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the automobile liability insurance rates now paid by his company's California policyholders, which range from $45 to $399,10 were averaged, it would produce a rate of $77.50 for everyone.

That result may have some appeal to those whose overriding goal is to force auto insurance premiums down to a seemingly “comfortable" level for every motorist. But such a step would be self-defeating, grossly inequitable and politically unrealistic.

It would be self-defeating by making many motorists with substantially higherthan-average loss exposure the ones that would supposedly be getting a real "break" price-wise—highly unattractive as insurance risks. No businessman in his right mind wants to voluntarily embark on a hazardous business transaction at a price at which he is virtually guaranteed a costly loss. Again referring to another field by analogy, if life insurers were forced to charge a uniform average premium for policyholders of all ages, it would create a critical market problem for people in the upper age brackets!

A one-price system applied to any walk of insurance would be manifestly inequitable, too, from the standpoint of the better, less-hazardous risks. In the case of auto insurance, it would force many motorists to pay a grossly higher rate than their loss potential warrants—as much as a 72% "overcharge" in the California example cited.

Finally, all theory aside, such a move would produce some rather violentand fully understandable-reactions from the insuring public. There would be few kind words from those whose rates go down, but a great deal heard from the hundreds of thousands or even millions of motorists whose rates are substantially hiked.

The sound, fair answer to the problem of the high rates that motorists in some classifications must pay does not lie in trying to force lower-risk motorists to subsidize them. The only sound basis for reducing those rates is by reduction of the exposures involved. Where the rate is a reflection of the bad driving or accident record of an insured ; 11 the cure lies in improvement of that record. TO the extent it is a reflection of such factors as high accident frequency or excessive theft rate in a given territory, it may call for alleviation of traffic congestion, improvement of law enforcement, or even more basic steps to solve the underlying problems. II. What Is The Most Just And Efficient Compensation System For All Automo

bile Accident Victims? In responding to this inquiry we would prefer to broaden it somewhat by dropping the word “victims'', so that the question will be:

"What is the most just and efficient compensation system for all automobile accidents ?"

It is not only the interests of the accident victim public that we must consider, but also those of the premium-paying public, and indeed the entire public.

No reparations system could possible be devised that would do all things for everybody. And a system which goes too far in the direction of pleasing one segment of the public will surely prove to be unacceptable to another segment of the public.

For example, each motorist who is injured and thereby becomes part of the "accident victim public" would at that point presumably be quite pleased if the system guaranteed him payment, regardless of fault, of unlimited medical and disability benefits plus the full measure of recovery permitted under our existing system for pain, suffering and other items of general damages. However, prior to the accident would that same motorist have been happy with the tremendous increase in auto insurance premiums that would have been forced on him to help fund such a system? Probably not.

Again, when we try to reconcile the concepts of the most "just" system and the most "efficient" system, we may find the two concepts somewhat in conflict. The most coldly "efficient” system would be one where every accident victim received a flat, scheduled benefit for each injury—so much for a leg, so much for an eye, so much for a death-and nothing more. But would it be the most just? Not according to the principles our society has been espousing and practicing for all these years, which call for tailoring damages to each injury and to all the losses both pecuniary and nonpecuniary flowing from it.

19 Lowest to highest class and territory, excluding safe driver plan considerations. 11 The National Driver Registration Service since its inception has collected some 2,000,000 files on people who have been convicted of serious traffic offenses. NDRS records are available to the states and should provide one method of improving state traffic law enforcement and be a source for improving driving habits.

Types of accident reparations systems are somewhat like types of government. Our American democratic process is not always the most efficient in terms of speed of action and economy. A totalitarian government can get many things done faster and cheaper, but it does so at a terrible sacrifice of justice, individual freedom and responsibility, and long-range flexibility and effectiveness.

A good accident reparations system like an enlightened form of government must strike a balance between many interests and considerations, including justice, equitability, efficiency, the encouragement of individual responsibility and the deterrence of antisocial behavior. The problems spawned by an exploding vehicular population have put new strains on our existing legal and insurance system for the reparation of automobile accidents, and have led to the question of whether it is adequate for today's needs and if not, what should be done about

The range of viewpoints within insurance, professional and academic circles concerning this question covers a broad spectrum, and a multiplicity of “plans" has been advanced. However, two basic schools of thought have manifested themselves.

