The role of lawsuits in pushing up the cost of car
insurance in New York State
findings of this look at auto insurance costs in New York:
been a significant decline in serious auto accidents in New York
Stateyet a serious increase in auto insurance costs. Why?
answer is that accidents may be down, but lawsuits
lawsuit industry adds an estimated
$400 a year to the average cost
of insuring a car in New York State.
now get 35 percent of
all the money paid out
in auto insurance claimsmore
than goes for medical
care and wage replacement,
- And a new law that was intended to improve insurance coverage has simply resulted in more lawsuits and significantly higher costs for everyone.
standard, it's a lot safer to drive in New York than it used to
bags in newer cars, seatbelt laws, a crackdown on drunken driving
and the aging-out of the baby boom generation are among the factors
credited with bringing about a significant decline in serious accidents
since the late 1980s.
to miles traveled, the rate of personal injury accidents (including
fatalities) has dropped steeply and steadily in New York State
over the last decade. The numbers are down sharply in absolute
terms, too, even though there are more cars on the roads than ever.
wouldn't know it by looking at the cost of auto insurance, though.
Between 1990 and 1996, the average auto insurance expenditure in
New York rose by 36 percent as the Empire State became the nation's
third most costly auto insurance market. Although the trend has
recently begun to reverse, auto insurance rates in New York remain
significantly higher than they were a decade ago.
going on here? Why did insurance premiums in New York go up when
the number of accidents was going down?
some are quick to point the finger of blame at insurance companies,
the facts unmistakably point to another culprit: New York's
booming litigation industry and the trial lawyers who feed off
the drop in accidentsand despite a "no-fault" insurance
law expressly intended to minimize litigationthe number of personal
injury lawsuits filed in New York State courts has nearly doubled
since the late 1980s. The size as well as the frequency of liability
claims has increased during the 1990s, according to insurance industry
to an already growing liability burden, the Legislature approved
an increase in the state's mandatory minimum auto insurance liability
coverage in 1995. The very next year, motor vehicle liability suits
jumped more than 10 percent and the average auto insurance premium
in New York State rose 13 times faster than the national average.
benefits most from these trends? The answer, again, is lawyers.
In New York State, more of the average auto insurance premium dollar
goes to pay legal fees than to pay medical expenses, lost wages
or "pain and suffering" damages for injured persons.
pays? Drivers. In fact, detailed insurance studies of a plan under
which consumers could opt out of the lawsuit system shows that
the plan would cut $400 a year off the average cost of auto insurance
in New York State. Another way of putting that is to say: the lawsuit
game is costing drivers an average of $400 a year.
auto insurance costs are a symptom of an even bigger problema
liability system run amok. As documented by the Public Policy Institute
in its March 1998 report, `An
Accident and a Dream':
liability costs in New York as of 1996, including auto liability
coverage, added up to $14.3 billion. That's $787 per person28
percent above the national average. If you think of this as a "tort
tax" (liability lawsuits are referred to as "torts" in
the legal system), it's a tax that exceeds all state and local
sales taxes combined, a tax that's more than double the total
raised by all state business taxes.
lawyers in New York State now make an estimated $2.3
billion a year from tort suits. And the big contingency
fees generated by such cases have given lawyers the
financial wherewithal to pour money into politics,
in order to clear the way for still more litigation.
the New York Auto Insurance Premium Dollar Goes
to injured persons: |
loss & other
|Pain & suffering,
counter to the trend elsewhere in the nation, tort filings in New
York State jumped by 58 percent between 1988 and 1996. And the
surge in motor vehicle-related claims was a major reason for the
is strong evidence that the growth of this lawsuit system is driven
not by the needs of clients or the demands of justice, but by the
numbers and the growing
appetite of the state's trial lawyers.
number of lawyers actively practicing in New York grew by an astounding
40 percent in just the last ten yearseven as the state's total
population barely grew at all. Compared to population, New York's
cadre of lawyers is larger than all but two other states, and is
66 percent above the national average.
growing number of lawyers fights to find ways to make a living
in a slow-growth economy, some of its members are turning to flamboyant
advertising pitches. And motor vehicle cases are a very big part
of the business. In Albany, for example, a billboard on a major
arterial highway promotes a personal injury law firm with a single
pointed question: "Car Accident?"
York is one of 13 states with a no-fault auto insurance law designed
to minimize litigation by ensuring the automatic reimbursement
of property and personal injury damages arising from the vast majority
New York's statute (Section 5101 of the Insurance Law), a driver's
own auto insurance policy will cover up to $50,000 of economic
lossesdefined to include both medical expenses and lost wages if
he or she is injured in a car crash, regardless of who was at fault.
for this guarantee of coverage, policyholders are not allowed to
sue another driver for damages except in cases of "serious
injury." The law's definition of serious injury includes:
dismemberment, significant disfigurement, or a bone fracture.
of a fetus.
loss of use of a body organ, member,
function or system.
- Permanent consequential limitation of use of a body organ or member.
