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study, too, confirmed the likelihood of the smaller case being relatively generously paid, when payment is made, compared to the larger case. Speaking of tort settlement, 64 percent of those who had losses of under $1,000 got 151 percent or more of their out-of-pocket loss, and another 28 percent received between 76 and 150 percent of their out-of-pocket loss. But for cases of more than $5,000 of loss only three percent received 151 percent or more of their out-of-pocket loss and only 11 percent received from 76 to 150 percent of their out-of-pocket loss.
The relatively generous treatment of the smaller claim is a function of its nuisance value. In other words, insurers are often tempted to pay off a smaller claim because it costs more to fight it than to pay even an inflated value for it. On the other hand, an insurance company, naturally enough, stands ready to battle over paying a substantial claim-especially when the company's coffers have been badly depleted by payment of so many small claims. F. Waste
Another feature of the tort liability system for payment of traffic claims which has been the subject of attack has been its waste. Professors Conard, Morgan and their colleagues in their Michigan study cite figures that indicate that of every one dollar paid into the current system by insurance policyholders and taxpayers, only 44 cents reaches the pocket of traffic victims, with the remainder being chewed up in insurance expenses, claimants' collection expenses (mostly legal fees) and court costs (one cent). Recently Professor Robert E. Keeton of the Harvard Law School, using somewhat different calculations, has also estimated that only about 44 cents of the premium dollar reaches the pocket of claimants, after deducting insurance expenses and the clamiant's own collection expenses. Professor Keeton has gone further and has stated that the 44 cents is made up of 8 cents which pays for losses already paid from other sources such as Blue Cross or sick leave, and 2242 cents which pays for losses above out-of-pocket loss (theoretically for pain and suffering but often actually for the nuisance value of the claim), leaving only 1442 cents paid for out-of-pocket losses not already compensated from other sources. And yet this last item, i.e., out-of-pocket losses not already compensated from other sources, is the essential loss that insurance ought primarily to cover and the item that most people probably have in mind when they buy insurance. They would be shocked when told how little of their premium goes for such compensation. G. High Cost
Perhaps the primary complaint about automobile insurance in recent years has been its high cost. Some comments from the public in a recent University of Illinois survey are illustrative.
“The premiums are too high. It is ridiculous what one has to pay for present day [automobile] insurance."
"The rates are too high and going higher.”
Insurance men and lawyers often decry such complaints about high cost on the grounds that any rise in automobile insurance costs is explained by the fact that such costs only reflect the fast rising items which automobile insurance pays for-namely medical costs, lost wages, automobile repair costs, etc. Even granting this premise, the fact that automobile insurance is tied to some of the fastest rising items in the economy is all the more reason (1) to be concerned about its waste and (2) to search to find ways to cut its costs, if at all feasible. This is all the more essential when it is recalled that automobile insurance is such a widespread and essential item that rises in its costs affect so many.
II. A PROPOSED REFORM Under the Basic Protection Plan, proposed by Professor Robert Keeton of the Harvard Law School and myself, a traffic victim will be reimbursed by his own insurance company for his out-of-pocket loss regardless of whether anyone was at fault in the accident. Once an accident occurs, a traffic victim will be automatically paid by his own insurer-or his host's company if he was a guest in the car, or by the insurance on the car that hit him if he was a pedestrian-for his medical expenses and wage loss up to $10,000 of loss, the limit presently applicable in most states under negligence liability insurance. (No payment will be made, however, to anyone who intentionally injures himself in a traffic accident.)
Along with payment by an insurance company to its own insureds for out-ofpocket loss without regard to fault, the Basic Protection Plan provides by law that all those insured under Basic Protection will be exempt from civil (but not criminal) liability for negligent driving in the same range of coverage provided by Basic Protection Insurance. This means that whereas today every state requires in one form or another that each driver be insured for the damage he negligently causes to another, under the Basic Protection Plan each driver will be insured automatically for whatever damage he suffers.