One group proposes complete abolition of the system and its fundamental concepts: individual responsibility for negligent conduct on the highway and the right of an innocent victim of such conduct to all forms of damages including general (non-pecuniary) damages. They would substitute a system of compulsory self-insurance for pecuniary losses only, payable regardless of fault. Such a position and approach is exemplified in the program being espoused by the American Insurance Association.

The other school of thought challenges as greatly exaggerated the criticisms of the present system and insists that it can and should be improved upon by the evolutionary process of sound experimentation and progressive change. It is to the latter school of thought that a substantial majority of the automobile insurance industry, including our Association, belongs.

Here follow some of the charges directed at the present system, and our comments relative thereto. 1. The system is criticized as being an "incomplete" reparations mechanism in that

it only compensates essentially fault-free victims of another party's negli

gence By far most American citizens are now covered either by one or several governmental or private insurance plans or policies for at least their basic medical expenses (and in most cases, basic wage losses) arising out of sickness or accident of any kind." The proportion of the population reached by these coverages has been increasing each year.

The cost of basic accident coverage (either all-accident coverage or automobile medical payments coverage) applicable to automobile accidents is well within the financial reach of most Americans. Thanks to the leadership asserted by our Association, uninsured motorist coverage is now also automatically included in every policy at nominal cost unless it is rejected by the insured.

For those citizens who are indigent, and even those who are just "medically indigent" 13 the Medicaid programs provide free basic medical expense benefits. Senior citizens are of course covered by Medicare. Our Association did not oppose either of those programs. As a matter of fact, several years ago we proposed and supported legislation to better coordinate those government programs with the tort liability system and private insurance by making the latter system the primary loss-bearer in cases where the government and private systems overlapped in a given accident situation."

The tort liability system of which the automobile accident reparations system is but a part was never intended to compensate all accident victims. Its basic purpose is to express and enforce in terms of damages the fundamental duty of each

12 83% of all persons in the United States have one or more forms of private health insurance. 76% have surgical coverage under private health insurance plans. Of those under age 65. 87% have hospitalization coverage under private plans and 80% have surgical coverage under private plans. Medicare Part A is compulsory and covered over 19 million persons as of 7/1/67. Almost 18 million persons participated in the voluntary medical care part (Part B). 1968 Source Book of Health Insurance Data, Health Insurance Institute, New York, New York.

13 Those persons with incomes adequate for everyday needs but inadequate to meet medical exigencies.

14 Congress enacted legislation to make the Medicaid program secondary to any valid claim the injured party has against a third party, but did not adopt the counterpart proposal applicable to Medicare.

member of society to exercise due care to avoid wrongfully injuring his fellow citizen. Only when that duty has been breached is the tort system intended to operate and to award damages to the wronged party.

Every person of ordinary intelligence knows or should know that even in today's welfare-oriented society he cannot depend upon receiving compensation from some outside source for all of the hazards he encounters in everyday lifedeath or disability from any one of many illnesses, or from any one of a host of accident situations. Generally speaking, our society still leaves a large measure of responsibility upon the individual who does not want to bear these exposures to see to it that they are covered wholly or in part by one or more forms of sickness and accident or life insurance.

The various programs of governmental and private accident and sickness insurance and the tort liability system therefore complement each other. It is important to note that even as the tort liability system is not a “complete" compensation mechanism, neither is any one of the other systems (government or private) which offers accident benefits! However, the combined effect of all these systems is to make at least basic economic loss accident benefits applicable or readily available to the entire public, and to additionally provide a means for innocent victims of wrongdoers to obtain indemnification both for their economic losses and for their nonpecuniary or general damages.15

It is now proposed by opponents of the fault concept that as to one type of injury only-injury related to use or occupancy of an automobile we should abolish both the duty of each citizen to exercise due care to avoid injury to another, and the right of the latter if injured to sue for all elements of damage. These two concepts are to be sacrificed for and replaced by a concept which says that all persons injured in automobile accidents must be guaranteed compensation, that the wrongdoer and the wronged shall be compensated equally, and that no elements of damage shall be recognized for anyone except bare economic losses.

