement levels so cost controls that are generally low that they discourage good doctors absent from the PIP system today. from participating in the program. One must also be careful to establish a 2. Require PIP insureds to utilize their fair review board for any complaints. private health insurance first but Insurers complained, for example, that permit health insurers to recover the PIP examination panel in Colorado their costs directly from PIP insurers. was ineffective at controlling costs Insureds have made a conscious because it consistently ruled in favor of choice, in most circumstances, to claimants. There are many arbitration One must also choose to be treated by a particular models that would assure a balanced be careful to set of providers under a particular review panel. establish a fair set of rules for health care so As indicated earlier, chiropractor review board for this approach would meet their and physical therapist charges for expectations. At the same time, it treatment of PIP claimants have any complaints. would bring more controls into the risen dramatically in recent years, Insurers PIP system, eliminating many of as has the total amount charged for complained, for the medical claims mills that have such treatments. This is an area that example, that the cropped up to take advantage of the deserves special attention in any PIP examination PIP system’s lack of cost controls. medical fee schedules and treatment Again, this approach would protocols. panel in Colorado put the PIP system in line with was ineffective private health care and its cost 4. Shorten the time between when an at controlling controls. Because health insurers accident occurs and when the insured costs because would recover their costs associated must report it to the insurer and the it consistently with an auto accident from the PIP time between when an injured person ruled in favor of insurer, the cost of auto accidents receives medical treatment and when would remain internalized but the a bill for treatment is submitted to the claimants. greater controls in the private health insurer. Two ways that unscrupulous insurance system should reduce auto people have been able to game the PIP insurance costs and premiums for all system is by waiting excessively long policyholders. times before reporting the accident and treatment for injuries. The effect 3. Authorize PIP insurers to provide is that insurers have often been left for reasonable deductibles and with only 30 days, the required time copayments and utilize managed in most states to pay PIP benefits after care and have states adopt medical submission of a bill, to investigate fee schedules and medical protocols. suspicious claims or risk paying This is another way of making the penalties for late payment. PIP system look more like private The long reporting times were health insurance. This approach viewed as a key component of the would permit PIP insurers to utilize sudden dramatic rise in loss costs devices that health insurers have in New York between 1997 and used for years to control costs. 2002, when PIP pure premium rose As for fee schedules and medical 76 percent. In 2002, the New York protocols, several states have taken legislature amended its no-fault law this approach and, depending on the to shorten the time for reporting details of their system, found that accidents and submitting bills from

35 180 and 90 days to 45 and 30 days, thought such penalties were needed respectively. The latest Fast Track to assure timely payment. In fact, such data, from the fourth quarter of penalties are out of the mainstream of 2005, finds that New York’s PIP health insurance and have generated pure premium has now dropped far too many lawsuits in a PIP system below what it was in 1997. While that was designed to operate as health the changes in reporting times were insurance does, without lawyers. Most not the sole cause of the drop in private health insurance plans do not rates, they are considered to be a require payment within a specific major cause of the cost reduction. period of time and they do not have Modifying other state no-fault laws to penalties for late payment. That does It should be adopt these time periods might also not mean that insurers are immune possible to strike help curb fraud and buildup. These to penalties for misconduct. Health a better balance in time periods appear to give insurers insurers who routinely fail to pay in a no-fault states that enough time to investigate suspicious timely manner may be subject to “bad claims, without placing an undue faith” suits for their actions. It seems are experiencing burden on insureds. as if it would be possible to strike significant PIP a better balance in no-fault states fraud, one that 5. Require medical providers to give that are experiencing significant PIP would provide patients a written bill. It seems like a fraud, one that would provide strong strong incentives simple thing but it can help reduce incentives for timely payment but not costs by making insureds aware of increase policyholder costs because for timely payment what services doctors are charging insurers pay on false claims rather but not increase their insurers for and how much. The than risk paying the penalties. policyholder costs requirement was part of the 2002 One way to achieve a better because insurers New York reforms. balance might be to eliminate pay on false the attorneys’ fee portion of the claims rather than 6. Strengthen criminal penalties for penalty, leaving the interest penalty auto insurance fraud and increase the portion and permit arbitration of risk paying the number of staff assigned to prosecute late payment claims. One could, penalties. these cases. In states where auto alternatively, limit attorneys’ fees to insurance fraud is a significant no more than the greater of $1,000 or problem, it is important to raise the the amount of the contested bill. priority of state prosecutors to reduce The first option would mimic such fraud. Tougher penalties and private health insurance which seems more prosecutions were a key part of to work well in the vast majority of the New York no-fault reforms. cases. Arbitration has been tried in some states and is worth considering. 7. Eliminate or limit the payment of The second approach would prevent attorneys’ fees when PIP benefits are attorneys from using the system as a paid late. All no-fault states require cash cow, running up thousands of the prompt payment of PIP benefits, dollars in fees over a claim of a few typically within 30 days of receipt of hundred dollars. The no-fault system a bill. To encourage insurers to pay was designed to reduce overhead costs on time, they also provide that, in a and such behavior is antithetical to successful suit for late PIP benefits, an the whole purpose of no-fault. insurer must pay an interest penalty and a reasonable attorneys’ fee. When 8. Permit insureds in states with high these laws were enacted in the early mandatory levels of PIP benefits to to mid-1970s, no-fault proponents purchase lower amounts. New Jersey

