Fourteen months after the D.C. City Council voted to require all car owners in the District to buy automobile liability insurance, more than 40 percent of Washington automobiles are uninsured.
Nearly three months after the same law was supposed to transform the traditional automobile liability system to a "no-fault" insurance plan, victims of automobile accidents in Washington still must show that "the other guy" was at fault to collect on many claims.
Now no-fault's foes are trying to repeal the law before it ever becomes effective, taking advantage of the failure of Mayor Marion Barry's administration to implement the measure on time.
With its effective date now stalled until Oct. 1, the no-fault plan could be killed this week when the council votes on a bill sponsored by John (D-At Large) that would drop the no-fault provisions but still require District motorists to buy automobile insurance.
The long debate over the insurance issue has been dominated not by the 150,000 D.C. motorists who shell out $50 million a year for liability coverage, but by two influential business lobbies with a vital economic stake in the outcome: the trial lawyers who make their living handling accident cases and the insurance companies who pay the claims.
As the trial lawyers and the insurance companies battle--mainly behind the scenes--the interests of motorists, passengers, pedestrians and the public at large are often lost in council-chamber maneuvering.
Only about 150,000 of the 250,000 car owners in the District now carry accident liability coverage. The other 100,000 or so drive without insurance--either because it is too expensive or too hard to get.
For those without insurance, getting coverage is costly, if not impossible. Most of the big companies refuse to insure any D.C. motorist who has been without insurance for more than 30 days and those that will take new customers often charge very high rates.
Under both no-fault and the alternative proposed by council member Ray, insurance companies will be required to sell policies to the District's mass of uninsured motorists, but will still be allowed to charge them high-risk rates.
Never before has a mandatory insurance law been imposed in a jurisdiction with as high a percentage of uninsured motorists as the District of Columbia. Although it is likely that many of the newly insured drivers will turn out to be low-risk drivers, insurance companies say a large proportion will not. Since insurance rates are based on experience, rates for all drivers are likely to rise in coming years, the companies say.
The central issue remains whether mandatory insurance should simply be an extension of the present system, in which the party found liable for an accident pays the bills, or whether it should be linked to a plan that pays automatically regardless of who is at fault.
Insurance companies like no-fault insurance. They say they can make money under either the traditional liability system or a no-fault system, but that no-fault provides accident victims far better coverage at a slightly lower cost.
"It's a better product at a better price," said August P. Alegi, vice president of Government Employees Insurance Co., by far the District's biggest insurer. "People get more and pay less."
Trial lawyers hate no-fault. They contend that, in return for guaranteed payments of claims, no-fault systems sharply restrict a victim's ability to sue for non-economic losses, commonly called "pain-and-suffering."
"We are opposed to any law that restricts an individual's access to court," said Donald Chaikin, a leading local liability lawyer.
The attorneys and insurance companies also disagree over compulsory insurance. The insurance companies say it raises everyone's rates--presumably because many motorists who don't have insurance are bad risks--without improving coverage. It also forces poor people, with few assets to protect, to buy an expensive product they do not need. And insured drivers can protect themselves relatively inexpensively if they are hit by an uninsured motorist.
Trial lawyers generally support mandatory insurance. They argue that driving is a privilege, not a right, and if individuals want to drive they should have insurance to protect others whom they might injure or whose property they might damage.
One trial lawyer suggests that insurance industry opposition to the Ray bill stems not from any deep aversion to compulsory insurance but rather to a provision that requires the D.C. insurance department to hold hearings on proposed rate increases. The lawyers say that is a potential threat to the high profits insurance companies now earn in the District.
Insurance companies make more money in the District than in most other states, said Chaikin, spokesman for the trial lawyers. Today, a company files a proposed increase and documentation with the insurance department, which generally approves it after perfunctory study.
The insurance industry's own figures show that, on average, companies earned higher returns under the present system in Washington than in most other places. But the insurance companies say that average figure is misleading, that most of them make no higher profits here than in other jurisdiction. The D.C. insurance business is dominated by the highly profitable Geico, which brings up the average for the rest of the companies, they say.
Geico commands one-third of the Washington market, selling nearly three times as many policies as its nearest competitor, State Farm.
