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No-Fault Auto Insurance: Simple and Fair

<i> Jeffrey O'Connell, a professor of law at the University of Virginia, is a co-author of "Basic Protection for the Traffic Victim," the 1966 book that first proposed no-fault automobile insurance</i>

Despite all the heated rhetoric, the problem of California’s auto-insurance system is neither the insurance industry nor trial lawyers. The problem is tort liability law itself, and any solution that doesn’t address that underlying problem is not only futile but also will make things worse.

In fact, the problem is really quite simple, despite the complex discussions of it and the initiatives dealing with it. Under the tort system, after an auto accident between you and me, I claim against you based on the fact that you were at fault and you may claim against me based on the fact that I was at fault. The winning party, claiming as he is against a supposed wrong-doer, is paid not only for medical expenses and wage losses but for the cash value of non-monetary loss--pain and suffering.

But it’s hard to determine who was at fault in a typical auto accident, and what the cash value of non-monetary loss is. Consequently, tort cases are often bitterly contested by both sides, with both sides often exaggerating--and even cheating. Claimants often press claims that they shouldn’t, or magnify them, and insurance companies often deny claims that they shouldn’t, or discount them more than they should, with each side feeling aggrieved by the aggressive tactics of the other in this bitter adversary process. Many deserving people are thus not paid or are underpaid, many undeserving people are not only paid but overpaid, and long delays in any payment made are the norm, with both sides spending huge sums on lawyers to fight over who was at fault and the value of pain and suffering.

The no-fault solution is simplicity itself. When you and I are involved in an automobile accident, regardless of who was at fault, your company pays you to cover your monetary loss--that is, your medical expenses and lost wages--and my company pays me on the same basis. And so in one stroke the two intractable variables that plague auto insurance are eliminated. We needn’t endlessly and bitterly litigate who was at fault or what is the cash value of non-monetary loss.

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In this respect the no-fault solution makes auto insurance like every other form of insurance. On the subject of fault, when you die your life-insurance company cannot refuse to pay you on the ground that you were at fault--that you smoked too many cigarettes or ate too much fatty food--although those would be deliciously litigable issues after every death for lawyers to make a huge profit. No, the only question asked is whether you are dead--one of the few questions that the medical profession can still answer with reasonable simplicity and without the necessity of lawyers intervening.

It is similar with the payment for pain and suffering. When I die, my wife cannot recover for the cash value of her non-monetary loss--that is, her grief, assuming that she suffers grief, and what a deliciously litigable issue that might be after every spouse’s death!

Once one sees no-fault insurance in this context, one will understand why the tort liability system works so poorly and why other forms of insurance, payable without litigation over fault and non-monetary loss, work relatively so much better. And no-fault insurance has worked. But the trial lawyers are like someone who shoots another in the foot and then comments that the other party doesn’t walk so well.

Trial lawyers have set out to cripple no-fault laws in states like New Jersey and Pennsylvania by providing for unbalanced laws that leave intact too many claims that are based on fault (tort suits) while also paying newly eligible beneficiaries on the no-fault basis. But where good no-fault laws--as in New York and Florida--have been passed, the results have been startlingly good. More people are paid benefits, and they are paid faster and with far lower legal fees. And it is the New York and Florida no-fault laws that are the models for the California no-fault initiative under Proposition 104.

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Only a good no-fault law can make much difference with auto insurance. States like New Jersey and Massachusetts have close regulation of insurance companies by insurance commissioners but, with bad no-fault laws, their auto insurance is a mess. While Florida has an elected insurance commissioner, its auto-insurance system was a mess before it amended its weak no-fault law to make it a strong and balanced one.


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