cash flow underwriting is insurance industry mismanagement, pure and simple. Yet at the bottom of the cycle, when rates are shooting up and profits are pinched, the companies invariably cry crisis and turn to state legislatures for help. In the mid-'70s it was labeled a medical malpractice crisis. Premiums soared, half the states passed laws restricting victims’ rights to collect benefits and then industry profits hit record levels in 1978. The stage was set to begin this latest cycle. Many new companies sought to muscle their way in by offering reduced rates and underwriting risky policies. Profits once more were squeezed. In 1985, the insurance industry decided to launch a full court press on the nation’s tort system. The president of the Insurance Information Institute stated in National Underwriter, “An effort to market the idea that there is something wrong with the civil justice system... is, in effect, the national pilot effort.... We believe there is a very real opportunity now—probably for the first time—to gain significant legislative change.” So in the fall of 1985, spearheaded by a $6.5 million media campaign, the casualty insurance industry assaulted the the rights of civil injury victims. THE ATTACK TRIUMPHANT he industry scored a big success in Olympia, Washington during the 1986 Legislature. What what was heralded as perhaps the most sweeping tort reform measure in the country was approved in the whirlwind of final action before adjournment. The testimony of Ralph Nader who appeared before the state Senate Financial Institutions and Insurance Committee and spoke against the proposal was completely disregarded. “The insurance company behavior in this country is a clear political strategy to bloat their profits and to restrict victim’s rights,” Nader said. “It has nothing to do with data or actuarial evidence; it has everything to do with stampeding state legislators.” But when the dust had cleared it become evident that Washington’s Liability Reform Coalition had rolled back much of the precedent of 100 years of settling personal injuries. Rep. Gary Locke (D-Seattle) explained that the Coalition knew that it could capitalize on massive insurance premium increases by pressing hard for immediate action during a short, election year session. “Strategically, what the Coalition pulled off was great,” observed Locke. “In terms of public policy, however, it stinks!” Rep. Gene Lux (D-Seattle), chair of the House Financial Institutions and Insurance Committee, termed the new law "an insurance boondoggle” that effectively placed the economic well-being of private insurance companies above the rights and welfare of injured persons. In a nutshell the new Washington law: 1. Partially eliminated joint and several liability. This provision of tort law, also called the “deep pocket,” allowed the plaintiff to collect the entire award from only one defendant. This developed to ensure full compensation in cases that might involve an absent or indigent defendant. Now, if a plaintiff is to any degree also at fault, then individual defendants can only pay the portion of damages for which they are deemed directly responsible. This places tort victims in a position similar to that of a woman who has been raped. Defense lawyers will do their best to point the finger of blame at the victim. Major beneficiaries will be large businesses, state and local governments and their insurance companies, since these parties have most often served as the deep pocket in multiple party suits. 2. Capped non-economic damages. Generally referred to as pain and suffering, these are what the industry attacked as being the least justified and the most out of control. The new law placed a cap on pain and suffering ranging from $112,000 for people with a short life expectancy to $575,000 for an infant. Previously, there was no limit to what a jury could decide a victim was due. This gives insurance underwriters an incentive to drag their feet to delay settlement so that court costs alone will surpass the cap. Given this additional hurdle, some lawyers might advise that it isn’t economically prudent to seek a pain and suffering settlement. 3. Allowed structured payments. Where previously an insurer was expected to pay benefits when the award was made, now a company can request that the court allow it to spread out payments. This allows insurance companies to maintain their investments longer while denying victims their rightful cash settlements. 4. Changed the medical malpractice statute of limitations for cases involving children. The old law which held the statute of limitations in abeyance until the child became an adult was amended to commence with the malpractice incident. Victims have three years from that date, or one year from the discovery of something wrong, if this doesn’t exceed eight years, to file charges. The knowledge of the parent is also imputed to the child. This means that if a physician simply informs parents that there were complications with a birth, the parents have a maximum of four years to file suit. This just isn’t sufficient time to diagnose many things such as subtle brain damage. Even eight years isn’t long enough to assess the effects of many drugs such as diethylstilbestrol, or DES. Many physicians prescribed this medication for women to use during pregnancy to avoid spotting. Daughters of women who were administered the drug were often found to have a rare form of vaginal cancer that would only manifest itself during their young adult years. ROUND TWO BEGINS An effort was made to pass tort reform legislation in Oregon during 1985 without success. However, the Citizen’s Initiative for Equity in the Legal System, Oregon’s tort reform coalition, is gearing up for the 1987 Oregon Legislature with a package similar to that passed in Washington. The Oregon Trial Lawyers Association, aided by the Oregon State Public Interest Research Group and Oregon Fair Share, is resisting the effort. They have their own proposals with limited changes in tort law but major changes in insurance regulation, proposals which failed in Washington. The Washington State Trial Lawyers Association (WSTLA) is studying the situation and assembling a coalition, the Consumer Alliance for Insurance Reform (CAIR), to pick up the fight for insurance affordability and availability where it was left off. This quest is not going to be an easy feat for the trial lawyers. In choosing tort reform as a major priority, they have opened themselves wide to the criticism of being greedy lawyers trying to hang onto their cut of the huge damage awards being made in the liability system. A poll conducted by the Liability Reform Coalition in Washington before the 1986 session found that whereas people dislike both insurance companies and lawyers, their disapproval of lawyers was by far the greater. But lawyers are not motivated purely by self interest. Washington Rep. Pat McMullen (D-Mt. Vernon), a trial lawyer himself, asked, “Who is it that represents the interests of future injured people? It is only trial lawyers.” FUTURE OPTIONS So what is likely to come out of the legislative session in either Oregon or Washington? At least the industry’s liability woes will be looked at more skeptically than a year ago. Even though the liability package which the industry has pushed was already in place in the Canadian province of Ontario, consumers there were recently hit by the same soaring rates experienced elsewhere. And here, as a spokesperson for Washington Fair Share testified at an Insurance Crisis Town Meeting in Seattle in , late October, insurance industry profits for the first six months of 1986 were up 512 percent over one year ago. Governmental, financial and industry observers all project further growth in insurance profits. Currently the industry has a record surplus (cash on hand) of $77 billion. It will likely be more difficult for insurers SPOKESMAN: (VOICE OVER) NO ONE’S PERFECT-NOT EVEN YOU! WHEN SOMETHING GOES WRONG, YOUR OWN HOME CAN BE AS DANGEROUS AS A MINEFIELD. . . . SPOKESMAN: “ACCIDENTS WILL HAPPEN!’*. . .SOUND FAM IL IAR: IT SHOULD: IN A WORLD WHERE UNCERTAINTY IS THE RULE, YOU CAN’T AFFORD NOT TO BE CAREFUL. . . . Clinton St. Quarterly—Spring, 1987 15
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