Special of the week; Issue 38-70

NDE are the national educational radio network presents special of the week from Yale University from its series called Yale reports. Around the turn of the century automobiles appeared and began to collide. Now some 70 years later it's been calculated that particularly every driver will have an accident minor or serious at some time in his years behind the wheel to avoid the risk of being held financially liable for accidents. Drivers insure themselves handling personal injury and property damage costs of automobile accidents is called fault law. Roughly speaking fault insurance is a way of assigning all cost of an accident to whichever party is judged guilty. These two together form the base of our automobile insurance system. The fault insurance system. Where the rising cost of insurance and the increasing number of accidents concern people are wondering if there is not a better system of insurance for automobile accidents. Today Yale reports brings three such people together. They are Richard Stuart superintendent of insurance of the state of New York waiter calibrates a professor of law at Yale Law School and author of the cost of accidents.

And Robert Stevens professor of law at Yale Law School who will moderate the program. Mr. Stevens for the last year perhaps the last 18 months or two years an increasing number of suggestions for reforming a very basic part of the American way of life at least from a lawyers point of view as become obvious and that is the been increasing suggestions for reforming the system of automobile insurance. We don't what are the objections to the present system of automobile insurance. What are some of the suggested programs for changing the present system. Well cost of course is one of the objections but costs not just in the sense that automobile insurance premiums are getting higher all the time but at a very very large proportion of the premiums. Don't get to the victims of automobile accidents at all the system is about as inefficient in terms of getting money from the

premium payer to the victim as one could imagine. People like canard of Michigan have made a great deal of this particular point and contrasted it with programs like workman's compensation which is all mid-way inefficiency to programs like social insurance and Blue Cross which what we often hear of very inefficiencies are like heaven itself in comparison. We have automobile insurance in fact the result of canards approach since he concentrates primarily on business reducing administrative costs and getting victims paid so that we don't have anyone suffering crushing losses. Is pressure towards generalized social insurance towards having all accidents covered as part of a national social insurance scheme.

This approach has had substantial support in a great many other countries. The Woodhouse report suggests that something very much like it is going to take place for all accidents in New Zealand for instance supported essentially by conservatives incidentally. The problem with that kind of program is that it really does nothing about reducing the numbers and severity of accident costs. And this is a huge strange thing to say but in fact that is also one of the problems with the current system. Under the current system. Why you think that you are insured according to the risk of being at fault or the risk of having accidents. It is almost impossible to categorize you adequately or to categorize for safety of your car. What happens is that you pay according to how you injure other

people. The result is when a small car which may not do much damage to other people but leaves most of its passengers totally distraught. I'd guess if anything an insurance discount. And yet that car causes is responsible for substantial accident costs and number approach which is. Often connected or identified with Keaton and O'Connell at Harvard in O'Connell it Illinois is towards a first party insurance plan so that a person would insure himself and his passengers much in the way we carry fire insurance. If that were done the hope would be that car makers would have an incentive to make cars which would be safer for the people who ride in them.

Now keep in O'Connell's plans have been criticized for a variety of reasons. The principal one I think is that they limit recovery on this kind of a basis to $10000 and beyond that stay with the current system as a result. The plan is it is never neither fish nor fowl. What could be called a modification of Keaton OConnell is a plan that Dick Stewart in The New York insurance department have recently presented. It doesn't have a particular disadvantage of Keeton O'Connell but does retain what I think is a fundamental beneficial aspect and that is a financial incentive on car makers to make safer cars in the area where finances work. An efficient system of compensating victims and a

very low administrative expense projection anyway. There are some minor problems with New York I should say. I think the New York plan is very the best one offered so far. There are some minor problems with perhaps a better way to talk about them until we've heard from Dick. Yes but the situation at the moment credo is that we have basically a fault system although it has a fault in name and in rhetoric although it's moving further away from that. Well I think that to call it a fault system is is really a mistake that is what it's called. But in fact your insurance premium doesn't depend very much on the number of fault. How often you are at fault. And whether a person is at fault doesn't affect how much he pays. First a person can be in fault have no insurance and end up paying nothing and the Department of Transportation indicates that about 20 percent of all

