Transcript Automobile Insurance and Tort Reform

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Automobile Insurance
and Tort Reform
Jacqueline Friedland
November 27, 2003
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Nothing Particularly New or Unique in
Tort Reform
 Elimination of collateral source rule
 Caps or limits on awards
 Change from gross to net income basis
 Greater use of structured settlements
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Elimination of Collateral Source Rule
 According to collateral source rule, damages are not
reduced by other “collateral” sources
 Collateral sources: private or employer health and
disability plans, workers’ compensation, Canadian
Pension Plan
 Collateral source rule reflects negligence and deterrence
principles of tort law
 Liability today is increasingly focused on compensation
 Result is overcompensation, with increased costs of
system borne by all
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Caps or Limits on Awards
 Most well-known of all tort reforms
 Cap on pain and suffering for minor injuries
 Only pain and suffering cap – full access to tort system
for all other categories of damages
 Difficulties:
– What should the cap be?
– How do you quantify impact with limited data?
– What is a minor injury?
– Is psychological injury included with physical?
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Change from Gross to Net Income Basis
 Some argue that using gross income
overcompensates
 Cost of overcompensation passed to all
through higher premiums
 Compensation at 100% of gross wages is a
disincentive to return to work
 Primary argument for use of gross is the
implicit “gross up” for future taxes and
investment management fees
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Greater Use of Structured Settlements
 Lump sum award for future care and future
loss of income replaced by annuity
 Always on list of suggested tort reforms
 However, impact rarely quantified
 Benefits to:
– Insurer
– Injured party
– Society
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Proposed Changes in Rating Variables
 Another significant area of consideration and
debate
 Remove age, sex and marital status
 Territorial rating is also an issue
 Actuarial Standard of Practice
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