When Baltimore lawyer Robert Verderaime got a call from his insurance agent a few months ago, the message came across like one of those good news/bad news jokes.
The bad news: beginning this January, Verderaime's insurer would no longer write policies protecting lawyers against malpractice claims. The good news was the insurer knew another company from which Verderaime could buy. But there was more bad news: Verderaime's former $3,000 policy would cost him at least three times that amount to renew.
"Our rates are going up three, four, five times what they were," said Verderaime, a former president of the Maryland Trial Lawyers Association and a member of a gubernatorial task force looking at the problem. "I didn't even notice it until it happened to me."
Verderaime and other lawyers can take some comfort in knowing they are not alone.
Doctors, architects, day care centers, municipal officials, nurse midwives, asbestos haulers -- scores of professions and businesses of all sizes both in Maryland and across the nation -- are being caught between the rock of spiraling insurance premiums and the hard place of having no insurance at all.
And although the automobile, homeowners and fire insurance familiar to most consumers are relatively untouched by sharp increases, consumers may find some prices hiked and some services curtailed as commercial insurance users pass on the costs.
Behind the problem, say insurance industry representatives, is a collision between two trends of the previous decade: aggressive industry price cutting and equally aggressive and growing numbers of plaintiffs.
They are demanding compensation for injuries suffered for everything from landfill leaks to auto accidents resulting from drunk driving.
W. Minor Carter, also a task force member and a vice president at USF&G, one of Maryland's oldest and largest guaranty companies, said that in an era of high interest rates, insurers discounted their products to generate more business and therefore more premiums. They realized that they could both offset any losses and earn substantial profits by investing the money.
Then interest rates fell. At the same time, the number of lawsuits increased and along with them, the amounts of jury awards. As a result, the insurance industry's income fell substantially, Carter said.
"Eventually, it caught up with us," he said. USF&G "lost more money last year than we lost cumulatively in the entire history of the company," he said.
In addition, said Lt. Gov. J. Joseph Curran, head of one task force looking at the problem, juries are requiring insurance companies to pay in some cases even when policies specifically exclude coverage, such as in cases of intentional child abuse.
But consumer representatives are arguing that the insurance industry is acting precipitously and sometimes unfairly, penalizing consumers in one state for problems that have not occurred there, for example. Some argue that the insurance industry is a cyclical one that operates with periods of prosperity offset by downturns, and perhaps long-term changes do not need to be made.
"Historically there's been a 'crisis' in the insurance industry every eight to 10 years because of the fluctuations in interest rates," said Verderaime, who squares off against insurance companies in his role as plaintiffs' lawyer in civil suits. "They're complaining of multimillion-dollar verdicts and you don't see it in Maryland. It's rare."
Regardless of the causes, smaller organizations and groups are particularly concerned, because increases came with virtually no warning; higher premiums place greater strain on limited budgets; and the fear that even one adverse court judgment could force a small organization into bankruptcy.
With that in mind, the Sykesville Town Council president and members of the Board of Appeals of the Carroll County town resigned their positions in September until insurance protecting town officials from lawsuits could be replaced.
"We're getting calls all the time now" from agencies concerned about insurance hikes, said Louis Altarescu, director of Government Relations for the United Way of Central Maryland. A Rockville community organization serving autistic adults and children was informed that its $370-a-year policy would not be renewed. Officials finally found another -- at a cost of $5,700, Altarescu said.
And in an example of a concern felt nationally, more than 200 Maryland day care centers, as well a shelter for battered women run by Baltimore City, were faced with mid-term cancellations of their insurance policies earlier this year until the state's Insurance Commissioner forced the California-based insurer, Mission Insurance, to continue coverage until the policies ran out.
While the centers have not had judgments placed against them for abuse, the attempted cancellation was "a direct result of all the publicity about child abuse," Altarescu said.
"It has nothing to do with your claims history or even the claims history in your field. We think the insurance industry is running scared with very little reason."
Whether they agree or not about the causes, both sides agree that solutions must be found if insurance is to remain both "available and affordable," to use two industry buzz words.
In Maryland, two task forces appointed by Gov. Harry Hughes have been working on recommendations to present to the General Assembly this winter. One specifically addresses medical malpractice insurance, the other general liability.
Among the recommendations being discussed, said Lt. Gov. Curran, are caps on some jury awards, such as for "pain and suffering" incurred in an injury; caps on awards made against municipalities and counties; and ending the practice of requiring the wealthier party to pay damages in a lawsuit even if that party was only minimally responsible for the injury.
Other recommendations include capping judgments made against day care centers; requiring that jury awards be paid out over a period of several years instead of in a lump sum; and allowing a plaintiff to be paid only once for each injury rather than from both health insurance and a lawsuit, for example.
Any recommendations are expected to be controversial and possibly difficult to pass, particularly in an election year. While the insurance industry is well entrenched in Annapolis, consumer groups and trial lawyers can also apply pressure against modification of legal principles that have been in place for years. The vastly different perspectives of the two groups is expected to generate lively debate in Annapolis next year.
Said Carter, "There is only way to reduce premiums, and that is to reduce the amount of claims or the number being made."
Said Verderaime, "I think they want to throw the baby out with the bath water."