The essential feature of the Basic Protection Plan, then, is replacing the fault system in the great mass of smaller and medium size cases—those cases where the "nuisance" value of claims and therefore the waste tends to be greatest-with much simpler insurance whereby an insurer only has to determine (1) whether there was an accident and (2) the amount of the out-of-pocket loss. These are the kinds of determinations that must be made today under most health and accident insurance claims, under which, compared to liability insurance, there is very little dispute or litigation. Indeed, this is the kind of criterion for payment used under so-called medical payments coverage the supplementary non-fault insurance under the present automobile policy-which also leads to negligible dispute or litigation compared to liability coverage.
A few additional points will help to explain the practical operation of the Basic Protection plan.
Basic Protection benefits will not duplicate benefits from other sources such as sick leave, Blue Cross, or accident and health insurance. As a result, to the extent that loss is covered by other insurance, Basic Protection benefits will not be paid. This will inevitably mean, incidentally, that for the first time automobile insurance rates will reflect one's other available insurance so that the person with a good accident and health program, for example, will pay less for his automobile insurance. Note too that the $10,000 limit of Basic Protection coverage will mean that all insureds will get valuable coverage that will pay them for $10,000 of any loss not covered by other insurance.
Basic Protection benefits are payable month by month as losses accrue and not in lump sum as are damages in a negligence suit.
Although Basic Protection insurance is limited to out-of-pocket loss and does not cover pain and suffering, a policyholder may, if he wishes, purchase optional "Added Protection" coverage which reimburses him for his pain and inconvenience arising out of an automobile accident. Similarly, although Basic Protection insurance covers only $10,000 of loss, a policyholder may, if he wishes, purchase additional optional Added Protection called “Catastrophe Protection", which provides payment up to $100,000 in addition to Basic Protection Benefits.
A Basic Protection insurance policy-like the present automobile insurance policy—will be issued to the owner to cover a vehicle described in the policy. The Basic Protection coverage will be marketed in the same way and through the same source as present automobile insurance, including the insurance companies and agents currently writing automobile insurance.
The Basic Protection Plan, according to independent actuarial studies for an eastern state-New York—and a midwestern state-Michigan-would pay from about one and one-quarter to one and one-half as many people as are paid under present liability insurance and, at the same time, would cut automobile insurance costs-as conservatively estimated-by about 25 percent. In other words, many more people would be paid at substantially less cost. It is also significant to note that despite their extensive examination of these actuarial studies, no casualty insurance company actuaries have publicly challenged the prediction of substantial savings in automobile insurance under the Basic Protection plan
The essence of the Basic Protection Plan is, as I have emphasized, a simplification of the insured event to make payment of automobile accident insurance expeditions, widespread and fair. Keep in mind that one is really barred from arguing that present automobile insurance encourages such payment. Lawyers charge a third or more of what is paid to a traffic victim and insist that they earn it. I am willing to assume that they do—but the only way that they can earn it is to help people get payment that must be very hard to get. Otherwise, how can lawyers justify charging so much to help get it? But the question that cannot be answered is why it should be hard and expensive to get paid from automobile accident insurance after an automobile accident?
Of course there are other problems plaguing automobile insurance in addition to those already mentioned : arbitrary cancellations and refusals to renew policies; unfair shifting of motorists into high risk categories; the difficulty of many in purchasing insurance in the first place and the concomitant insolvency of so-called high risk insurers.
But most of these other problems like the ones mentioned earlier-are symptoms of the basic illness of basing payment in the great mass of smaller cases on fault. Unless and until that basic evil is dealt with, other ills will not only remain but will probably proliferate. On the other hand, if that ill is properly dealt with, most of these other ills will either be eliminated or reduced to much more manageable proportions. This is not to say that the problems, for example, of court congestion, or the availability of insurance to all who need it. will disappear with the adoption of a Basic Protection type plan. But even for those problems of automobile insurance for which Basic Protection may not be a sole solution, there will be no hope of solving them without a Basic Protection type solution.