36 is one state that permits low-income Choice proposal: Adopt state-appropriate insureds to buy a lesser level of versions of the Auto Choice Reform Act. The PIP benefits. To assure consumers Auto Choice Reform Act is federal legislation adequate compensation, the amount that incorporates the intellectual work of should probably not be lower than Professor Jeffrey O’Connell, Bob Joost, and an amount equal to the BI coverage Michael Horowitz, the latter of the Hudson in the state.126 The savings would Institute. While the Senate and House held be significant. If permitted for all several hearings on the legislation in the late motorists, they could decide the 1990s, it failed to attract a critical mass of best way to balance compensation support and was never considered by either and cost to meet the needs of their the full Senate or House. One of the major families. reasons it failed to move, a concern for states’ A state that already rights, would not apply to state legislation. has no-fault might These are just some options for reducing The other, opposition from the highly self- consider, instead, PIP fraud. The Florida Senate Report interested trial bar, would still be relevant. offering a choice contains a number of additional suggestions The federal bill represents a good starting and S. 2941, the federal Auto Choice Reform point for any state – tort or no-fault – between tort and Act of 2004, also contains some other nterested in giving its citizens a choice in auto the strengthened options, which are found in sections (5), (7) insurance. The federal legislation would have no-fault system. and (9). given motorists a choice between the existing system in their state and a no-fault option C. Choice between Tort and No-Fault with a strong threshold. A state that already Systems has no-fault might consider, instead, offering a In a society where competition and choice choice between tort and the strengthened no- are the keystones, auto insurance is an fault system. anomaly. Only three states – Pennsylvania, The no-fault choice would be closer to New Jersey and Kentucky – permit motorists pure no-fault than any state has adopted to choose among different auto insurance in that it would permit lawsuits for system. In all other states, motorists have uncompensated economic loss only. The no- only one choice, either tort or no-fault. fault option reflects what has been learned Could any of these laws serve as a about what makes a good no-fault system model? Not likely. They all lack a rational from 35 years of state experimentation. By mechanism for dealing with accidents eliminating suits for pain and suffering, it involving people from different systems. would accomplish two important goals: (1) The keys to a fair choice system are to it would include a threshold for suit that give consumers a choice between options cannot be breached by game-playing by they value and to deal with inter-system injured people, their lawyers and doctors accidents in a way that gives each party the and (2) it would permit insureds to reduce benefits of the system they choose while their premiums dramatically, as many of assigning the costs of such choice equitably them would like. The estimated savings for between the systems. Unfortunately, the people who elect the no-fault choice – 56 existing choice states fail on both counts. percent for personal injury coverages (PIP First, the no-fault option is not a good and BI) on the average or 21 percent on the one, in each case undermined by a weak total premium (which also includes collision, threshold that leaves too many cases in the comprehensive and property damage liability) tort system. Second, they lack a fair and – would be substantial. On a national basis, rational mechanism for assigning costs to were all insureds to elect the no-fault option, the appropriate system. the JEC estimated that savings in 2003 would have been $47.7 billion.127 Importantly, these numbers are grounded in real world data.

