No-Fault Catches Fire

AFTER years of inconclusive talk, no-fault automobile insurance has suddenly been whiplashed into a matter of national debate. Last year only Massachusetts had a law enabling auto-accident victims to collect payment for personal injuries without having to establish who was to blame. Florida adopted a no-fault plan this year, and an Illinois no-fault law is presently before the courts. Legislators in at least 25 other states, including New York, New Jersey, Virginia and California, are expected to consider their own versions during 1972 sessions. There is perhaps an even chance that Congress might settle the matter once and for all by enacting a national no-fault law this year. "I think it is a losing cause to fight no-fault any more," says Thomas Cargill Jr., a Boston lawyer who unsuccessfully challenged the Massachusetts law in court. "It is a conflagration."

Lower Premiums. The fire is being fanned by widespread public dissatisfaction with the system now in effect. That system is based on the Anglo-Saxon common law of torts (wrongs), under which someone must be proved "at fault" before a court can award damages. With the accident rate increasing, the job of establishing such proof has created a huge backlog of cases in the nation's courts. More than half the suits growing out of auto accidents take two years or longer to come to trial. All too often, that leaves victims to cope in the interim as best they can with staggering medical bills. In addition, plaintiffs frequently claim huge sums for "pain and suffering" or for vague and sometimes imaginary back and head injuries. If an award is made, the victim usually must hand at least a third of it to his attorney.

Under no-fault insurance, everyone involved in an auto accident is automatically reimbursed by his own insurance company for medical expenses, lost work time and damages to his car. For insurance companies, the cost of covering these actual losses should theoretically be the same as under the old system, while the cost of administering them ought to be drastically cut. The result should be reductions in currently sky-high premium rates, or at least a limit on yearly increases. At present, legal costs and sales expenses eat up 56-c- of every dollar paid for auto-insurance premiums. Says Professor Guido Calabresi of Yale Law School: "Any reparations system where half the investment goes for administrative costs is lousy."

The no-fault principle is hardly new. Auto-insurance coverage for items such as theft, fire, storms, floods and the like has always provided for compensation without any debate over blame. The laws now under consideration would extend the practice to bodily injury or property-damage coverage, or both.

Fearing a great increase in claims, many insurance companies have fought no-fault. However, some industry leaders, including Hartford and Allstate, are actively in favor of the idea. In large part that is because the results of the Massachusetts system have proved favorable to almost everyone. During the first nine months of 1971, bodily injury claims dropped 48%, to 13,000, from the same period in 1970, and the size of the average settlement fell from $419 to $165. In fact, there was a striking 39% decline in the number of personal injuries even reported to authorities, which suggests that many claims under the old system were phony.

Worrying Points. The most vocal opposition to no-fault has come from trial lawyers, who earn more than $1.4 billion a year in fees from auto-accident cases. Though their self-interest is obvious, the lawyers raise some troubling points. For generations it has been considered only just for an injured person to collect damages for the intangible costs of an accident, including psychological "costs" like long periods of suffering. Under the "purer" forms of no-fault, some victims of another driver's carelessness or negligence would not be allowed to sue for such damages.

Most state legislators who favor no-fault back fairly extensively "modified" plans that give accident victims with permanent injuries or with high medical expenses the chance to sue for any amount they think they can get. The lower the limit for "high" expenses, the less savings to consumers in premium reductions. Under an extremely low $100 cutoff system being considered in New Jersey, for example, consumers would pocket only an average of 10% on premiums for bodily injury insurance v. 42.6% in Massachusetts, where the minimum suit possible on wage and medical losses must be for more than $2,000. Since the price of collision coverage and other forms of auto insurance continues to climb ceaselessly, moreover, at least part of those savings would be wiped out for consumers who purchase a total-insurance package.

Boon to Hospitals. Still, the unfairness of the present court-clogging insurance system is so glaring that almost any form of no-fault seems an improvement. Even if insurance premiums remain the same, at least the vast majority of auto-accident victims would be assured of prompt, equitable settlements. Senator Warren Magnuson, one of the sponsors of the national no-fault plan, foresees another benefit. At present, he points out, hospitals have no assurance that accident victims will ever be able to collect enough money to pay for emergency treatment, but under no-fault insurance companies would settle such bills quickly. Thus, he says, hospitals would have a major new incentive to improve ambulance and emergency-room service.

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