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1 Total is less than the sum of the classes because the classes are not mutually exclusive.



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In the application of these cross-section survey data to the estimates of lifetime earnings, the assumption is that the future pattern of earnings for an average individual will remain the same as that reported for the base year. This model recognizes that the average individual may expect his own earnings to rise as he ages and gains experience in accordance with the cross-section data for the base year.

2. The Discount Factor The value of money changes with time so that in order to calculate the present monetary value of man, his future expected earnings must be converted to their worth today. Banks and Kotz state that "a given sum is normally worth more today than an equal sum at some future date, because the money (or resources) can be profitably invested (or consumed) in the interval between today and the future. Interest is the premium paid to reflect the fact that any given sum or resources could be put to profitable uses over a period of time. . . . It follows that the value of money which is not currently available, but which will become available (or spent) some years hence must be discounted for the interest which could be earned in the interim, which is why the present value of a dollar to be received in the future is always less than 100 cents." 1 The selection of the discount rate is most important since its effect is considerable. The higher the discount rate, the lower the present value of future earnings. With a high rate of discount, earnings far in the future yield only a small present value. Conversely, lowering the discount rate increases the present value of these earnings far in the future.

The Bureau of the Budget recently issued a directive that the appropriate discount rate to be used by Government agencies in evaluating deferred costs and benefits is 10 percent.” While future earnings must be discounted to reflect lost interest, average annual earnings must be increased to reflect gains in productivity. The discount rate, rather than the earnings, can be adjusted for expected changes in productivity. An increase in productivity of 1.75 percent a year can be incorporated into the discounting calculations to obtain a net effective rate of 8 percent (1.10/1.0175=1.08). An assumption of 3.0 percent annual increase in productivity yields a net discount rate of 6 percent (1.10/1.03=1.06). These two rates of increase in productivity are commonly employed today and thus both discount rates-6 percent and 8 percent-were used here.

3. Allowance for Consumption In measurement of losses to an individual family, as calculated by insurance companies, consumption is treated as a deduction from a person's contribution to output. However, in measurement of losses to society, as calculated here, consumption is viewed as an end in itself and therefore not deducted from lost earnings.

4. Housewives' Services Housewives' services are estimated at the mean earnings of a domestic servant. After adjustment for wage supplements, the figure amounted to $2,767 in 1964 and $3,390 in 1968.

To omit the value of the services of housewives would be to seriously underestimate the value of lifetime earnings of females, owing to the fact that a relatively high proportion of females are not in the labor market. As the purpose of estimates of future lifetime earnings is to apply them to the number of deaths, it is necessary to impute a value to the service of the housewive to permit comparisons between the sexes.

5. Deaths Due to Accidents Provisional statistics reported by the National Center for Health Statistics indicate the following number of deaths from all causes and from accidents in 1968:

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Source: National Center for Health Statistics, Annual Summary for the United States, 1968: "Births, Deaths, Marriages, and Divorces," Monthly Vital Statistics, Report vol. 17, No. 13, Aug. 15, 1969.

1 Banks, Robert L., and Kotz, Arnold, The Program Budget and Interest Rate for Public Investment. Public Administration Rev. XXVI: 283-292, 4 (Dec.). 1966.

? Bureau of Budget Circular No. A-94, June 26, 1969.

The distribution by age and sex of the number of deaths due to accidents in 1968 were estimated from 1967 data, as reported in Vital Statistics of the United States, 1967, Volume II, Section 4, National Center for Health Statistics.

The number of deaths due to motor vehicle and home accidents are reported in considerable detail by the National Center for Health Statistics. The number of deaths resulting from accidents at work, however, are not available from this source. This estimate, therefore, was derived from the data reported by the National Safety Council in "Accident Facts," 1969 Edition, p. 5.

The lifetime earnings were applied to the estimated number of deaths in 1968 by sex, age, and class of accident to obtain the mortality costs due to accidents. Table G presents the number of deaths and the earnings losses, discounted at 6 percent and 8 percent.