If the concept that each person owes a duty of due care and personal accountability for other people's safety still has validity in our society, no sound basis exists for abrogating it while people are driving a car but holding them to it in the course of their other private, everyday pursuits. Nor has anyone shown any justification for applying diametrically opposite rules of law in determining who is entitled to recover and what is to be the measure of his recovery in auto and non-auto accident cases.26

15 Some overlapping of benefits and damages from these several systems does of course exist. The insurance industry has afforded various means whereby such duplication can be reduced or minimized, through such mechanisms as "other insurance clauses", deductibles, waiting periods, exclusions, the "major medical" principle, etc.

If and to the extent the public once clearly manifests a desire to further reduce duplication of coverages there is no reason to believe that the various affected branches of the insurance industry would not willingly respond. But to date such a desire has not been clearly manifested; in fact, many people do not take advantage of all the optional deductibles and exclusions now offered to them. It is also interesting to note in this connection that in the recent comprehensive survey by the State Farm Mutual Automobile Insurance Company (whose results were presented to this Subcommittee by Mr. Thomas Morrill, Vice President, in his testimony of December 8, 1969) some 77% of the respondents believe that people who have more than one policy covering medical bills should be able to collect up to the full amount from each of them.

16 Workmen's Compensation laws provide no valid precedent for a "no-fault" system for automobile accidents, for many reasons including:

(1) The principal thrust and effect of workmen's compensation laws was to give the injured employee an absolute right of recovery of specified benefits from his employer in return for loss of what was then a nebulous, often hopelessly circumscribed right of tort recovery from the employer and a usually valueless right against a negligent fellow employee. Under the onerous circumstances then prevailing (which bear no reasonable resemblance to today's tort laws applicable to automobile acci

aps a good trade for the average worker at that time. A close, continuing relationship or privity exists between employer and employee out of which the law could justifiably erect a duty on the part of the employer to compensate every injured employee regardless of fault. On the other hand, no privity exists between each motorist and each other motorist or pedestrian he encounters.

(3) An employer is in a position to exercise control or influence over the safety of the premises and the work habits of the employees; no motorist has any control

or influence over the motorists or pedestrians he encounters. It can also be added that the operations of the workmen's compensation system today

to be such a source of widespread enthusiasm on the part of employee groups as to commend extension of that system to automobile accident cases.

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2. It is charged that the present liability system is often too slow in providing

indemnification; also, that the volume of auto accident cases unduly bur

dens our courts An investigation of the facts proves that most automobile liability claims today are settled very promptly, and without the necessity of litigation. 89% of the auto liability claims are closed within the year following the accident.

Figures supplied us by one of the largest automobile insurance companies show these elapsed periods between time of accident and final disposition of all automobile bodily injury claims arising out of a typical recent accident year:

Percent

of total Elapsed period from date of accident:

claims closed 3 months --6 months ---9 months --12 months 18 months --2 years

3 years -----A report released by the Texas Insurance Department in 1968 on a survey they conducted showed a remarkably similar time pattern of claim closures."

It is of course true that, generally speaking, the claims closed in the second and succeeding years will average larger in size than those settled during the first year. However, the experience of the large company above referred to indicates that at least 23 of the total claim dollars expended as a result of all bodily injury claims arising within a given year are paid out within one year of filing.

The reason why the larger cases take longer on an average to settle than the smaller ones is self-evident. Even some of the most severe critics of the present system have recognized that it stems from the fact that the larger cases usually involve more extensive injuries, and medical experts need time to determine their full extent and implications. Of course, under the advance payment techniques being increasingly employed by our industry, even in such situations the holder of a bona fide claim need not await final medical determinations to be collecting timely reimbursement of his economic losses. Such reimbursement is advanced promptly as the expenses are incurred, even though no adjudication of liability has been made and no final release is taken.

It is a well-known fact that today more than 94% of all automobile liability claims are settled without suit ever being filed, and two-thirds of the 6% where suit is filed are settled before going to trial. Thus, only about 2% of auto liability claims ever have to be adjudicated.

Although automobile liability cases have contributed to the court congestion problem that exists in some areas, it is not as big a factor as is sometimes assumed. Surveys in the Manhattan Borough of New York, and in the State of Connecticut have shown that fewer than one-fourth of the civil cases in the state courts are automobile liability cases, and surveys in Texas and California show much smaller percentages.

