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If the immunities and the Guest Acts are abolished, then in just about every case the injured passenger will have a right of recovery against either his own driver, or the other driver, or both. This is as it should be. The injured passenger is usually an innocent victim of someone else's faulty driving.
The only remaining class of injured persons will be drivers. The adoption of comparative negligence rules will permit many drivers to recover who are now excluded by the tough contributory negligence doctrine.
Those drivers who are chiefly to blame for the collision will be denied recovery under the tort system, which A.T.L. believes is fair enough.
They may still protect themselves under existing Blue Cross, Blue Shield, Medical Pay, and other first party insurance systems. The overwhelming majority do. (Estimates vary, but run as high as 87%.) A.T.L. believes that Medical Pay coverage should be mandatory with every casualty policy, to be rejected only in writing, and with whatever limits the car owner is willing to purchase. This would be a stopgap measure, until a true national health plan comes into being.
If the driver is a wage earner, his income loss during his period of disability may impose some hardship upon himself and his dependents. The hardship would be the same regardless what kind of accident caused the disability.
A good solution to this problem has already been found by several states, who have enacted Temporary Disability Plans as an adjunct to their workmen's Compensation systems. Every employed worker pays a weekly premium, matched by the employer, which creates a fund sufficient to pay a weekly benefit for any disability caused by accident or illness outside the employment. The benefits continue for up to six months, at which time Social Security benefits will take over. The premium cost is modest (about 30€ per week) and the benefits are enough to prevent real privation ($70.00 per week in California).
The individual may, of course, supplement these benefits with sick leave or disability benefit provisions in his wage contract, or with private health and accident insurance. A.T.L. approves such Temporary Disability Plans and recommends them on either a state or national basis.
Such plans are wholly consistent with A.T.L.'s position that all compulsory Social Security plans should be government-imposed, government-taxed, and government-administered.
INSURANCE COMPANY INSOLVENCY Whenever a casualty insurance company fails, the persons insured will find themselves with no one to pay the cost of adjusting and defending the claims outstanding, and no one to pay the judgment.
Many of the victims wronged by the insured drivers will suddenly find the driver both uninsured and uncollectible. A partial answer to the problem is to make insured motorist coverage apply not only to the motorist uninsured at the time of the accident, but also to the motorist who is insured in a company which becomes insolvent before the judgment is collected.
The unsolved problem concerns the motorist who carries an uninsured motorist rider with his own coverage, and then finds that his own carrier has failed. His protection against the other driver's insurance company's insolvency will not protect him at all against his own carrier's bankruptcy.
The same solution which guarantees a bank depositor against the failure of his own bank can be adapted to protect the insured motorist against the failure of his own insurance carrier. ATL supports the bill, S. 2236, creating a Federal Insurance Guaranty Corporation.
There is considerable talk about the desirability of “competitive" rating systems in the casualty field. If there ever develops any true competition between the major insurance companies, then it seems inevitable that the weaker, less efficient companies must face losses and may well fail before they can withdraw from the competitive field. It seems unthinkable to propose competitive rating systems without at the same time protecting the consumer from the occasional failure that is seemingly the inevitable concomitant of competition.
THE INSURANCE INDUSTRY
The McCarran-Ferguson Act generally exempts the insurance industry from federal regulation. ATL believes certain changes in present practice are required by the public interest. In general, we believe that rates and rate making are complex local problems best left to state regulation; but that the states must affirmatively regulate maximums to protect the consumer. Competition should be allowed to drive rates below the maximums. A sound approach is the one already taken by the Motor Vehicle Safety Act whereby the Department of Transportation establishes minimum standards for motor vehicle registration and inspection, driver licensing, traffic control devices, highway design, construction and maintenance, and related subjects—but permits each state to enact its own detailed requirements under threat of withdrawal of federal highway fund aid unless the federal minimums are met or exceeded.
On the other hand, certain underwriting practices pose national problems which are not affected by any local complexities. They are properly subject to federal regulation, and reasonable minimum underwriting standards should be established and enforced countrywide. Each state should, however, retain the right to set higher standards for the protection of its own citizens. A. Underwriting practices
ATL recognizes and endorses the right of every person to have and retain a casualty insurance policy at fair, equitable and standard rates if he qualifies as a fit person to operate a motor vehicle under the standards issued on June 27, 1967, by the Secretary of Transportation, House Document No. 138 under the authority of Section 203 of Title II of the Highway Safety Act of 1966.