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Discounted earnings at 6 percent (millions)
$6,812.8 $4,010.0 $1, 121.6 $1,001.5

1, 756.0 1,023.8 195.2 291.6
3, 463.4 2, 258.6 616.2 342.2
1, 274.9 619.9 292.9 258.3
318.6 107.7

17.3 109.5
5, 606.4 3,313.3 1,094.9 702.6
1,431.8 826.0 181.7 217.1
3, 044.5 1, 965.2 609.3 270.8

995.7 470.1 288.0 177.0
134.3 52.0


37.8 1, 206.4 696.7

26.7 298.9 324.2 197.8


74.5 418.8 293.4


71.4 279.2 149.8


55. 7


71. 7

245.4 246.4 103.9

84,1 495.5 207.0 199.3 60.6 28.5 1841 38.3

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Discounted earnings at 8 percent (millions)
$5, 436.0 $3, 192.1 $918.2 $790.9
1,210.5 725.6 135.5 182.3
2, 807.8 1, 822.2 506.0 280.2
1, 125. 1 546.0 260.8 227.4

15.8 100.9
4,473.4 2, 640.1 898.1 551. 7
585. 3

126.4 136.0
2, 473.6 1,588.8 500.5 222.8

887.1 418.4 256.7 158.0
123.3 47.6


34,8 962.6 552.0

20.0 239.2 221.1 140.4

9.1 334.2 233.4




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1 Includes deaths with age unknown.


(O'Connell is a Professor of Law at the University of Illinois, specializing in the law of automobile accidents. With Arthur Myers, a former reporter on the Washington Post, he has written "Safety Last-An Indictment of the Auto Industry” published by Random House in 1966. With Professor Robert E. Keeton of the Harvard Law School, he has written “Basic Protection for the Traffic Victim," published by Little, Brown in 1966, and "After Cars Crash: The Need for Legal and Insurance Reform," published by Dow Jones-Irwin in 1967, a book explaining their Basic Protection automobile insurance plan for the general reader. Also with Professor Keeton, he has contributed to and edited “Crisis in Car Insurance," published in 1968 by the University of Illinois Press (Keeton, O'Connell & McCord, editors). In addition, he is the co-author (with Wallace Wilson) of “Car Insurance and Consumer Desires," published in 1969 by the University of Illinois Press.

(Prior to his post at Illinois, O'Connell practiced law in Boston as a trial lawyer. He has taught at the Iowa, Northwestern and Michigan law schools, and served as Associate Director of the Automobile Claims Study at the Harvard Law School. O'Connell holds a Presidential appointment as a member of the Na tional Highway Safety Advisory Committee.)

I. THE PRESENT SYSTEM Complaints about the present automobile claims system abound-and have since at least the early 1930's. Several areas have aroused particularly strong criticism. A. The Adversary System and Proof of Fault

First, because the system is dependent on a victim proving a driver (usually of the other car) at fault and himself free from fault, the frustrations in getting paid can be enormous. One is not dealing with one's own insurance company but rather with an adversary company whose ideal disposal of the case is "claim denied." Thus one insurance executive at a conference held at the University of Illinois in October, 1967, stated "the defendant's insurance company is a stranger, hostile to the injured plaintiff. This stirs the fighting spirit and increases the likelihood of litigation."

Obviously, too, it is often difficult to tell just what caused the traffic accident and difficulties in re-creating the incident (especially to arrange the re-creation so that you, as the victim, are free from fault and the other party at fault) can be prodigious. It is not uncommon for a lawyer to begin a conference with a claimant with words such as "Now before we go into the details of the accident, let me tell you that if you were speeding or in any way at fault in the accident you won't be paid anything. Now tell me, were you speeding or in any way at fault?” What emerges, of course, is not so much "the truth, the whole truth and nothing but the truth" but half truths, misrepresentation and, indeed, even outright perjury. B. Pricing Pain and Suffering

The next difficulty in settling a negligence claim is placing monetary value on pain and suffering since the claimant is entitled to payment for pain and suffering in addition to his monetary loss (such as for medical bills and lost wages). Value is defined as what a willing buyer will pay to a willing seller, neither under any pressure to transact. But what is the "value" of pain and suffering? The answer is, of course, that there is no "market" for pain and suffering. It is not for sale. Thus value must be placed on an item that has no true value. Without a clear reference point, the opportunities for squabbling are limitless. When both plaintiffs' and defendants' lawyers were asked to name the principal sources of controversy in settling automobile accident cases they agreed—with remarkable statistical accord—that the issues of who is at fault and the value of pain and suffering led all others, including medical prognosis. C. Delay

