President Reagan was presented yesterday with a sweeping set of recommendations for dealing with the nation's liability insurance crisis, including limits on attorneys' fees and restrictions on punitive damages and damage awards for "pain and suffering," White House officials said.
At a meeting of the Domestic Policy Council, Reagan was told the problem is "out of control," with escalating premiums, insurance shortages and skyrocketing damage awards, the officials said.
Reagan was given the recommendations of an administration working group on the problem headed by Assistant Attorney General Richard K. Willard, who said in a speech here yesterday that the crisis "is being felt in virtually every segment of American society."
While an intense debate is under way over the causes of the crisis, many experts say it stems in part from an expanding legal definition of "liability" by judges, legislators and juries. As a result, individuals, businesses and public agencies are being required to compensate injured people more readily, and more generously, than in the past.
The higher awards have led to increased insurance premiums and, in many cases, insurers have stopped selling lines of coverage altogether. The crisis has sharply curtailed the availability of many services, such as obstetrics, and dramatically increased the costs of others.
Legislative proposals in this area affect the welfare of several major industries, including insurance, manufacturing and the legal profession, and have traditionally been extremely controversial.
Reagan made no decision on the recommendations yesterday, officials said, but "was shaking his head" at accounts of abuses in the current tort system, under which claims of damage from a broad variety of injuries are adjudicated in the courts. Officials said the president is expected to submit legislation to Congress on the problem, although a timetable has not been set and further refinements in the proposals are likely.
Although the nation's tort system is overwhelmingly a matter of state law, the recommendations presented yesterday would seek to supersede state laws by invoking the Commerce Clause of the Constitution, which gives Congress broad power to legislate where business transactions cross state lines.
Officials said the recommendations to Reagan included the following:
*A return to the concept of "fault-based liability," restricting the liability to whoever is found to be at fault. The increasing application of "strict liability," under which certain defendants, especially corporations, can be held liable for damages without having done anything wrong is often mentioned as one of the causes of the current crisis. For example, the president was told of a man who suffered a heart attack trying to start his lawnmower and successfully won damages from the lawnmower maker without any finding of fault. This would be prohibited.
*A restriction on "joint and several liability," under which any one of several parties can be held liable for the damage caused by a single incident. Officials say this has allowed an injured person to seek damages from someone with remote connection to the accident.
This has had a "particularly devastating effect" on many cities, Willard said yesterday in his speech to municipal law officers. He cited the 1979 case of a 16-year-old girl injured when the drunk driver of the car she was riding in ran a stop sign, and the car collided with another.
The city of Los Angeles was found to be 22 percent liable "due to poor visibility of the street lane lines, regardless of the fact it was raining that night," he said. The negligent driver "had very little insurance coverage," and was thus "judgment proof," he said, and "unless the jury award of $2.16 million is overturned on appeal, the city will pay nearly all of it . . . . "
The officials said the proposal sent to Reagan would allow "joint and several liability" only in cases where the parties can be shown to have acted together.
*An absolute dollar limit on non-economic damage awards, judgments designed to "punish" a defendant or compensate a plaintiff for "pain and suffering" resulting from an incident. Such awards are sometimes staggering in size.
*A procedure to link damage awards to the duration of the damage. For example, if an accident caused harm that would last five years, the award would be paid out over a five-year period instead of in a lump sum, according to a White House official.
*Limits on attorneys' fees. This proposal, which is likely to be one of the most controversial, would restrict the amount of contingent fees received by lawyers. In contingent-fee cases, attorneys agree to represent a plaintiff in exchange for a percentage of the ultimate award, if there is one. The proposal made to Reagan yesterday would limit such fees according to a sliding scale.
*Limits on the practice of seeking damage awards from several different sources, which officials say creates a kind of "double-dipping" in which several insurers pay for the same accident.
White House officials said the strongest opposition to the proposals would likely come from trial lawyers, who have fought limits on attorneys' fees as well as caps on damages. Commerce Secretary Malcolm Baldrige told the Cabinet council yesterday, however, that revision of the tort laws is strongly supported by many sectors of the business community.