J. Robert Hunter, a former federal insurance administrator who now heads the National Insurance Consumer Organization, said there is little competition in District insurance rates because of Geico's dominance. He said hearings can be run relatively inexpensively and would force insurance companies to justify their rates.
Insurance company officials concede they dislike the hearing requirement, but accuse the lawyers of protecting their own financial interests in the fees they earn handling accident cases.
In states with no-fault, about 85 cents of every premium dollar ends up in the pockets of accident victims, estimated Grover Czech, regional vice president of the American Insurance Association. Under traditional liability systems, victims collect roughly 64 cents. The 20-cent difference is money that goes mostly to lawyers and court costs, the insurers say.
Czech estimated that in 1981 Washington trial lawyers collected about $2.5 million as their share of clients' settlements.
Trial lawyers acknowledge they have an economic stake in the current system, but they say the enactment of a no-fault law may give them more, rather than less, business. Chaikin, who is president of the trial lawyers association, said, "I believe lawyers will have an immediate influx of victims saying that insurance companies are not paying properly and on-time."
Alegi and Czech say insurance companies would have preferred no mandatory insurance law, but were willing to live with it as the price of the no-fault system. Under the Ray bill, Alegi said, rates will go up, and poorer motorists with little need for expensive liability insurance will have to buy it, but there is no payoff for the public in insurance reform as there is with no-fault.
The argument for compulsory insurance makes moral sense, a lobbyist for a major insurance company conceded. A driver should be prepared to pay for damage caused another motorist or pedestrian, and compulsory coverage will minimize the problem of uninsured motorists.
The law that is supposed to take effect Oct. 1 provides no-fault coverage for medical bills and rehabilitation up to $100,000. It covers wage losses up to $24,000. The law also mandates $2,000 for funeral expenses. The coverage is provided by the injured person's insurance company whether the individual caused the accident or was the victim. The bills are required to be paid within 30 days after they are presented to the insurance company.
Only if a person incurs more than $5,000 in medical bills can he or she sue an offending motorist for pain-and-suffering. According to one insurance official, the average medical claim is well below $1,500. Chaikin said 92 percent of all claims are for $2,500 or less.
To be properly insured, individuals still would have to carry what the insurance companies call residual bodily injury liability coverage--to protect themselves against the rare situation in which a victim's medical bills or wage losses exceed the no-fault limits--as well as those situations in which a victim's medical bills permit a pain-and-suffering suit--or in the event an individual causes an accident in a state that has traditional liability insurance.
No-fault coverage applies only to bodily injuries. The law requires car owners to carry liability insurance in case they damage someone else's property. Insurance companies say motorists still should carry uninsured-motorist protection.
The cost of the District's no-fault coverage for an adult with a clean driving record would be $179.40 a year, Geico's Alegi said. The Geico rate also includes uninsured-motorist, residual liability and property damage coverage. It does not include comprehensive and collision coverage on the auto itself.
Traditional coverage would cost the same driver $182, according to Alegi. An adult with one accident who drives a lot would pay $285.60 for no-fault and $290.70 under the current system. An adolescent male with a good driving record would pay $521.10 today and $510.60 under no-fault.
Collision and comprehensive protection that a car owner carries on his own vehicle would be sold the same as they are today. Those coverages are already on a no-fault basis. After the car owner pays a previously agreed-upon portion of the loss (usually $100 to $500), the insurance company pays the remainder. Because of the sharply rising costs of repairing and replacing cars, collision and comprehensive rates have been rising much faster than liability rates, insurance officials said.
Insurance company executives say that no-fault insurance--coupled with residual liability coverage, property damage and uninsured motorist protection--is slightly cheaper to provide. Because under no-fault the companies can cut back sharply on their own legal costs, they can afford to pay out a bigger percentage of their premiums in claims and still make the same amount of money.
In addition, because personal injury attorneys are involved in fewer claims, victims keep more of what the insurance companies pay.
There are few solid, current statistics. But a Senate antitrust and monopoly subcommittee estimated several years ago that in 1969--before any state adopted no-fault laws--32 cents out of every premium dollar was spent to cover legal costs. Plaintiffs attorneys took 16 cents, insurance company attorneys got 14 cents and court costs swallowed 2 cents.