Given such a complicated insured event-with so much opportunity for disagreement-perhaps it should not surprise us that another criticism leveled at the tort liability system for handling automobile accidents is the delay in disposition of claims. A survey of automobile accident payments conducted in Michigan by Professors Alfred Conard, James Morgan and their colleagues

found that among cases reaching the courts, cases with small losses (under $1,000) were settled most promptly; but only a quarter of them were settled within a year, and almost three-quarters only within two years. In the next larger bracket ($1,000 to $5,000), the proportion settled within a year dipped to a fifth and the fraction settled within two years dipped to about half. In the large loss category ($5,000 to $25,000), less than a tenth were disposed of within a year and only about a third within two years.

The Michigan study also found out—not surprisingly—that many traffic victims forced to wait for long periods before payment of wage loss and medical bills "suffer deprivations pending settlement." According to Professor Conard:

“[I]f the injury victim has been lucky enough to receive medical and hospital treatment, and to eat, and keep a roof over his head during the intervening year or two [between accident and payment], it is certainly not because of the tort payment. The tragic fact is that people often fail to get the medical care which they should get, they fail to get the food and shelter which they should get, and they suffer both materially, and physically in a heartrending way in the long period while they wait for tort reparation.”

The delay in trials of personal injury suits (of which auto accidents cases predominate) ) is well known. The average delay in counties of over 750,000 for personal injury jury trials in the United States as reported in 1968 was 30.4 months, with a high of 65.2 months in Chicago. (If one is in a traffic accident in a large American city, he had better hire a young lawyer. D. Court Congestion

The contribution of auto accident cases to court congestion has also long been known. Auto cases often constitute from a third to two-thirds of a typical civil jury docket, particularly in urban areas.

Opponents of fundamental reform of automobile insurance including lawyers and those in the insurance industry-often cite figures from Chief Judge Joseph G. Tauro of the Massachusetts Superior Court (the trial court of general jurisdiction) that in a recent year (1966) only 35 percent of judicial time was spent on all civil matters, with only 13 percent being spent on motor vehicle tort cases. But these very figures prove that at least 37 percent of judges' time spent on civil matters is spent on motor vehicle tort cases. And perusal of Massachusetts court records reveals that 56 percent of the civil jury cases tried in Massachusetts are auto cases. (It is common knowledge that jury cases take longer to try than others.) The Michigan study also found that in Michigan “automobile injury cases constituted a whopping 56 percent of (civil) ... jury trials." Massachusetts court records also reveal that just under two-thirds ( 65 percent) of the jury cases pending in the Superior Court as "undisposed of on June 30, 1968 were motor vehicle tort cases. Indeed in rebuttal to Judge Tauro's contention that motor vehicle cases do not substantially contribute to court congestion, the tenth annual report (1966) of the Executive Secretary to the Justices of the Supreme Judicial Court of Massachusetts stated :

"An analysis of all of the many causes of delay in court is beyond the scope of this report, but it is clear that among the chief villians are the automobile and the negligence theory of liability for compensation of its victims." E. Underpayment, Overpayment, Lack of Payment

Not only must victims wait many months or even years for payment from tort liability insurance but many are not paid at all. The Michigan study, for example, shows that almost half (45%) of those seriously injured received nothing from tort liability insurance. In adition, of the 86,120 persons suffering economic loss in one year in Michigan from automobile accidents involving personal injury, only 37 percent received payment under a tort claim.

In addition to the number not being paid at all or paid only after long delay, there is the problem of misallocation of what is paid. Empirical studies confirm that the relatively trivially injured person, when he is paid, is likely to receive many times his out-of-pocket loss, whereas the seriously injured victim is unlikely to receive even the value of his out-of-pocket loss. Thus, a recent study by the American Insurance Association shows that when out-of-pocket loss was under $100, the average total settlement in auto cases where a lawyer was retained was over seven times the out-of-pocket loss. In cases where the out-ofpocket loss was $100 to $200, the average tort settlement was about five times (4.48) out-of-pocket loss. And the ratio of total settlement to out-of-pocket loss "becomes smaller still as the amount of economic loss increases." The Michigan

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