Tort Law Reforms Easing Insurance Crisis, U.S. Reports

Two-thirds of the states have moved to reform their liability laws in the last year, a development that has helped ease what the Administration has branded as a “crisis” of skyrocketing insurance costs and drastically reduced coverage, the Justice Department said Thursday.

In a follow-up report, an inter-agency task force said the record supports an Administration assertion last year that the primary cause of the problem is “sweeping doctrinal changes in tort law” applied by judges in product liability and other damage suits against defendants with “deep pockets.”

Atty. Gen. Edwin Meese III, presenting the report at a news conference, said the Administration’s campaign to reform liability laws has been “extraordinarily successful but will continue to be an important issue in 1987. We continue to face liability problems.”

In a prepared statement, Meese added: widespread presumption in Congress, the analysis found, the industry is highly competitive and guilty of no collusion to drive up premiums.

Rather, the antitrust economists said, the explosion in premium costs was caused primarily by recent rapid changes in tort law and only secondarily by the fact that insurance companies’ portfolio earnings sharply declined as interest rates fell with the lower inflation of recent years.

Rand Study Cited

The report said the liability “crisis” has eased in the sense that insurance premiums stabilized during 1986--but at a much higher level. “Much like the oil crisis of the early 1970s,” the report said, “the public appears to have resigned itself to an era of much higher prices.”

The report also cited a separate study by the Rand Corp.’s Institute for Civil Justice, which concluded that damages awarded by juries in malpractice and product liability cases rose exponentially from 1960 to 1984--with the largest rate of increase coming between 1980 and 1984. The Rand study was based on an analysis of jury awards in two large but differing metropolitan areas, Chicago and San Francisco.

It found that average jury damage awards in malpractice cases, measured in 1984 dollars, jumped from $52,000 to $1.2 million, or more than 2,000%, in Cook County, Ill., and from $125,000 to $1.2 million, or more than 800%, in San Francisco.

The comparable growth in product liability awards was more than 200% in Chicago, from an average $265,000 to $828,000, and over 1,000% in San Francisco, from an average $99,000 to $1.1 million.

Assistant Atty. Gen. Richard K. Willard, who headed the inter-agency task force, conceded that some of the exponential growth in $1-million-plus damage awards is the fault of “juries going crazy.”

However, he said, the ultimate responsibility still lies with judges: “Juries have to apply the law set by a judge. Judges are not controlling juries by applying standard common-law techniques.”