37 driver would also see a slight reduction in How Auto Choice Works premium for two reasons: (1) s/he could Accident Between Two not be sued for pain and suffering by a no- TMC Drivers fault driver when the tort elector was at fault Recover economic and in an accident and (2) s/he could not be non-economic damages sued by the no-fault driver for any PIP or under existing state law. health insurance benefits the no-fault driver received. Accident Between a TMC The chart opposite shows the rights of Driver and a PIP Driver Driver Stays Driver Switches drivers when involved in the four different TMC driver recovers accident scenarios for drivers under this with Current economic (medical and to New System System wage) losses as well as (PIP driver) choice system. (TMC driver) non-economic (pain and For a copy of the Auto Choice Act of suffering) from own TMC 2001 and a full section-by-section analysis, policy. PIP driver collects see the article by Professor O’Connell, Peter economic losses from own Kinzler and Hunter Bates.129 PIP policy. PIP or TMC driver can recover damages Buys tort Buys personal for uncompensated Conclusion maintenance economic loss from the injury protection coverage (TMC) other driver, based on fault. (PIP) insurance. The 38 states that rely almost exclusively on to cover accidents the tort and liability insurance system and with drivers who Accident Between Two the 12 states that have some form of no- switch to new PIP Drivers fault insurance are experiencing significant (PIP) system. Each driver collects fraud and buildup in the claims system that economic damages from own PIP policy, up to policy are making personal injury costs – and, limits. Uncompensated therefore, premiums – unnecessarily high. economic loss can be Further, because only three states offer recovered from the other consumers any choice between different driver, based on fault. insurance systems, motorists are denied the benefits that could flow from competition. They were derived, in the first instance, Over the past 30 years, changes in law, from closed claim data developed by the such as the elimination of the doctrine of The pain and IRC based on 42,000 insurance claims, and contributory negligence, have increased suffering payment, then from work by the highly respected the number of injured persons eligible to which increases an RAND Institute for Civil Justice and the U.S. recover damages in tort states. Changes on injured person’s Congressional Joint Economic Committee. the insurance side, such as the sale of UIM payment by How would choice work? It would work coverage, have increased the amount of roughly the amount exactly as the full tort versus economic damages eligible persons can recover. The loss-only tort choice described earlier in the combination of these changes has improved of one’s economic tort reforms section. The difference would compensation for injured people in tort damages, continues be that the no-fault option described in states but has also increased premiums to provide the previous paragraph would replace the significantly. There has been one constant incentives for economic loss-only tort option. Thus, tort throughout. The pain and suffering payment, wasteful and even electors would use an expanded version which increases an injured person’s payment of the UM coverage to pay them for their by roughly the amount of one’s economic dishonest behavior pain and suffering in an accident where the damages, continues to provide incentives by injured persons no-fault driver was at fault.128 The no-fault for wasteful and even dishonest behavior and their doctors elector could sue an at-fault tort driver for by injured persons and their doctors and and lawyers. uncompensated economic loss only and, in lawyers. Despite aggressive efforts by insurers turn, would be immune from lawsuits except to rein in such behavior, fraud and buildup for uncompensated economic loss. The tort continues to occur regularly in the tort

