Auto Accident Lawsuit

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					The History of No Fault

                   Gavin Blair
                Liberty Mutual
It all began in the 1930s


   • In the early 1930s a new approach to auto insurance was modeled after the workers’
   compensation system.


   • The goal was to fully compensate auto accident claims quickly, without litigation.


   • Claimants would be compensated by their own insurance company, regardless of fault.


   • Compensation for pain and suffering would be prohibited.
Massachusetts becomes the first state to enact limited
no-fault in 1971


   • In 1965, the original idea drafted in the 1930s was
   refined by Professors Robert Keeton and Jeffrey
   O’Connell.


   • A limited No-Fault system was proposed that would
   apply exclusively to minor auto accidents.


   • Pain and suffering would still be prohibited, except for those meeting a $500 threshold.


   • In 1971, Massachusetts was the first state to enact some form of limited No-Fault, with
   a total of 19 states by 1974.
No-Fault systems promised four advantages over
traditional tort systems


                •   Greater Level of Compensation.


                • Compensation to more victims.


                • Lower costs.


                • Less burden to court system.
The different types of No-Fault systems


                •   PIP Monetary


                • PIP Verbal


                • Add on
Basic PIP Benefit and Monetary Threshold by state

            Insurance                                              Basic
            Structure             State          Threshold     PIP Benefit
             Add on             Arkansas                           $5,000
                                Delaware                     $15,000/$30,000
                          District of Columbia                    $66,000
                                Maryland                           $2,500
                                 Oregon                           $39,000
                            South Carolina                         none1
                             South Dakota                         $10,000
                                  Texas                            $2,500
                                Virginia                           none1
                              Washington                          $27,000
           PIP Monetary          Kansas            $2,000         $20,000
                                Kentucky           $1,000         $10,000
                            Massachusetts          $2,000          $8,000
                               Minnesota           $4,000         $40,000
                             North Dakota          $2,500         $30,000
                                  Utah             $3,000         $28,000
                                 Hawaii           $10,000         $10,000
            PIP Verbal           Florida                          $10,000
                                Michigan                        No Limit
                              New Jersey                         $260,000
                               New York                           $50,000
                             Pennsylvania                          $5,000
Possible fixes to the No-Fault system


        • Raise the monetary threshold
             • Hawaii                 1992: $1,500 → $10,000
             • Kansas                 1988: $500 → $2,000
             • Massachusetts          1989: $500 → $2000

        • Limit the amount paid for medical claims
            • Fee schedule
            • Treatment schedule

        • Anti-fraud measures
            • Fund licensing boards to investigate claims

        • Dual systems
            • Pennsylvania
            • New Jersey
Unfortunately, the cost of No-Fault insurance has been
much greater than its proponents anticipated



                                Industry Results 2001
                       Comparison of BI and PD Pure Premiums
                               by Insurance Structure

       Insurance
       Structure         Injury Pure Premium PD Pure Premium Injury PP/PD PP
       Add on Total               186              105              1.83
       PIPMonetary Total          171               83              2.11
       PIPVerbal Total            286               93              3.03
       Tort Total                 149               88              1.71
       All Structures             190               91              2.08
New Jersey and New York have the highest
Injury to PD ratios


                                       Industry Results 2001
                              Comparison of BI and PD Pure Premiums
                                         Top Injury States

                        Insurance
        State           Structure      Injury Pure Premium   PD Pure Premium   Injury PP/PD PP
      New Jersey       PIP Verbal               434                107                4.08
      New York         PIP Verbal               412                102                4.06
      Delaware           Add on                 352                 92                3.85
     West Virginia         Tort                 234                 78                3.01
     Pennsylvania    PIP Verbal/Tort            239                 84                2.84
       Florida         PIP Verbal               279                 99                2.82
       Hawaii         PIP Monetary              207                 74                2.82
California’s injury ratio is less than half of New Jersey’s
Or New York’s

                                      Industry Results 2001
                             Comparison of BI and PD Pure Premiums
                                        Other Key States

                       Insurance
        State          Structure      Injury Pure Premium   PD Pure Premium   Injury PP/PD PP
      California          Tort                 165                 102               1.61
       Texas            Add on                 171                 126               1.35
    Massachusetts    PIP Monetary              259                137*               1.89
     Connecticut          Tort                 273                 101               2.70
      Michigan        PIP Verbal               231                 90                2.58
      Colorado        PIP Verbal               268                 96                2.79




        * Massachusetts has a very high PD cost. Using the Countrywide
        average of 91, Massachusetts has an Injury to PD ratio of 2.85.
O’Connell and Joost give 3 reasons why No-Fault laws
fail to deliver promised cost savings


  • Systems are “out of balance”.


  • Many No-Fault Systems encourage victims to inflate their claims
  to exceed the threshold for bringing a lawsuit.


  • No-Fault systems provide greater bargaining power to plaintiffs
  in Bodily Injury cases.
Three states have already repealed their No-Fault laws,
Nevada in 1980, Georgia in 1991 and Connecticut at
the beginning of 1994
        State           No-fault Benefit           Threshold

       Nevada                 n/a                $750 monetary

      Georgia      $5,000 basic/$2,500 medical   $500 monetary

     Connecticut             $5,000              $400 monetary
The results of repealing No-Fault



    • Both the Georgia and Connecticut repeals of No-Fault led to significant
    improvement of injury costs.


    • In the three years following the Georgia repeal, overall injury costs were reduced
    by 14%. Tort states showed a 5% increase over the comparable period.


    • Connecticut showed a 19% drop in injury costs three years after its repeal. This
    was significantly better than the 3% drop experienced in the tort states.


    • In subsequent years, both Georgia and Connecticut have continued to perform
    like other tort states, showing additional improvements in injury costs.
Impact to Injury Costs Following Removal of
No-Fault Coverage

                   Change In Injury Costs              Change In Injury Costs
                 After 10/1/91 removal of PIP         After 1/1/94 removal of PIP

                             Georgia                         Connecticut
                                       Injury                             Injury
                                   Pure Premium                       Pure Premium
                 1991                    187         1993                   366
                 1994                    160         1996                   296
                 2000                    136         2000                   261
              Change 91-94              -14%      Change 93-96             -19%
              Change 94-00              -15%      Change 96-00             -12%

                          Tort States                         Tort States
                                       Injury                             Injury
                                   Pure Premium                       Pure Premium
                 1991                    169         1993                  174
                 1994                    178         1996                  168
                 2000                    156         2000                  156
              Change 91-94               5%       Change 93-96             -3%
              Change 94-00              -13%      Change 96-00             -7%


 Source: IRC: Trends in Auto Injury Claims

				
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