Alternative Is Federal Subsidy, Official Says : Reagan to Seek Limit on Insurance Costs

President Reagan has decided to ask Congress for legislation to cap skyrocketing insurance costs because the only alternative “to averting a crisis in the insurance industry would be some federal subsidy,” a White House official said Monday.

The form of the legislation is not yet clear, but the President has embraced the recommendations of a report by a Domestic Policy Council task force, including limits on attorneys’ contingency fees and on “pain and suffering” damage awards, the official said.

The task force report, delivered to Reagan on March 17, was prompted by the growing difficulty encountered by local governments, business and professionals in obtaining insurance. The report said that “explosive growth” in damage awards compared to the relatively low return on investment income from premiums because of declining interest rates had severely damaged insurance industry profitability.

‘Consumer Protection’

The report proposes a number of reforms, mostly in tort laws, designed to make insurance “more affordable and more available,” the official said. “It’s essentially consumer protection that continues to make insurance available at a reasonable cost.”

The task force, headed by Assistant Atty. Gen. Richard K. Willard, suggested that liability be restricted to whomever is found directly at fault in an incident, and use of higher standards for medical and scientific opinions in court. In addition, so-called “pain and suffering” awards should be limited to $100,000 and contingency fees, in which attorneys take a percentage of an award, should be limited, the report said.

In a study of asbestos claims, for example, it was found that only 37 cents out of every dollar in trial claims were paid to the victims, the White House official said Monday.

‘Ultimate Victim’

Without reform, “the ultimate victim of this crisis is the consumer. People just will not write insurance on a given subject,” the official said.

He noted that, for the first time, the renowned roller coaster at Coney Island, N.Y., is not operating because of a lack of insurance.

The average medical malpractice jury verdict has undergone a fivefold increase in 10 years, from $220,018 in 1975 to $1,017,716 in 1985.

Suits Escalate by 758%

In 1985 alone, the number of product liability suits in federal courts escalated by 758%.

The movement toward no-fault insurance has also contributed to higher costs by imposing liability on persons and companies that have done nothing wrong and prompting them to file claims as well.

It is unclear whether the reforms proposed by Reagan will include corresponding caps on insurance rates or profits, or whether it will attempt to simply help the industry through restrictions on the extent of liability awards that can be collected.