In other words, the primary way that the ills of automobile insurance can be cured is by removing the fault criterion for small and medium size claims. Whatever other steps are taken without taking that step cannot hope to achieve real success.
It is also important to note that such a change accords with consumer desires for auto insurance. The University of Illinois Survey Research Laboratory recently ran a poll of 2,000 Illinois families, carefully selected to provide a representative sample of the Illinois populace. The most important question in the survey asked whether the persons interviewed would prefer (a) the present insurance system that pays a traffic victim nothing for his injury if he was at fault or if he is unable to prove someone else at fault but pays full compensation, including not only medical bills and wage losses but something for his pain and suffering, if he can prove the other driver at fault and himself free from fault, or (b) the new Basic Protection insurance system that would pay for medical loss and wage loss, with nothing paid for pain and suffering, but would pay regardless of who is at fault in the accident.
Altogether, 91 percent of those interviewed responded to the question. Among them, 71 percent preferred the non-fault insurance paying medical bills and wage loss regardless of fault, whereas 29 percent preferred compensation, including compensation for pain and suffering, depending on proving any claim under the fault criterion.
The final question is whether such a change to non-fault auto insurance should be accomplished by state or federal legislation.
The Basic Protection plan was originally drafted for state enactment. But if the lobbies opposing such non-fault automobile insurance succeed in blocking state action in the coming year, then Congressional action might well be contemplated.
UNIVERSITY OF ILLINOIS,
COLLEGE OF LAW,
Champaign, Il., November 25, 1970. DEAN SHARP, Esq., Committee on the Judiciary, Antitrust and Monopoly Subcommittee, U.S. Senate,
Washington, D.C. DEAR DEAN: Enclosed please find, per our last phone conversation, an updating of the bibliography on automobile insurance from the date of the original bibliography which was published in March 1969 issue of The Record of the Association of the Bar of the City of New York (Vol. 23, No. 3 at page 197).
I hope the enclosed is of some use. I will look forward to seeing you in December. Cordially,
Professor of Lau. Enclosure. To: Prof. O'Connell. From: Barry R. Miller. Date : Nov. 18, 1969. Subject: Bibliography Update.
KEETON-O'CONNELL PLAN Auto Insurance Pot Boils Over, 3 Trial 12 (Oct. 1967) (a symposium). Automobile Compensation Plans: A Symposium, 51 Judicature 149 (D. 1967).
Automobile Insurance-An Evaluation of a New Proposal, 17 DePaul L. Rev. 408 (Winter 1968).
Automobile Reparations-Pro & Con: A Symposium, 19 Fed. Ins. Coun. Q. 35 (Spring 1969).
Basic Protection-A Bibliography, 17 Defense L.J. 149 (1968).
Blum & Klaven, Stopgap Plan for Compensation Auto Accident Victims, 1968 Ins. L.J. 661 (Aug. 1968).
Brainard, Rise and Fall of Basic Protection in Massachusetts, 1967 Ins. L.J. 724 (D. 1967).
Brandau, Aftermath of the Keeton-O'Connell Plan, 40 Okla. B.A.J. 225 (Jan. 1969).
Changes for Automobile Claims: A Symposium, 1967 U. III. L.F. 361 (Fall 1967).
Crisis in Automobile Insurance Today, 35 Ins. Coun. J. (O'68).
Hodosh, Auto Compensation Plans and the Claims Man., 1968 Ins. L.J. 816 (0'68).
Hold, Basic Protection for the Traffic Victim—the Keeton & O'Connell Proposal “too far or not far enough,” 35 Ins. Counsel J. 120 (Jan. 1968).
Hold, Critique of Basic Protection for the Traffic Victim—the Keeton-O'Connell Proposal, 1968 Ins. L.J. 73 (F. 1968).