38 system, more often than in the no-fault choices for consumers and create opportunities systems. for people to tailor coverage to meet their The no-fault laws that were adopted particular needs. Such a choice system would as a means of reforming the tort system be particularly beneficial to low-income people have all been successful in providing more because the cost of insurance is so high in some timely compensation to all injured persons places that they cannot afford a car, which may more in accordance with their economic well be their ticket to work and a better life. losses. However, most of them suffer from two major defects. The first, the product Endnotes of the primary opponents of no-fault, the 1 trial bar, is weak thresholds that permit Insurance Information Institute, The too much of the tort system to remain to I.I.I. Fact Book 2006 (New York, NY, 2006), Consumers in offset the increased costs of providing PIP p.48. Percentage figures based on author’s most no-fault calculations. benefits. The temptation of weak thresholds states would is the major cause of the buildup of PIP 2 See, e.g., Robert Detlefsen, Ph.D., The Case benefit from benefits and sometimes even fraud. This for Underwriting Freedom: How Competitive tighter thresholds problem is abetted by the absence of most Risk Analysis Promotes Fairness and Efficiency of the cost controls that exist in private and in Property/Casualty Insurance Markets that would lower governmental health insurance systems. (Indianapolis, IN: National Association of premiums directly For the better part of 35 years, the Mutual Insurance Companies, September by limiting auto insurance reform paradigm has 2005). lawsuits to more consisted of tort or no-fault, with little or 3 no thought given to reforms of the tort Robert H. Joost, Automobile Insurance serious injuries system that would lower premiums or to and No-Fault Law 2d (Deerfield, IL: Clark and indirectly giving consumers the option to choose from Boardman Callaghan, 2002), pp. 5-68-69. by reducing the more than one system. There are a variety [hereinafter “Joost”] incentives to run of reforms that would reduce the incentives 4 Stephen Carroll et al., No-Fault Approaches up unnecessary of pain and suffering payments that could to Compensating People Injured in Automobile PIP costs in order save consumers a great deal of money. Also, Accidents (Santa Monica, CA: RAND Institute to sue. giving consumers the option to opt out of for Civil Justice, 1991), pp. 80-86 [hereinafter the pain and suffering system would enable “No-Fault Approaches”]; National Association tort system consumers to enjoy the benefits of Independent Insurers, Automobile Experience of competition, as each family determines the (Des Plaines, IL, 1992). best balance for them between compensation 5 and cost. Joost, op. cit., pp. 5-68-69. Only Arkansas, Consumers in most no-fault states with required benefits of $15,920 and would benefit from tighter thresholds that Washington, at $27,000, are significantly above would lower premiums directly by limiting the $5,000 level. lawsuits to more serious injuries and 6 Ibid. indirectly by reducing the incentives to run 7 up unnecessary PIP costs in order to sue. The 2003 Legislature in Special Session “A” There are also a variety of PIP reforms that passed legislation providing that, effective would lower costs by making the PIP system October 1, 2007, the Florida no-fault law look more like health insurance with its cost is repealed, unless it is reenacted by the controls. legislature during the 2006 Regular Session. Finally, tort and no-fault states alike The legislature did pass a law to reenact the should consider permitting consumers to no-fault law in the 2006 regular session, but the choose between the tort system and a nearly governor vetoed it. Despite the law passed in pure no-fault system. Such an approach 2003, Florida could still enact a law to continue would dramatically expand auto insurance no-fault after October 1, 2007.

39 8 Columbia University Council for courts were far less congested, it took an Research in the Social Sciences, Report by average of 16 to 18 months on average for an the Committee to Study Compensation for injured person to receive payment. DOT I, op. Automobile Accidents (Philadelphia, PA: Press cit., p. 43. of International Printing Co., 1932), pp. 216- 19 Countrywide Patterns, op. cit., p. 91. 217. 20 No-Fault Approaches, op. cit., p. 187. 9 Ibid, p. 217. 21 Ibid. 10 Boston, MA: Little, Brown and Company, 1965. 22 The IRC estimated the cost of attorneys’ fees and court costs for represented plaintiffs at 32 11 United States Department of percent. Paying for Auto Injuries: A Consumer Transportation, Motor Vehicle Crash Losses Panel Survey of Auto Accident Victims, 2004 and Their Compensation in the United States, Edition (Malvern, PA; 2004), p. 6. A Report to the Congress and the President (Washington, D.C.: U.S. Government Printing 23 A seriously injured person can recover pain Office, 1971), p. 100. [hereinafter “DOT I”] and suffering if s/he is “lucky” enough to be hit by Bill Gates or a U.S. government vehicle. 12 Ibid, pp. 101ff. 24 Bureau of Justice Statistics, Civil Trial 13 Insurance Research Council, Auto Injury Cases and Verdicts in Large Counties, 2001 Insurance Claims: Countrywide Patterns in (Washington, DC: U.S. Department of Justice, Treatment, Cost, and Compensation (Malvern, April 2004), p.2. [hereinafter “Civil Trial PA: December 2003), p. 112. [hereinafter, Cases”] “Countrywide Patterns”] 25 David Loughran, The Effect of No-Fault 14 Joint Economic Committee, Choice in Auto Automobile Insurance on Driver Behavior and Insurance: Updated Savings Estimates for Auto Automobile Accidents in the United States Choice (Washington, DC: July 2003), p. 4. (Santa Monica, CA: RAND Institute for Civil [hereinafter “JEC”] Justice, 2001). 15 Ibid. 26 Testimony of Craig Spangenberg, Esq., on 16 Ibid, p. 12. The JEC estimate assumes behalf o the Association of Trial Lawyers of that all motorists would elect to purchase America, No-Fault Motor Vehicle Insurance insurance that provides for the payment Hearings (Washington, DC: Subcommittee of no-fault benefits and permits lawsuits on Consumer Protection and Finance of for economic losses only, to the extent that the Committee on Interstate and Foreign they are not already compensated by either Commerce, U.S. House of Representatives, July the no-fault benefits or other sources of 23, 1975), p. 692. compensation for the loss. 27 Insurance Research Council, Trends in Auto 17 Stephen J. Carroll and Allan F. Abrahamese, Injury Claims, 2004 Edition (Malvern, PA, The Effects of a Choice Automobile Insurance December 2004), p. 49. [hereinafter “Trends in Plan on Insurance Costs and Compensation: Auto Injury Claims”] An Updated Analysis (Santa Monica, CA: 28 U.S. Department of Transportation, RAND Institute for Civil Justice, 1998), p. 11, Compensating Auto Accident Victims: A footnote 9. [hereinafter “Effects of a Choice Follow-up Report on No-Fault Auto Insurance Plan”] Experiences (Washington, DC: May 1985), pp. 18 Bureau of Justice Statistics, Civil Trial 3-4. [hereinafter “DOT II”] Cases and Verdicts in Large Counties, 1996 29 Under all no-fault laws and proposals, (Washington, DC: U.S. Department of Justice, injured people can always sue for any September 1999), p. 13. In 1970, when U.S.