accidents are caused by people in this category. So if they don't pay regardless of fault but even if you do carry insurance your premium probably does not depend on fault because a fault is such and a complicated messy thing and is such a poor guide to your involvement in future accidents that most insurance companies will raise your premiums according to whatever you are involved in an accident regardless of whether you were at fault or not so the defense of the current system on the basis that it makes people who are at fault pay is paid in nonsense. But you would still concede that the at the civics textbook in high school describes it as a system of thought based on the actions of negligence in the cause. Exact and most of us have been brought up on that kind of low energy and we pay it we pay a high price for vetting it. Let me ask you it because they can your job not only have you been involved with this new report Governor Rockefeller intitled automobile insurance for who's benefit but you must deal on a day to day basis with the insurance companies he organized.

Who are apparently reasonably satisfied with the present arrangements for automobile insurance. Can you give us some idea of what the arguments the of the insurance companies and the practicing by the negligence by would make in favor of this present system. Bob part of their approach in attacking proposals such as Professor Keaton's or ours or the others is really less to defend the present system than to shift the focus to some of the fringes of whatever the new proposal happens to be. One of the things that's been interesting to us is we've become involved in the controversy all aspects of this is how difficult it is to get someone particularly a sophisticated person who does believe and does wish to defend the present system to stay on the

subject of the present system. More and more both empirical studies such as those that are being done by the U.S. Department of Transportation or that are in our departments report and excellent theoretical analyses of the sort. That are set out in Guido's book the costs of accidents are pointing out the mythical nature of so many of the standard arguments in favor of the present system. This is not to say that the system does not have its defenders. Of course it does. They a lot of it is key a lot of the defense is keyed to the notion that it was discussing that it is a fault system which overlooks the fact that liability insurance is nearly universal and of course takes the wrongdoer assuming you can catch him off the hook financially which is the purpose of liability insurance.

In fact the pressure on the person who caused the accident is relatively small or accept a marginal increase in his insurance policy and even that is great I was pointing out is very unlikely to occur. It's fascinating if you pursue it as a logical exercise that day. The present arrangement leaves about 1 out of every 4 accident victims completely uncompensated because he can't get through this legal maze and prove that somebody else was exclusively to blame. Whereas if a person is blamed and is made financially responsible the responsibility is lifted right off of his shoulders by liability insurance so pursued logically the deterrent effect of this is to avoid getting run over not to avoid running other people over but to to get to to some of the objections that are raised to our proposal to Professor Keaton's to some of the others and that do have varying degrees of merit to them. It's often alleged And this I think is

one of the meritorious objections that the present system deters unsafe driving and that any system that would give injured people compensation without requiring proof of someone else's fault therefore is somehow a bonanza for the negligent. And this can touch off rhetorical rhapsodies. But in fact it's based on this very same myth. There are serious questions raised which have more merit to them as to exactly how much efficiency would be increased How much less of the premium dollars would stick to the machine on their way to the to the accident victims. Our projections indicate that the savings would be immense that you could increase effective benefits and cut premiums and have these figures are hotly contested by folks in the insurance industry who say the savings however much they might be would not be that great. Inevitably this

is a new proposal it's they all or new proposals and it's impossible to cost them with complete perception. Kind of a heads up there in commercial automobile insurance how much of the money in fact gets back to people who are injured. If you start out with the with the premium dollar. About 20 some odd cents are taken up by insurance agents and insurance company overhead course it varies from company to company. Another third is taken by the insurance adjustment and legal mechanism that leaves about 44 cents that gets through to the accident victim. But the hooker here is that that figure can't be looked at in the large because it would still be 44 cents if one victim got all hundreds of millions of dollars and everybody else were turned away. You have to

look at the way it's allocated were apportioned among accident victims and one of the one of the sad features of this of the present system is that it tends to apportion money to a great extent in accordance with bargaining power and bargaining power tends to be inversely related to need so that the slightly injured victim with the relatively small claim which of course as a nuisance value to the insurance company is able to hang in and to get a settlement that typically is worth two three four times is economic loss. The stretcher case isn't exactly the reverse situation and tends to get far less. So we found that for that reason because small claims are overpaid and because. Some of the payments are going to go to pay over again items of loss that are already compensated save by Blue Cross or Social Security that only about fourteen