We believe that the insurance industry has a duty to provide this insurance to every such person for whatever maximum limits he chooses. Discriminatory practices relating to racial, occupational and economic classes must be eliminated. B. Cancellations and renewals
Arbitrary cancellation practices give the public just cause for complaint. A driver with a spotless operating record may have his policy cancelled if, without his fault, someone else carelessly hits his parked car twice within the same year. Unjustified cancellations not only deny the motorist the right to continue his insurance in the company of his choice, but often make it impossible for him to obtain insurance at standard rates from any other company.
ATL believes that a proper solution is the establishment of rigorous standards for cancellation. Every policy should be sold for a fixed span of years. The Allstate plan of a five-year non-cancelable policy is commended. During the fixed span, the policy should be subject to cancellation only if the driver is convicted of a major, moving traffic offense such as driving while under the influence of alcohol or narcotics, or has his license suspended under appropriate state regulation. Every policy should be automatically renewable, except for similar extraordinary cause. C. Rating practices
Rating is largely a local or state problem. This is particularly true if the rates are to be standardized in each area or state. For these reasons, we believe that the setting of maximum rates should be accomplished by the states. However, viable insurance departments and rate-making authorities should adopt procedures, including public hearings, to see that the public is protected against unjustified increases. Prior to any increase, the burden of justifying that increase should rest on the insurer seeking it. Rate-making authority must be manned and supervised by the state department responsible for finalizing the rates. Such department should be adequately financed to enable it to obtain the assistance of qualified personnel and should have subpoena powers.
Rates should be based on much broader and more uniform classes than now prevail. Some companies have hundreds of different categories. The broad classification based on whether primary use is rural or urban, and whether the primary driver is under legal age may be justified on an actuarial basis. Beyond these few broad categories any fit person should be able to buy a policy at a standard rate.
Preferential rating, giving rebates to drivers with an unblemished record, encourages careful driving and should be approved. D. Assigned risk
There have been many abuses in assigned risk cases. People who have had a single accident or who have minor motor vehicles records, or who are of a certain color or status have been arbitrarily declared "assigned risks.” The assigned risk plan should be applied only to major motor vehicle violators. A point system for traffic violations will justify the assigned risk rating. The principle of guilt by association does not.
The serious problem of insurance company insolvencies would be solved by S. 2236, The Federal Insurance Guaranty Corporation, which ATL supports. F. Uninsured Motorist
Uninsured motorist coverage should be a mandatory provision of every casualty policy sold. Such coverage shall apply where the opposing driver is uninsured, or inadequately insured; his company is, or becomes, insolvent; his company has denied coverage; or his coverage is less than the minimum coverage of the financial responsibility law of the state in which the policy was issued.
Uninsured motorists coverage should not be set at arbitrary limits. The coverage should be made available up to the limits on the primary policy to which it attaches, in which case it would be excess over the other driver's coverage. At the very least it should be sold at the minimum limits of the financial responsibility law in the state. G. Medical Pay
ATL believes that the medical pay endorsement should be a mandatory offer, to be deleted only upon the written direction of the purchaser. Present limits do not accord with the reality of hospital and surgical costs. Higher limits, at appropriate rates for the excess, should be offered.
The glaring weakness of present medical pay practice is the withholding of any reimbursement until all bills are in, or until the limit is reached, or until a full year has expired. The medical payments should be made on a current monthly basis as the medical costs are incurred. H. Excess Coverage
ATL sees no justification for the practice of limiting the coverage which certain classes of customers are permitted to buy. Even the assigned risk driver should be allowed to purchase excess coverage at appropriate rates if he desires to do so. Every agent of every company should be required to make the offer of a full range of coverage at appropriate rates. 1. Cost
ATL does not oppose legitimate increases in rates that are justified by increasing medical costs, wage rates, and repair costs. It will fight unjustified increases based on dishonest propaganda that increased rates are caused by "high" jury verdicts, the contingent fee, and flamboyant trial tactics.