40 economic loss that would not otherwise be 42 Estimate of Dale Nelson, then the chief compensated. actuary of State Farm. 30 Stephen Carroll, Allan Abrahamese, Mary 43 Countrywide Patterns, op. cit., p. 4 Vaiana, The Costs of Excess Medical Claims for 44 Trends in Auto Injury Claim, op. cit., Automobile Personal Injuries (Santa Monica, pp. 3 - 4. CA: 1995), p. 15. [hereinafter “Excess Medical Claims”] New York amended its no-fault law 45 Ibid, p. 9. in 1977 to change from a dollar threshold to 46 Ibid. a verbal one. 47 Ibid, p. 19. 31 Ibid. 48 Fraud and Buildup, op. cit., p. 16. 32 Ibid, p. 16. 49 Ibid, p. 17. 33 Legislation in the U.S. Congress during the 1970s mimicked the UMVARA standard. 50 Insurance Research Council, Analysis of Auto For example, section 206(a)(5) of S. 354, the Injury Insurance Claims from Four Tort States: National No-Fault Motor Vehicle Insurance California, Illinois, Texas, Washington (Malvern: Act, in the 93rd Congress (in 1973) authorized PA, June 2005), pp. 4, 16. suits for pain and suffering in accidents that 51 Ibid, p.18. resulted in “death, serious and permanent disfigurement, or other serious and 52 Ibid, pp. 20-21. permanent injury.” 53 Ibid, p. 22. 34 Insurance Services Office, Property 54 Countrywide Patterns, op. cit., p. 119. Casualty Insurers Association of America and the National Independent Statistical Service, 55 Fraud and Buildup, op. cit., pp. 4, 17. Private Passenger Auto - Fast Track Data 56 Trends in Auto Injury Claims, op. cit., p. 11. (2006). [hereinafter “Fast Track Data”] This figure does not, however, address the concern 57 Fraud and Buildup, op. cit., pp. 77-78. with rising PIP costs that in recent years have 58 Excess Medical Claims, op. cit., p. 23 driven total personal injury costs higher. This issue is addressed later in the analysis. 59 Ibid. 35 Insurance Research Council, Fraud and 60 Trends in Auto Injury Claims, op. cit., p. 12. Buildup in Auto Injury Insurance: 2004 61 Ibid, p. 7. Edition (Malvern, PA, December 2004), p. 16 [hereinafter “Fraud and Buildup”] 62 In 2003, Massachusetts had 7.26 attorneys per 1,000 population, more than any other 36 DOT II, op. cit., p. 95. state and twice the countywide average of 37 Ibid. 3.65. The population data is from the U.S. Census Bureau and the data for the number of 38 Fast Track Data, op. cit. attorneys is from the American Bar Association 39 American Bar Association, Automobile (online at www.abanet.org/marketresearch/ No-Fault Insurance: A Study by The Special 2004nbroflawyersbystate.pdf). As indicated Committee on Automobile Insurance in the text, urban population density and the Legislation (Chicago, IL: 1978), pp. 46ff. nature of the legal system are also key factors in premium costs. Another indicator of an 40 DOT I, op. cit., p. 36. “active” trial bar can be found in the recent 41 Effects of a Choice Plan, op. cit., p 11, study by Lawrence J. McQuillan and Hovannes footnote 9. Abramyan, “U.S. Tort Liability Index: 2006” (San Francisco, CA: Pacific Research Institute,

