Americans spend $80 billion each year for auto insurance, 2 1/2 times the $32.4 billion they spent in 1978. A major reason: lawsuits.
Nearly every state requires drivers to buy insurance and specifies the kind. Most states rely on tort, or liability, insurance.Under this system, a driver who has an accident cannot collect until he proves, to a jury if necessary, that the other driver was at fault. If he does, he collects from the other driver's insurance company and can sue for "pain and suffering" in addition to his costs.
If he does not prove the other driver's fault or if he hits a tree and there is no other driver, he gets nothing unless he has additional, optional coverage.
This method of insurance is expensive because it hinges on assigning blame and that takes lawyers, who cost money. Lots of money.
Lawyers have an incentive to get accident victims to file big claims. Instead of being paid by the hour like other attorneys, trial lawyers are paid up to half of what their clients win. Legal fees from auto-accident cases now top $1 billion per year.
Liability insurance, says Harry Snyder of the West Coast office of Consumers Union, "makes each accident a meal ticket for the trial lawyer." Additional payments for "pain and suffering" raise the cost of settling many auto claims by about 150 percent. They also invite abuse.
In one Chicago case, two con men were sentenced in August 1988 to a total of 25 years in prison. Their crime? Running a ring that collected in excess of $250,000 by staging smashups and filing suits. Injuries claimed were invariably "sprained" necks and backs.
A 1987 insurance-industry study revealed a shocking correlation between claims like these and the presence of lawyers. In New Jersey, where lawyers helped settle 60 percent of all auto claims, 73 percent of those injured reported they had hurt their necks. In Michigan, where lawyers were involved in just 23 percent of claims, only 22 percent of those injured in auto accidents claimed neck injuries.
Michigan residents do not have sturdier bodies. But since 1973, they have had no-fault auto insurance - the answer to soaring insurance costs.
When a driver with no-fault insurance is in an accident, his own insurance company automatically compensates his costs whether he was responsible or not. In exchange for this guaranteed compensation, the injured waive their right to sue, even for pain and suffering, in all but a narrow set of circumstances.
Michigan has what most experts consider the best no-fault system in the country. Although the state offers very broad coverage - unlimited medical, hospital and rehabilitation costs and more than $100,000 for lost wages - its rates increased just 2 percent last year.
Despite such benefits, why do only three states - Michigan, New York and Florida - have true no-fault? The answer: Trial lawyers oppose it.
The Association of Trial Lawyers of America (ATLA) and its state affiliates have mobilized a hardball campaign to stop the spread of no-fault. ATLA's national political-action committee handed out $869,000 to federal politicians from January 1989 to February 1990 alone. Individual state PACs distributed still more money.
Most experts now agree that auto-insurance rates will never stabilize without no-fault. Those experts even include Benjamin Marcus, co-founder and first president of ATLA, who calls no-fault "the only way out of the wasteful, irrelevant, burdensome and exasperating" tort system. And in a recent interview he said he worries that some of his trial-lawyer colleagues are "profit motivated."
But with the kind of big-dollar opposition arrayed against no-fault, expert support will not be enough.
The success of upcoming no-fault initiatives in various state legislatures depends on whether consumers make their side known. The stakes are high - and rising.