The no-fault auto insurance proposal now being considered for the District of Columbia provides for low barriers against lawsuits and high benefits--a combination that in other states has produced higher insurance rates, a shrinking insurance market and even some fraud.
That is the consensus of many no-fault insurance specialists in consumer groups and in industry organizations who are familiar with the various no-fault plans now in force in 23 states.
The latest D.C. proposal, given preliminary approval by the City Council last week, would provide up to $100,000 for medical expenses, $24,000 for lost wages and $2,000 for funeral expenses--a panoply of benefits that experts generally regard as reasonable so long as the cost of the program can be held down by restricting lawsuits.
But there are serious doubts that the suits can be restricted because the proposed threshold--the amount of medical expense that a person would have to accrue before being able to sue for pain and suffering damages--is only $2,500.
"When you leave that threshold low . . . you are asking for trouble," said Jeffrey O'Connell, one of the two law professors who developed the concept of no-fault insurance during the 1960s and who now teaches at the University of Virginia School of Law in Charlottesville. The other professor was Robert E. Keeton of Harvard University.
Historically, the purpose of no-fault insurance was to provide medical benefits and wage compensation for anyone injured in an automobile accident, regardless of who was at fault in the accident.
The no-fault system also was intended to serve a larger number of people than the traditional at-fault system. Yet, at the same time, there was to be a tradeoff to help offset the cost of no-fault coverage. The tradeoff is the restriction of lawsuits for nonmedical pain and suffering damages.
That goal has been best achieved in Michigan, according to most no-fault specialists. Unlimited medical benefits and limited court access are the reasons given for the success in Michigan, which has had no-fault insurance for nearly nine years.
To restrict lawsuits and keep costs to a minimum, Michigan lawmakers adopted a system under which a lawsuit can be filed for pain and suffering damages only when injuries result in serious impairment of body function, permanent serious disfigurement or death.
This so-called verbal threshold eliminates the possibility of accident victims, their families or their doctors and lawyers, however well-meaning, pushing the cost of medical expenses high enough to reach the dollar level necessary to get into court.
The worst case of a no-fault state, most experts agree, is found in New Jersey, which has a $200 threshold for lawsuits.
In between those extremes are cases like Florida, where the initial no-fault program quickly became a disaster for companies and for consumers. After changing from a$1,000 threshold to a tough verbal threshold, Florida's insurance plan generally is regarded as a success.
From the point of view of the American Trial Lawyers Association, however, there are no success stories when it comes to no-fault insurance. Members of ATLA, who represent victims seeking damages for injuries arising from automobile accidents, has vigorously opposed no-fault on the grounds that it infringes on the individual's right to sue.
Asked if the trial lawyers would regard any existing state no-fault plan as a success, ATLA's spokesman Robert Cadeaux, who was one of the leaders of the fight against no-fault here, responded with a one-sentence statement:
"On behalf of the trial lawyers, no-fault absolutely does not work in any state."
State insurance regulators, who oversee the laws in effect in their areas, generally are divided on the issue. The National Association of Insurance Commissioners doesn't have a formal position on no-fault insurance, but its current president, Lyndon Olson, is personally against it.
"I am opposed to no-fault; I am opposed to the abolition of the tort system," he said. Other members of the NAIC, however, support no-fault.
After the idea for no-fault insurance was advanced by O'Connell and Keeton in the 1960s, it rapidly gained the support of reformers in a number of states. The first state to adopt no-fault was Massachusetts, where the plan took effect in 1971. More states followed and by 1976, the no-fault concept was in place in a total of 24 states.
Those systems generally attempt to provide some benefits and at the same time limit lawsuits to hold down costs. But within that framework are enormous variations in benefits and barriers. And because of those variations, some state plans are regarded as showcase successes while others are labeled as outright failures.
In 1979, Nevada repealed its no-fault plan, which had become increasingly unpopular due to insurance rate increases. Insurance analysts say that the rates went up partly because the state's low $750 threshold was ineffective.
Several of the remaining 23 no-fault states, such as Florida, have tinkered with their original laws to improve them.
Florida adopted a verbal threshold in order to bring down rates that had skyrocketed in part because of the practice that developed among some victims, their doctors and their lawyers of running up medical bills to pass the $1,000 threshold mark and get into court.
In some instances, the fraud was orchestrated by a small band of doctors and lawyers. In other cases, the buildup of claims represented the good intentions of professionals who knew the person was only a few dollars short of the threshold mark. The result, however, was an increase of millions of dollars in insurance costs.
Some have suggested in the debate over the D.C. plan that this could occur here if a low dollar threshold is adopted.
After the Florida law was modified and the threshold changed, auto insurance rates on the average declined.
Still, because of its comparatively modest benefits--$10,000 maximum medical expenses, 60 percent of lost income and $1,000 funeral costs--Florida's no-fault plan isn't regarded as highly as Michigan's.
"Using a high level of benefits to take care of catastrophic medical expenses and a threshold that restricts lawsuits and keeps costs in line, then by far the best state is Michigan," said Peter Kinzler, former counsel to the House committee that studied the no-fault insurance.
Others who rate Michigan's no-fault plan as a success range from consumer activist Kathleen O'Reilly to State Farm Insurance's assistant general counsel Herman Brandau.
At the other extreme is New Jersey's plan, which is rated as a limited success by some and as an outright failure by others.
"The worst is New Jersey--which is a prime example of people trying to get everything in the world when there is no free lunch," said State Farm's Brandau.
The problem, he said, is the combination of unlimited benefits and a $200 threshold. "It is completely out of balance and it has caused rates to go up in New Jersey," Brandau said.
In instances where insurance companies weren't allowed to raise rates to offset the additional costs, the companies withdrew from the market, he said.
Kinzler, the congressional committee lawyer, agrees that New Jersey has been a "disaster for the companies because of its lousy threshold."
But because of the unlimited benefits available to New Jersey residents, Kinzler believes that its no-fault systerm is better than some areas like Florida, which has limited benefits.
"I would list New Jersey with an asterisk, and say it has had limited success," he said.
Maryland and Virginia are also states where experts consider the no-fault plans in effect unsuccessful, largely because the benefits are so low.
Maryland, for example, provides only $2,500 for medical, hospital, funeral and wage-loss benefits in its no-fault system, which is mandatory.
Virginia has a voluntary no-fault plan that provides only $2,000 for medical and funeral costs and $5,200 for lost wages. Neither state has a restriction on pain and suffering suits.