and a half cents out of that premium dollar gets through to victims to compensate. Economic loss that is not compensated from another source. Well that raises that at least as with the position I think the insurance companies but I was how I think about one thing. Yes when you say the position of the insurance companies you're being rather unfair but I think that's right the way the insurance companies are by no means united in supporting the current system. One very large group the American Insurance Association has actually proposed a plan which goes well about its valise I suggest you get a New York plan. Yeah. When does the idea is unbearable. Because I gather you've been running into quite a lot of opposition with the New York proposals. Well Guido is absolutely right that there is a substantial segment of the insurance business that favors changing from the fault liability system to a no fault system. There are

substantial groups of insurance agents the Mutual Insurance agents of New York state of indorsed this type of approach. But the the largest automobile insurance writers are tend to be very strongly opposed. I would be perhaps invidious for me to speculate on their motives obviously part of its economic part of it is organizational if you change systems you. It would cause terrific organizational tremors within these these large corporations. Would it have a sort of unpredictable effect on the competitive structure of the of the industry and companies that are doing fairly well in terms of market share or would tend to oppose. And then of course people do to all of us I guess tend to believe in the

things that we do day in and day out it's a good way to get to sleep at night and I think that they're they're having partly that human reaction. I mean it is sometimes said I don't I don't know if it's if it's true of it that some of the proposals like the New York plan or the American Insurance Association plan would lend themselves more to group insurance sales and therefore to a different marketing structure in Niger not trying to get rid of the insurance companies or to get oh no no you all these long term proposal is not going to be able to counter a lot. One of the interesting things is that vote is insurance companies who already are fairly large in group sales tend to be voters who support change as well voce who have operated more on a direct sale basis into some might lose competitively. From the change I have been the leaders in opposition now that may just be coincidence just as it may be

coincidence that the trial lawyers who are probably of a single group that lives off most of these claims are the strongest in opposition and the strongest defenders of the current system. Well that was what I wanted to bring up next because I have been looking at statistics recently and I see that in California the largest area of specialisation is negligence. Lawyers. Eleven percent of all California noirs say that they specialize almost exclusively or exclusively in negligence cases. Look at the statistics for Maryland rather different sort of state and they're in Baltimore roughly 20 percent of the income of lawyers is from negligence cases outside Baltimore something like 11 percent. So it's obviously something the lawyers are interested enough. Do you do the programs which you suggested for instance stick your program in New York. Well the lawyers have if your plan were implemented.

There's no question but that the. Negligence bar would have a drastically reduced role under our program or under any of the reform proposals that would tend to simplify the tests for entitle me to payment and the tests for the measure of payment as. As our proposal in the American Insurance Association proposal and Professor Keaton's it and some of its aspects would would tend to do the effect on the bar as a whole is probably a little bit more complex. You can. Make a pretty good argument that a learned profession such as the one the three of us share with a long tradition of helping the citizen deal with the

complications and inequalities in society. Helping him cope shouldn't expend that vast proportion you are citing of its energy and intellect in running the money mechanics of the road system in a way it's an ideal time to make a change because there is a growing demand for of a skills of lawyers. We've been doing that but of course if you were a 55 year old lawyer let's be reasonable about this who had been living most of his life getting 25 to 35 percent of recoveries in accident cases you would not look with favor on a system which suddenly cut that out. On the other hand he wouldn't expect to go on welfare automatically they the need for legal services is such that there are lots of other possibilities. And I take it even in the various programs you've described there would be disputes which somehow or other would have to be settled so we can

expect on the political front from at least a segment of the bar in a segment of the insurance industry quite a fight in the future. I think in New York that the chances are very good in the relatively near future which may not mean next year that substantial change is going to come. The I think the change if it comes at that time is likely to be in the direction of the various reforms that have been under discussion here. That is payment will not depend on fault the system will not be a liability system but will be as Guido said a first party system more analogous to health insurance or or fire insurance. And that the measures of damages will probably be fairly specific and objective and what we proposed of course was economic loss which you can measure in terms of bills not

