Study Cites Excess Car Injury Claims

Nearly two-thirds of auto injury medical claims by Californians are exaggerated at best and phony at worst, resulting in as much as $3.5 billion a year in additional insurance premiums, according to a new study released Wednesday by the RAND Corp.

Blaming the perverse incentives built into the state’s legal system, the study noted that California’s rate of excess claims is almost twice the U.S. average and adds up to $250 a year to the typical auto insurance bill.

The study--based on a large database of paid medical claims from 1988, the most recent year available--will certainly be used as ammunition by proponents of a no-fault auto insurance system for California, including Gov. Pete Wilson.

However, critics of no-fault questioned the manner in which the study was conducted and its conclusions.

“They seem to have started with a conclusion and then worked up the numbers to fit it,” said Joe Babich, a personal injury lawyer in Sacramento and member of Consumer Attorneys of California, formerly called the California Trial Lawyers Assn.

Although there long has been anecdotal evidence that many auto injury claims are questionable, RAND says its study is the first systematic effort to describe the cost and pattern of such claims.

Nationally, exaggerated and fraudulent injuries represent 35% to 42% of auto injury medical costs, the study says. Stephen J. Carroll, the lead author, noted that while much attention is paid to staged car crashes, medical fraud mills and other blatant crime, the chief culprits are ordinary citizens and a legal system that rewards exaggerating injuries.

The study was conducted by RAND’s Institute for Civil Justice, an independent research group.

The researchers relied heavily on figures from New York and Michigan, the only states whose no-fault systems rule out so-called general damages--mainly “pain and suffering” awards--for all but an explicit list of verifiable injuries. General damages are banned for such “soft” injuries as sprains and whiplash.

California and most other states use the tort liability system, under which accident victims may seek compensation for medical costs plus general damages. Since general damages for pain and suffering are typically a multiple of medical costs, there is an incentive to run up such costs to get a higher total award, Carroll said.

At the time of the study, 11 states had no-fault systems with a so-called dollar threshold. Under such systems, accident victims cannot get general damages unless their medical bills exceed that amount. The incentive there is to reach the threshold and qualify for the extra compensation, Carroll said.

Because of the lack of incentive for exaggerating soft injuries in New York and Michigan, the researchers assumed that such claims were generally valid in those states. There were about seven soft-injury claims for every 10 hard-injury claims--such as fractures--in New York and Michigan, the study says.

But California had 25 soft-injury claims for every 10 hard-injury claims--the highest ratio in the nation. Only two states had a lower ratio of soft- to hard-injury claims than New York and Michigan, and the 18 states with the highest ratios were all tort-system states, according to the study.

The RAND study concluded that a New York-style no-fault system would eliminate many exaggerated and fraudulent medical claims in California and other tort states, but Carroll noted that such reform has a price. There is no question, he said, that people do get bona fide whiplash injuries and that this kind of suffering is not compensated in New York and Michigan.

Carroll took pains to assert that RAND is not endorsing no-fault and that the study was financed out of the institute’s general budget without the sponsorship of the insurance industry or any other interest group.

However, Harvey Rosenfield, a no-fault opponent and author of Proposition 103, the 1988 insurance rate-cutting initiative, said he is suspicious of RAND’s objectivity. “Every time no-fault comes up in Sacramento, a RAND study always pops up,” he said.