As is demonstrated in the September 1967 issue of "For The Defense," published by Defense Research Institute, copy of which is attached, serious court delay is a phenomenon of a limited number of large cities. Experts such as Professor Harry Kalven of the University of Chicago have indicated that the court congestion problem is readily soluble by 'steps other than elimination of the fault liability system. Such steps include (1) an increase in the relatively modest number of hours now being put in by most judges on the bench, (2) moro

17 The Texas study showed these elapsed periods and percentages of claim closurer:

Percent of Elapsed period from date of accident :

closures 3 months or less.-

63, 3 6 months or less

77.5 9 months or less.---

--- 83. 8 12 months or less--

89.4 18 months or less_

94.0 2 years or less-

96.8 3 years or less.---

-- 99.1 Study, dated Jan. 30,1968, by Texas Insurance Department and Sammy D. Sapp, Rate Actuary.

efficient scheduling of cases, (3) elimination of repeated continuances, (4) additional incentives for pretrial settlements, and (5) a system of mandatory arbitration of small cases such as has been in successful operation in Pennsylvania for many years. 3. It has been charged that it is difficult or impossible to determine who is really

at fault in most auto accidents today Experienced trial lawyers and insurance claims people know this charge to be unfounded. Its falsity was demonstrated in a survey made in 1967 by Liberty Mutual and described in the enclosed article from the October/November issue of Trial Magazine. From a review of over 450 fairly serious cases plus interviews with seasoned claimsmen they found that their claims people were able on the basis either of the accident report or the initial investigation to make clear-cut determinations of fault, and liability or non-liability, in over 90% of the cases !

Highly significant, too, is a recent poll by the Minnesota Bar Association of over 3,000 persons who had just completed jury duty. Out of the 2,000 who returned the questionnaires, the vote was two to one in favor of retention of the fault system for auto accidents! If these citizens who had just seen the system in operation felt that it was not capable of making fair determinations of fault, would they have overwhelmingly voted in favor of its retention?

Further support for the ability of the present system to resolve the fault issue (as well as other issues such as damages) is to be found in the fact that, as already pointed out about 98% of all automobile accident liability claims are settled without the necessity of adjudication of the issue of who was at fault. 4. It is contended that the present automobile accident reparations system is

expensive and inefficient Those who make this charge usually base it upon comparisons between the "costs of delivering benefits" under the present automobile accident reparations system and the costs under other reparations systems. A recent example of this approach is the chart prepared by your Subcommittee's staff and placed in the record at the hearing on November 24, 1969, captioned "Comparison of Private Insurance Systems Costs of Delivering $100 of Benefits."

The primary source of the figures therein set forth appears to be data developed in the Michigan survey conducted early in the 1960s under the supervision of Professor Alfred Conard and originally reported in "Automobile Accident Costs and Payments—Studies in the Economics of Injury Reparations” published in 1964.14 These important facts should be noted before any hard conclusions are drawn from the "comparisons" of different reparations systems developed by Conard and picked up in the November 24 charts prepared by your Subcommittee staff :

First, the basic data in the Conard study is now more than 10 years old 19 and therefore does not reflect impact of the advance payment system (discussed below) which is delivering many millions of dollars to injured parties on an accelerated, simplified and economical basis that minimizes legal and litigation expenses.

Secondly, Professor Conard and his associates very carefully cautioned readers of their report that the figures shown for the tort liability system versus workmen's compensation, and group A&H, should not be taken or used as a basis for comparing the "relative efficiency" of the systems; they pointed out that "the various systems perform quite different functions, so their expense rates are not really comparable." 20

The attempt in the November 24 chart to make an unqualified “comparison" of the three systems in terms of "benefits paid" flies in the face of this admonition. The purpose of the workmen's compensation system is simple: to automatically pay fixed “benefits" regardless of fault to each person suffering injury or disease arising within the scope of employment. Likewise, group A & H

18 University of Michigan Press, 1964.

19 The Conard Study used Michigan accident data for the year 1958 (and in some instances earlier years) as its basic source data.

20 The entire cautionary comment (note 17 supra, p. 60) reads: "In interpreting Table 1-4 and Figure 1-1. readers should remind themselves of its limited signification. It is not a representation of the relative importance of the various systems to all injury victims. On the contrary, it is a presentation of the relative importance of the various systems which may aid victims of all types of injury and illness, including those which cause death. Neither is it a comparison of relative efficiency, since the various systems perform quite different functions, so that their expense rates are not really comparable. What the figures show is the relative magnitudes of principal reparation systems, whether measured by total costs or by net benefits."

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