paid from another source. When I when you asked me earlier for criticisms of the type of proposal I didn't mention the one that really has the most merit. And that raises the most important issues on both sides and that is whether non economic loss or non economic misfortune can you give an example of. Sure. Person is badly injured in an automobile accident and loses an arm. He is a lawyer. He can practice law as a one armed lawyer but he was also a painter or tennis player or pool shark or something that even the latter did not have a direct economic consequences but that caused him to curtail an enjoyable activity and made life less fun for him. Now under the present system under this open ended measure of damages known in the trade as pain and suffering which

in the largest part goes to overpay small claims because of bargaining position. Nonetheless does in some cases some of them of course quite spectacular go to use money as a balm to somehow compensate indirectly for the fact that a fella can't pay me more will at least give him the money to vacation in the Caribbean. And while it's it's not objective if you will it is sir. It's not for that reason invalid. And some of the criticisms of our proposal including criticism criticisms both from people who are hostile to any kind of reform and criticisms from people who are believe in reform as much as we do are that some sort of. The financial arrangement for objectivity and real suffering disfigurement impairment of function above and beyond its economic consequences would be justified.

We don't disagree with that. It's a question of of what how much people should be asked to pay for because of course what comes out in benefits has to go in plus plus a little in premiums. So it's a question of setting the level of benefits and the consequent level of premiums it's an area in which reasonable men very much can differ and will differ. And if we can once get past some of these more fundamental questions about which I think the objections have much less value much less validity such as fault and first party systems. Then I think we can get on to the business of intelligently designing the benefit level. But you would think that within this decade anywhere there will be changes in New York State have a basically fundamental character. Yes yes I wanted to speak a moment about this business of fault non fault. Big refers to his plan as a non faulty plan and Bose who attack most of these plans refer to them

as non fault plans because the payment by the insurance companies to victims would not be based on fault and that since they are not faulty plans but that often gets mixed up with the idea that fault would no longer be relevant to how people drive. There's no reason at all for a bet to be the case. Quite the opposite. We can take care of the careless driver of a wanton and willful driver of the insane driver in a variety of ways which are much easier in terms of his wrongdoing than occurs today. Today what happens is that that man is insured and maybe his insurance premium will go up or maybe it will not. It may go up anyway regardless of whether he was at fault it would seem perfectly sensible to have going along with a plan of this sort finds not insurable

based on the degree of fault or degree of wrongdoing of a person who is responsible. Person who is at fault. Now a person who is slightly at full will pay or his insurance company will pay and that will have exactly the same effect as somebody who is seriously at fault under a plan which had been discussed you could have a whole other side which let people pay fines into a fund or just civil fines which would be based on the degree of wrongdoing which a person has done. If we did that you could go even further and make the fines be a percentage of income so that wrongdoing would be penalized as much for riches for the poor. Which is not the case today. In other words you are suggesting a much more sophisticated criminal law to supplement the new radical change which may come in and you wouldn't have to be

criminal that is if you could have fines which don't carry the stigma of criminality unless we wanted it. They could be payments based which would be somewhere in between. What do you also with the effect you think of the various programs we've had outlined be to change the law in other areas the thing that springs to my mind would be something like consumer protection. Ah the suggested programs that you've described like could have the same sort of effect outside of the automobile. I must say that there's a great deal of room outside of just the automobile area. The problem with consumer protection pollution a great many of the areas that are so much in discussion today is that we have tried to control through direct legislative crew prohibitions the activity of firms and on the whole that House didn't work terribly well.

Well we have tried to put a kind of generalized financial incentive on consumers or on victims and that hasn't worked very well. It would seem to me far more sensible to put the financial incentive. On businesses who are financially conscious bring back free enterprise into safety make safety pay by making unsafe business pay more and use instead collective controls direct penalties on individuals where they are much more likely to be effective. Then some general idea of it maybe something would leave them injured and without compensation if a tragedy occurred. Automobiles accidents and the insurance system was Richard Stewart's superintendent of insurance of the state of New York. We don't calibrate say and Robert Stevens professors of law at the Yale Law School Mr calibrates He is author of the cost of accidents published by the Yale

University Press. The scripts for these programs are available without charge by writing to Yale reports 1773 Yale station New Haven Connecticut 0 6 5 2 0 and the RS special of the week banks Yale University for the recording of this program. This is any are the national educational radio network.