We believe that in setting rates, the accounting practices of insurance companies, particularly as they relate to income from the investment of pre-paid premiums and reserves, should be taken into consideration. On the other hand, the ATL recognizes basically that the American System of free enterprise presupposes a fair profit in return for risk investment of capital. J. Limits
We note that our neighboring Province of Ontario, after a massive study of the automobile insurance problem, recommended that the statutory minimum limits of insurance, and the maximum payments from its Unsatisfied Judgements Fund, should be increased to $20,000 for one person, $40,000 for two or more, and $5,000 for property damage. The Legislature adopted the spirit of the proposal, but modified it to provide for an all inclusive limit of $35,000 regardless of the number of persons or extent of property damage. The minimum was raised in September, 1969 to $50,000. The study committee, in its final report, said: "Ontario people now have considerably more protection than can be found in any other jurisdiction in North America."
ATL does not understand why the citizens of the United States should be denied equivalent protection. We recommend, as highly desirable, the English system in which all insurance is without any upper limit. The actuarial cost is slight. It gives protection against the rare economic disaster of overwhelming injury. It protects those most unfortunate victims who are now, according to · Professor Conard's studies, the least protected and most abused by our present system.
At the very least, minimum limits in every state should be raised to an all inclusive limit of $25,000. K. Compulsory or not
Compulsory insurance has theoretical appeal. In practice, it would appear that political pressures to provide coverage for all drivers at a flat rate drive up rates to uneconomical levels. In actual practice, the experience with financial
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responsibility laws has been good. Although these laws penalize the driver only if, after the accident, it is found that he has no insurance, nevertheless they have produced enough pressure to lead almost all drivers to purchase insurance protection. Rates in financial responsibility states have been significantly better than rates in compulsory insurance states.
ATL favors the financial responsibility approach rather than the compulsory approach, with the essential provision that every driver who purchases protection for others has the right to purchase uninsured motorist coverage to protect himself; and that the law is strictly enforced. L. Advance payments
Voluntary plans to advance payments, to absorb medical costs as they accrue, and to furnish rehabilitation facilities are in the public interest and are approved. The companies which have pioneered in such plans are to be commended.
But, they should not be used as a device to deny the victim his full recovery under traditional tort law, and ATL will trust the insurance industry to use the advance payment practice to promote, rather than abuse, the public good. It has come to our notice that certain companies now offer advance payments only until the injured person has obtained the services of counsel, and then cut off the payments. The use of advance payments only as a pressure device to control claimants and keep them from obtaining competent legal advice is a clear abuse of the practice which should be discontinued if the industry is truly responsive to the public welfare.
FEBRUARY 6, 1970. AMERICAN TRIAL LAWYERS ASSOCIATION, Cambridge, Mass. (Attention Mr. Craig Spangenberg).
GENTLEMEN: Thank you for submitting your prepared statement for the hearing record. In view of the fact that the subcommittee was unabe to ask you questions, we would be grateful if you would furnish the following information for the hearing record :
1. Would you please explain why auto insurance based on a tort liability system should be the primary source of indemnity for auto accident injuries?
2. Do you consider the auto liability insurance premium to be in the nature of a tax on motoring?
3. Do you believe that if auto accident prevention was considered apart from the auto reparation process, society could concentrate its efforts and resources more efficiently and effectively on each of these issues?
4. According to Professor Robert Keeton of Harvard Law School, the following portions of each premium dollar collected for private passenger auto bodily injury liability insurance is paid net to accident victims :
(a) 14.54 for out-of-pocket losses not already compensated from other sources, (b) 8¢ for losses also compensated from other sources, and
(c) 21.5¢ paid in excess of actual loss (in theory for general damages, such as, “pain and suffering”).
We would welcome any comments you would care to make. (The enclosed hearing record at pp. 38–42 contains his complete analysis.)
What would your Association recommend to correct (a) the disparity between auto bodily injury insurance benefits and costs, (b) the overlapping of these benefits and (c) payments in excess of actual loss?
5. Do you have any studies, or information, showing that the consumer is aware auto liability insurance is something he is expected or compelled to buy for the benefit of the other party who may become involved in an accident with him?