The Department of Transportation found in 1968 that 27 percent of all payments to claimants went to their lawyers. Other DOT studies showed that under the traditional liability system, persons with minor injuries tend to be overcompensated while those with major claims are systematically undercompensated. A large proportion collect nothing at all.
Under a no-fault plan, there will be fewer windfall awards, but most victims will be compensated for their out-of-pocket losses, according to Czech.
"A company might find it cheaper to pay a $4,000 claim than litigate. But if a claim is for $100,000, you can bet they'll defend themselves to the hilt. Filing a big claim, even if it's legitimate, is hit or miss, almost like a lottery," said an official of a large insurance company that does business in Washington.
The trial lawyers argue that no-fault systems trade off civil rights for efficiency. They also maintain that insurance companies can provide adequate insurance without restricting an individual's right to sue.
But no-fault does not work well without severe restrictions on the right to sue. In New Jersey, for example, where the threshold for pain-and-suffering suits is $200 (rather than Washington's $5,000), costs rose sharply. The insurance companies pay out more in claims under the no-fault provisions but still are involved in frequent and costly lawsuits.
"We believe we could come up with a reform at affordable prices that does not restrict the individual's right to sue," Chaikin said.
The trial lawyer said the system now used in Virginia might represent an acceptable compromise. An attempt by Councilmember Charlene Drew Jarvis (D-Ward 4) to push such a compromise failed last week. Jarvis, an opponent of no-fault, could not get Mayor Barry's support.
Under the Virginia plan, every insured motorist must carry protection against being hit and hurt by an uninsured motorist. In addition, insurance companies are required to offer $2,500 of no-fault protection that a policyholder may reject.
Motorists are not required to buy insurance. But those who do not and are involved in accidents must pay a $400 penalty to a special state fund that is used to help pay victims of uninsured motorists.
Geico's Alegi said the Virginia plan is "the best of the non-no-fault" systems and that Geico has calculated it could offer the low-risk District motorist basic coverage for $176. That coverage would include what is called 10/20/5 bodily injury liability coverage--$10,000 of liability for any injured person, $20,000 maximum per accident and $5,000 in property damage liability--and the same limits of uninsured motorist protection.
Chaikin said most victims today are reasonably well compensated. More than 80 percent of District residents have some form of health insurance that pays most of their medical bills.
Chaikin said no-fault advocates often paint a false picture of victims waiting for years for a settlement while dipping into savings to pay doctors. Furthermore, he said, most insurance policies already offer medical expense coverage that will pay doctor and hospital bills up to a certain amount (usually $2,000 or $5,000 a person) for a driver and passengers, regardless of who was at fault in the accident.
Fred Fisher, a spokesman for Prudential Insurance Co., said Chaikin is right when it comes to medical bills. However, Fisher noted, no-fault also covers lost wages and rehabilitation expenses and has a much higher--$100,000--limit for medical bills.
The no-fault system also relieves health insurance of many of the costs of auto accidents, which would be paid by auto insurers under no-fault. "That makes the motorists bear the medical costs of driving rather than spreading those costs to nondrivers," Fisher said.
Since about 40 percent of all accidents involve only one car, there often is no one to sue. While the driver would collect up to, say, $5,000 for medical expenses, under the District's no-fault law, the insurance company would pay up to $100,000 for medical bills and another $24,000 in lost wages.
"Under the no-fault system, you're buying insurance to protect yourself. Under the liability system, you buy insurance to protect yourself against a suit from the other guy," said one insurance lobbyist.
For a very low price, about $17 a year, insured motorists can protect themselves against being hit by an uninsured motorist. Few actual claims are made on uninsured motorist protection. And in most cases, an individual's medical payments coverage and collision coverage take care of the damage.
One insurance executive, who said his company has expended more effort on the no-fault insurance fight than its business in the District justifies, commented that if it becomes too hard to write insurance in Washington, many companies may just pull out of the city or at least reduce their presence.
All told, District insurance premiums account for about 0.02 percent of the auto insurance business in the country. Even homegrown Geico writes only 2 percent of its business in Washington.