Whatever happened to no-fault? - no-fault automobile insurance

Washington Monthly, April, 1986 by Peter Spiro, Jeffrey O'Connell

WHATEVER HAPPENED TO NO-FAULT?

Newspapers lately have been full of stories about the "liability crisis.' Insurance company profits are falling, premiums are rising, and the industry and consumers alike are starting to panic. In New York City, the tram line from Manhattan to Roosevelt Island shut down because the company that insured it would not renew the policy. In Janesville, Minnesota, last year's Nativity pageant was canceled because insurance costs were prohibitive. In St. Anthony, Idaho, unaffordable insurance premiums closed down the city office building, the public library, the senior citizen center, and the snowplow service.

The liability crisis has inspired much debate about whether the enormous volume of litigation that accounts for much of the high cost of insurance ought to be restricted. Unfortunately, the question of whether to limit the right to sue can be frustratingly muddy. Do we really want to ease the pain felt by manufacturers of drugs that cause birth defects? Should architects and engineers who design buildings that collapse avoid responsibility?

But if the liability crisis as a whole seems to defy simple solutions, there is one substantial chunk of it that does not: automobile accident cases. In state courts around the country, automobile-related lawsuits often account for more than half the case load, driving up auto insurance premiums, delaying benefits for accident victims, and devouring dollars that might be spent compensating serious injury. Rather than spend time and money arguing in court about who is at fault when two cars happen to collide, as cars inevitably do, why shouldn't insurance companies automatically pay out benefits to any policyholder who suffers in a traffic accident, no matter what the circumstances?

This idea, of course, got a lot of attention during the 1970s under the name of no-fault auto insurance. Massachusetts passed the first no-fault law in 1970. Twenty-three other states followed suit. There even was an effort in Congress to establish no-fault nationwide. But you don't hear much about no-fault these days. When you do, the news is usually that some state government has lost faith in it. No new states have been added to the no-fault roster since 1975, and Nevada, Pennsylvania, and the District of Columbia, have repealed it. Conventional wisdom seems to be turning against no-fault as yet another starry-eyed liberal reform that failed.

But if no-fault is to be judged a failure--and we think it shouldn't be--the problem lies not in the idea but in its half-hearted execution. Even where no-fault has been tried, the fault-based tort system that no-fault was meant to replace usually has remained relatively unthreatened. No-fault statutes have not gotten enough victims of automobile accidents out of our courts because the lawyers won't allow it.

No fault, no fee

The case for no-fault was and remains simple and compelling: the traditional, tort law process of fault-finding gobbles up time and money that could be spent compensating people who need help. Under a pure tort system, if a driver suffers injuries from a car accident, he is not automatically entitled to compensation from his insurance company. Before he can collect, he must demonstrate to a jury that another driver was responsible for the accident. If the victim wins, the wrongdoer (actually, the wrongdoer's insurance company) must pay him not only for his out-of-pocket expenses--medical costs and the loss of wages--but also for the "pain and suffering' that results from the injury. If he loses, he gets nothing.

In contrast, under no-fault, an accident victim does not need to prove that anyone was at fault before he gets his money. A no-fault policy insures against any circumstance that might injure a driver. The harm might come from another driver; it might also come from the victim's own carelessness, a situation the tort system cannot address. Consider a collision with a stationary object. If you crash into a tree, you'll have a hard time convincing a jury that it ran out into the middle of a road. (Anyway, trees tend to be insolvent.) Or consider a collision with another driver that injures the driver who caused the accident. Under the tort system, if you're at fault you can't collect.

And what about the broad gray area in which most traffic accidents occur--cases where both drivers are at fault? Maybe one fellow was speeding because he was a little anxious about being late for an important business meeting. Maybe the other was looking out the window at an attractive woman who was crossing the street. The tort system's usual solution is to have the two men slug it out in court over who was more guilty. Both men will be tempted to distort the truth in order to collect; moreover, if the jury concludes that both were negligent, both men may be losers --neither may be compensated for injuries. Under no-fault, the question is irrelevant.

The difference no-fault can make in the lives of auto accident victims was illustrated dramatically by two cases cited in a 1984 issue of Consumer Reports. In Illinois, which operates under the tort system, 25-year-old Robert Demichelis was returning home from a basketball game at Northern Illinois University when he dozed off at the wheel. His Datsun 200SX bounced off a guard rail and smashed into a concrete divider in the middle of the interstate. Demichelis's head struck the windshield, and he suffered brain damage. His ability to reason and make judgments was sufficiently impaired that he was unable to hold a job. Health insurance covered his medical bills, but his family ended up paying for his rehabilitation treatments. At the time the article appeared, Demichelis's family had paid out $15,000. Because they had no one to sue, there was no auto insurance money to cover the cost.