6. In table 1 enclosed, you will note that the subcommittee staff estimates claimants' attorneys have received $5 billion in fees over the period, 1959-1968, $4.5 billion of which is attributed to auto liability claims.
Assuming that these figures are approximately correct, what would you suggest to reduce this portion of the cost of maintaining the present third party auto liability insurance system?
7. Since you advocate retention of the fault system to compensate auto accident victims, do you likewise favor the determination of the insurance companies' contractual obligation upon the occurrence of the accident so as not to deprive the victim of compensation by reason of policy defenses?
In short, do you believe that auto liability insurance policies should be similar in nature to certified policies under present financial responsibility laws which prohibit the assertion of policy defenses upon the occurrence of an accident?
8. (a) Do you have any opinion on whether or not the criminal law is, or can be made, adequate enough in itself to prevent highway accidents?
(b) Can traffic fines, license suspensions and serious criminal penalties enforced on a state-by-state basis realistically achieve a reduction in highway accidents ?
9. What effect, if any, do you believe a system of tort fines (e.g., as proposed by Professor Albert Ehrenzweig) would have on driver bevhaior?
10. Do you believe it would be impracticable if there was a no-fault, first party system for auto accident injuries, to devise a rating plan under which those who caused the most accidents contributed most to the common fund for distributing loss while those who caused the fewest contributed less toward such fund?
11. On page 3 of your statement, it is stated: “There is reason to doubt whether the automobile injury problem is so distinctive it must be treated differently from all other injuries."
(a) Would you agree that the most distinctive treatment accorded the automobile injury problem relates to the compulsory liability insurance or financial responsibility laws which actually or virtually require every auto owner to cover himself with liability insurance without respect to its availability in the voluntary market and without respect to its cost?
(6) Is it possible to eliminate compulsory liability insurance and financial responsibility laws without sacrificing the fault principle?
(c) Do you believe that the elimination of the artificial demand created by compulsory insurance and financial responsibility laws might tend to reduce the price for liability insurance ?
12. It is our understanding that the original concept of the safety responsibility laws was that only those who were convicted for serious traffic infractions or unpaid judgments should be legally compelled to procure insurance.
Do you think that this concept should be restored?
13. In addition to the methods of reducing insurance premiums outlined on page 3 of your statement, testimony before this subcommittee revealed that premiums could be lowered by reducing marketing costs, but some 36 states have laws and regulations prohibiting or restricting group property and liability insurance.
(a) Should these laws and regulations be repealed in order to allow group programs to compete with individually sold policies?
(6) If you feel these laws and regulations should be repealed, could this be achieved realistically on a state-by-state basis?
14. During the course of our investigation we learned of a taxicab driver, who in the course of his employment, drove negligently through a red light and hit another vehicle. His passengers and he suffered serious injuries.
Do you consider that it is fair and just that the only person involved who had his hospital and medical expenses, loss of earnings compensation and residual disability paid immediately following the accident was the negligent cab driver, particularly when a portion of the fare paid by the injured passengers contributes to the cost of the workmen's compensation covering the driver?
15. It is our understanding that one of the most noteworthy developments in recent years in the products liability field is the movement toward strict liability of the manufacturer or seller of a defective product which does harm to its buyer, user, or a bystander. This movement seems to be predicated upon the proposition that the cost of the harm done should be shifted to the industry and be reflected in the price of the product.
(a) Do you believe that holding the manufacturer or seller liable even though he was not actually negligent or guilty of any misconduct offends the American public's "moral sense of what is "fair and just"?
(6) To the extent that small manufacturers or sellers are not eligible for individual risk rating plans which establish their insurance premiums solely or primarily upon their own losses, please explain what, if any, deterrence value the strict liability principle has?
(c) Does your Association oppose the trend toward strict liability in the products liability field?
16. (a) In those jurisdictions where uninsured motorist coverage is not mandatory, or where it may be and has been rejected by the named insured, is it possible that the innocent victim of a negligent driver may receive no compensation because such driver was uninsured?
(6) Do you feel that the ability of the injured party to obtain a judgment against the wrongdoer outweighs the fact that the injured party solely will bear the economic loss?