41 2006). It ranks the state tort systems, with 82 Ibid, p. 6 the “better tort systems [,] meaning they 83 Ibid, p. 7. have lower relative monetary tort losses and threats, and have more substantive and 84 Ibid, p. 11. procedural tort reforms.” Ibid, p. 8. According 85 Ibid, p. 10. to the study, Massachusetts ranks 41st among the states on its U.S. Tort Liability Index, with 86 Statement by August D’Aureli, Supervising one representing the “best” state. Ibid, p. 56. Investigator of the Insurance Frauds Bureau in the New York State Insurance Department, 63 Ibid, p. 42. before the New York Senate Standing 64 Ibid. Committee on Insurance (February 9, 2004); See No Fault Fraud in New York State fn 166 65 Ibid, p. 45. at p. 2; The 2000 Report to the Governor and 66 Insurance Research Council, Analysis of the Legislature of the State of New York on the Auto Injury Insurance Claims from Four No- Operations of the Insurance Frauds Prevention Fault States: Colorado, Florida, Michigan, Act (New York Insurance Frauds Bureau: New York (Malvern, PA: October 2004), January 115, 2001). pp 3, 22, 30. [hereinafter “Four No-Fault 87 Trends in Auto Injury Claims, op. cit., p. 54. States] Increased charges for chiropractors and physical therapists were significantly 88 Robert Hartwig, New York PIP Insurance higher among PIP claimants than among BI Update: Is New York’s No-Fault Crisis Solved? claimants; however, because of such things (Insurance Information Institute: New York, as medical fee schedules in some states, the NY, June 2, 2005). increase in PIP payments has been far more 89 The legislation, bill AO8376, was signed into modest. Countrywide Patterns, op. cit., pp. 5-8. law on August 2, 2005. 67 Fraud and Buildup, op. cit., pp. 60-61. 90 Fast Track Data, op. cit. 68 Ibid, pp. 86-88. 91 DOT II, op cit. , p. 95 69 Ibid, p. 25 92 Four No-Fault States, op. cit., p. 13. 70 Ibid, pp. 17-18, 78-79. 93 Ibid, pp. 15-16. 71 Ibid, p. 16. 94 Ibid, p. 19. 72 Countrywide Patterns, op. cit., pp. 8-9. 95 Ibid, p. 21. 73 Four No-Fault States, op. cit., p. 50. 96 Ibid, p. 22. 74 Countrywide Patterns, op. cit., p. 109. 97 Ibid. 75 Four No-Fault States, op. cit., p. 5. 98 Ibid, p. 17. 76 Ibid, p. 47. 99 JEC, op. cit., p. 31. 77 Fast Track Data, op cit. 100 Trends in Auto Injury Claims, op. cit., pp. 78 Ibid. 42, 45. The figure would have been somewhat higher because of lower insurer transaction 79 Four No-Fault States, op. cit., p. 16. costs. 80 Fast Track Data, op. cit. 101 Stephen G. Lehmann, Colorado No- 81 Insurance Research Council, Claiming Fault Automobile Insurance: Actuarial Study Behavior in New York’s No-Fault Auto (Bloomington, IL: Miller, Herbers, Lehmann, Insurance System: An Analysis of Closed PIP & Associates, December, 2002), p 14. Claims (Malvern, PA: December 2001), p. 5.