Holden, Compensating the Automobile Traffic Victim, 42 Wis. B. Bell 18 (Apr. 69).
Jones, Criticism of the Keeton-O'Connell Plan, 29 Ala. Law 293 (Jl. 1968). Julien, Keeton-O'Connell : Myth or Panacea, 40 NYS BJ 256 (Jl. '68).
Jung, Keeton-O'Connell Plan–How Many People Know What It Is? 1968 Ins. L.J. 606 (Jl. '68).
Keeton, Basic Protection Automobile Insurance, 5 Ga S.B.J. 117 (Ag 68).
Keeton, Compensating the Injured Claimant: The Keeton-O'Connell Plan, 44 F.R.D. 122 (my 1968).
Keeton & O'Connell, Basic Protection Automobile Insurance Plan, 47 Mich S.B.J. 13 (F. 1968).
Keeton & O'Connell, Basic Protection Plan for Traffic Accident Losses, 43 Notre Dam Law 184 (D. 1967).
Keeton & O'Connell Plan: A Catalyst in the Search for a Workable Solution to the Automobile Accident Compensation Problem, 17 Buff. L. Rev. 849 (Sp. 68).
Kluwin, Analysis of Criticisms of Fault System, 1967 Ins. L.J. 389 (Jl. 1967).
Knepper, Automobile Compensation Controversy, 26 Was & Lee L. Rev. 17 (Spring 69).
Markhoff, Compensation without Fault and the Keeton-O'Connell Plan, 43 St. Johns L. Rev. 175 (D '68).
Marryrott, Testing the Criticisms of the Fault Concept, 35 Ins. Counsel J. 112 (Ja. 68).
O'Connell, Balanced Approach to Auto Insurance Reform, 41 U. Colo. L. Rev. 81 (F 1969).
O'Connell, Industry and the Academic Researcher, 53 Ia L. Rev. 1269 (JI 68)
O'Connell, Basic Protection-Relief for the Ills of Automobile Insurance Cases, 27 La. L. Rev. 647 (Jl. 1967).
O'Connell & Sargent, Resolved, the Keeton-O'Connell Basic Insurance Plan Should be Enacted by the Arkansas General Assembly, 22 Ark L. Rev. 574 (Fall 68).
Pretzel, Automobile Insurance Problem, 18 Fed. Ins. Coun A 51 (Summer 1968).
Sargent & Corboy, Basic Protection Plan-Panacea or Inequity, 34 Notre Dame Law 51 (1968).
Symposium on Automobile Insurance, Negligence and Compensation Law, 1 Conn L. Rev. 1 (J1 68).
Tinker, Guaranteed Benefits v. Keeton-O'Connell Plan, 1968 Ins. L.J. 732 (S'68).
Townsend, Basic Inequities of Keeton-O'Connell, 17 Defense L.J. 133 (1968).
Vondra, Revised Plan for Protective Automobile Insurance, 1969 Ins. L.J. 7 (Ja 69).
GENERAL Automobile Insurance Coverage for Punitive Damages, 20 S.C.L. Rev. 71 (1968).
Automobile Reparations-Pro & Con: A Symposium, 19 Fed. Ins. Coun. Q 35 (Spring 1969).
Barry, Subrogation of Medical Payment Claims, 17 Federation Insurance Coun. Q 46 (Summer 67).
Benson, Public Will be Served, 19 Fed. Ins. Coun. Q 95 (Fall 68).
Blackford, Competition as a Means of Regulating Insurance, 18 Clev.-Mar. L. Rev. 116 (Ja 1969).
Blum & Kalven, Stop-gap Plan, 5 Trial 24 (F 69).
Cahill, Automobile Liability Insurance State or Federal Control, 1968 ABA Sect. Ins. N. & C.L. 243 (1968).
Castles, Coverage under the Omnibus Clause, 56 Ill. B.J. 184 (N 67).