42 102 Property Casualty Insurers of America (Charlottesville, VA: University of Virginia and Rocky Mountain Insurance Information Law School, 1986), 72 Va. L. Rev. 61. Association, Colorado Automobile Insurance 120 Stephen J. Carroll and Allan Abrahamese, Rate Example Survey (Greenwood Village, The Effects of a Choice Automobile Insurance CO: July, 2005). www.rmiia.org/Auto/ Plan on Insurance Costs and Compensation: An Colorado_Auto_Insurance_Rates.htm Analysis Based on 1997 Data (Santa Monica, 103 Fast Track Data, op. cit. CA: RAND Institute for Civil Justice, 1999), p. 23. 104 Ibid. 121 Ibid. 105 Ibid. The lower pure premium figures reflect drops in paid claim frequency during 122 JEC, op cit., p. 12. the period. 123 Ibid, pp. 12-13. 106 JEC, p. 12. 124 Ibid. 107 Pinnacle Actuarial Resources, Inc., 125 Property Casualty Insurers Association of Minnesota Automobile No Fault Study America Research Bulletin 05-015, Colorado (Bloomington, IL: February, 2006), pp. 16-17. Personal Auto Rate Trends form No-Fault to 108 Ibid, p. 25. Tort (August 31, 2005). The survey found

109 average personal injury rate drops of between Countrywide Patterns, op. cit., p. 2. 17.3 percent and 27.5 percent. 110 Trends in Auto Injury Claims, op. cit., p. 7. 126 Peter Kinzler and Professor O’Connell 111 Ibid. discuss how a person purchasing PIP benefits

112 equal to the state’s minimum requirements Ibid, p. 14. for BI liability coverage would, in a serious 113 Ibid, pp. 48-49. accident, recover on average more than they

114 would if injured in a tort state. Thus, this Committee on Banking and Insurance, discussion is also applicable to the question of Florida’s Motor Vehicle No-Fault Law how much compensation a seriously injured (Tallahassee, Florida: November 2005: person with the minimum amount of PIP Report Number 2006-102, Florida Senate), benefits would recover under the no-fault p. 49. option in a choice system relative to her/his 115 Fraud and Buildup, pp. 16-17. recovery under the tort option. “More for Less

116 under Auto Choice,” The Economics and Politics Press Release, Uninsured Motorists of Choice No-Fault Insurance (Norwell, MA: (Insurance Research Council: Malvern, PA: Edward L. Lascher, Jr. and Michael R. Powers, August 12, 1999). Kluwer Academic Publishers, 2001), Chapter 117 Stephen J. Carroll and Allan F. 11. Abrahamese, The Effects of a No-Pay/No- 127 JEC, op. cit., p. 12. Play Plan on the Costs of Auto Insurance in Texas (Santa Monica, CA: RAND Institute 128 If the no-fault driver’s coverage was for Civil Justice, 1998), p. 1 insufficient to pay the economic losses of

118 the tort system driver, the tort elector could Professor Robert Lee Maril, The Impact of recover any excess economic loss as well as Mandatory Auto Insurance upon Low Income pain and suffering from her/his UM coverage. Residents of Maricopa, Arizona (Unpublished manuscript: 1993), p. 1. 129 A Federal Bill, with Commentary, to

119 Allow Choice in Auto Insurance (Hartford, CT: Professor Jeffrey O’Connell and Robert Connecticut Insurance Law Journal, Volume 7, H. Joost, Giving Motorists a Choice Number 2, Spring 2001). For other materials between Fault and No-Fault Insurance on auto choice, see www.autoreform.org.

43 Founded in 1895, the NAMIC Public Policy Papers National Association of Mutual Insurance It’s Time to Admit that SOX Doesn’t Fit: The Case Against Applying Sarbanes-Oxley Act Companies (NAMIC) is Governance Standards to Non-Public Insurance Companies a full-service national Sophie M. Korczyk, Ph.D. trade association serving June 2005 the property/casualty insurance industry Insuring the Uninsurable: Private Insurance Markets and Government Intervention in with more than 1,400 Cases of Extreme Risk member companies Sophie M. Korczyk, Ph.D. that underwrite more March 2005 than 40 percent of the property/casualty The Case for Underwriting Freedom: How Competitive Risk Analysis Promotes insurance premium in Fairness and Efficiency in Property/Casualty Markets the United States. NAMIC Robert Detlefsen member are small farm September 2004 mutual companies, state and regional insurance The Legal Theory of Disparate Impact Does Not Apply to the Regulation of Credit- companies, risk retention Based Insurance Scoring groups, national writers, July 2004 reinsurance companies, and international The Damaging Effect of Regulation of Insurance by the Courts insurance giants. Peter A. Bisbecos and Victor E. Schwartz Together, we are NAMIC. August 2003

Regulation of Property/Casualty Insurance: The Road to Reform April 2002

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