Conrad, Live & Let Live: Justice in Injury Reparation, 52 Judicature 105 (0 68).
Crisis in Automobile Insurance Today, 35 Ins. Coun. J. 607 (0 68).
Felton, Insuring Against the Possibility of an Excess Verdict, 35 Ins. Counsel J. 272 (Ap 1968).
Ferriman, Industry Response to Criticism of the Automobile Liability Insurance System, 4 Forum 241 (J1 69).
Foley, Doctrine of Fault: The Foundation of Ex Delicto Jurisprudence, 36 Ins. Coun. J. 338 (J1 69).
Ghiardi, Automobile Accident Reparations—Is a No-fault Plan the Answer?, 16 La. B.J. 299 (1969).
Ghiardi Kircher, Automobile Compensation Plans—Is Drastic Reform Needed? 5 Ga. S.B. J. 321 (F 1969).
Gibbons, Compensation for Automobile Accident Losses, 1968 Ins. L.J. 615 (JI 68). Hart, Insurance Probe Finds: Fault System Necessary, 4 Trial 22 (O 68). Haywood, Evolution, not Revolution, 1967 Ins. L.J. 670 (N 1967). Howell, Challenges Facing the State Regulator, 1969 Ins. L.J. 34 (Jan 69).
Insurance : Direct Action against Insurer Under Uninsured Motorist Endorsement Approved, 1968 Duke L.J. 167 (F 68).
Insurance—the “Other Insurance” Clause Conflict, 46 N.C.L. Rev. 433 (F 68).
Insurance Subrogation--Settlement between Insured and Tortfeasor, 45 N.C.L. Rev. 1064 (Je 1967).
Iron, Highway Accidents and the Demise of Tort Liability, 47 Can. B. Rev. 304 (My 69).
Justice in Court After the Accident, 35 Ins. Counsel J. 227 (Ap 1968). Kemper, Automobile Insurance the Criteria for Survival, 18 Federation Ins. Coun. Q 31 (Spring 1968).
Kepner, Arizona Automobile Liability Insurance Law-Beyond Mayflower, 10 Ariz. L. Rev. 301 (Fall 1968).
Kierr, "No-Fault" Flak, 16 La. B.J. 315 (Mr 69).
Kuhn, Sammet, & Mackey, Automobile Insurance and Law Problem in 1968, 1968 ABA Sect. Ins. N. & C.L 640 (1968).
Lawton, Automobile Insurance Law-an Engine ring Appraisal, 36 Ins. Coun. J. 347 (JI 69).
Legal Aspects of Advance Payments of Liability Insurance Claims Seminar, 1967 ABA Sect. Ins. N. & C.L. 499 (1967).
Martin, Facts being Misused ?, 4 Trial 24 (FM 1968).
McNamara, Automobile Liability Insurance Rates, 35 Ins. Counsel J. 398 (Jl 1968). Morrow, Fault without Responsibility, 36 Ins. Coun. J. 202 (Ap 69).
Norgaard & Schick, Tell it Like it Is: Auto Insurance is Profitable, 4 Trial 24 (0 68).
Notman, Decennial Study of Uninsured Motorist Endorsements, 1968 Ins. LJ. 22 (Ja 1968).
Parker, Regulator's View on Automobile Insurance Problems, 18 Federation Ins. Coun. Q 39 (Spring 68).
Richardson, Proposal for Change in Auto Reparations System. 5 Trial 37 (F 69).
Robinson, & Due, Advance Payments Problems in Practice and Procedure, 35 Ins. Counsel J. 444 (J1 68).
Robison, Bicamerally Speaking—Whither Do We Go?, 19 Fed. Ins. Coun. Q 82 (Summer 69).
Sargent, Insurance Industry Relief Act?, 5 Trial 24 (Ap 69).
Smith, Some Thoughts on the Automobile Insurance Problem, 18 Federation Ins. Coun. Q 10 (Spring 1968).