- Or significant limitation of use of a body function or system.
injuries under the no-fault law also are defined to include "a
medically determined injury or impairment of a nonpermanent nature
which prevents the injured person from performing substantially
all of the material acts which constitute such person's usual and
customary daily activities for not less than ninety days during
the one hundred eighty days immediately following the occurrence
of the injury or impairment."
surface, the no-fault law's language sounds somewhat restrictive.
But in recent years, plaintiff's lawyers have been exploiting more
exceptions to the no-fault bar on tort suits.
example, New York courts have found that a medical diagnosis of
a "herniated, desiccated or bulging disk" resulting from
a car crash can constitute grounds for a serious injury claim under
the no-fault lawdespite recent medical research showing that two-thirds
of the adult population have the same disk abnormalities with no
back pain at all. Courts have also allowed auto accident lawsuits
based on "serious injuries" as minor as a sprained ankle
and scars on one knee.
the no-fault law itself has not changed since the late 1970s, the
loosening of the serious injury standard would appear to be the
most plausible explanation for a significant jump in motor vehicle
tort suits between 1988 and 1996.
trends have been seen throughout the country, according to insurance
industry analysts. Since the late 1980s, auto insurers have noted
a sharply increased number of difficult-to-verify "soft tissue" injury
claims, such as sprains and strains, as opposed to bone and joint
damage that shows up on Xrays and other tests. This has coincided
with an increase in claims for chiropractic treatment, especially
for sprains and strains. 1
the statistics show
the state began its present system of judicial record-keeping in
1988, torts made up 40 percent of new civil filings in Supreme
Courta total of 53,104 cases out of 134,103 filed that year.
the number of new tort filings had risen to 82,453a 55 percent
increase in nine yearsand represented 45 percent of all new Supreme
Court civil filings.
rate of increase in tort filings is similarly high when expressed
as a share of the state population, which rose only slightly during
the same period. In 1988, there were 300 new tort filings per 100,000
residents in New York State; by 1997, the tort filing rate had
risen to 460 per 100,000.
latest published comparison of state court systems, New York had
the third highest tort filing rate in the nation. New York's rate
of increase in tort filings per 100,000 residents was also the
third highest in the country between 1990 and 1995a period that
saw a net decrease in tort filings in other states, according to
the study. 2
rising tide of torts has flowed, to a great extent, from a shrinking
pool of auto accidents. Motor vehicle tort filings in state Supreme
Court increased from 22,108 in 1988 to 41,817 in 1997an 89 percent
jump. Motor vehicle cases rose every year and accounted for nearly
two-thirds of the increase in all tort filings in New York during
filings jumped by 11 percent in 1996the largest such increase in
seven years. Perhaps not entirely by coincidence, the increase
followed the Legislature's approval of increases in minimum liability
coveragethe amount that must be paid out by the insurer of a driver
who causes an accident.
to the change, the minimum required liability coverage in New York
was $10,000 for injuries to one person, $20,000 for injuries to
two persons, and $5,000 for property damage. The bill raised the
so-called 10/20/5 limits to $25,000, $50,000 and $10,000, respectively.
lawyers led the push for the change, saying the $10,000 and $20,000
minimums had gone unchanged for decades and were insufficient to
pay for losses in many cases. The existence of $50,000 in no-fault
coverage for all injured drivers was seldom noted in discussions
of the billwhich, in any event, passed with little debate at the
end of the 1995 session.
the 10 percent of New York drivers who can afford only minimum
coverage, the new law meant especially steep premium increases.
But the change also had a ripple effect ultimately felt by all
drivers. Accidents that were of little interest to trial lawyers
under the old limits now look more attractive, driving up settlement
and loss costs paid by everyone. In 1996 , the average premium
for liability coverage in New York State increased by 7.8 percent,
compared to 0.6 percent for the nation as a whole.
accidents, but more lawsuits
increase in liability claims and lawsuits would be understandable
if matched by some equivalent increase in car crashesor, at the
very least, in car accidents involving personal injuries. Instead,
as shown in the graph on the back page, motor vehicle accident
and tort filing rates have moved in precisely opposite directions.
number of personal injury accidents in New York State decreased
from 201,966 in 1988 to 184,014 in 1997a drop of nearly 18,000
accidents during a period that saw 19,000 more lawsuits. The ratio
of lawsuits to personal injury accidents more than doubled, from
.11 to .23.
words, more than one out of every five personal injury accidents
in New York State now results in a lawsuit, despite the existence
of a no-fault insurance law designed to discourage litigation.
And as the number of claims and lawsuits rises, so does their average
size. Since 1990, the average bodily injury liability claim has
risen by 33 percent, according to the Insurance Information Institute.
comparable state court statistics are not available prior to 1988,
an industry study indicates that increased motor vehicle litigation
stems from a long-term trend of rising insurance claims for injuries
in car crashes.
1980 and 1995, the Insurance Research Council reported, the number
of bodily injury claims per 100 automobile property damage claims
in New York rose by 31.2 percent (from 11.5 to 15.1 per 100), and
the average loss paid per claim rose by 187 percent (from $640
rise in tort filings also has coincided with a sharp increase in
auto insurance costs in New York. As of 1990, when the Insurance
Information Institute began reporting a consistent state-by-state
measure of average auto insurance expenditures,4 New
York ranked seventh in the nation with an average expenditure of
about $706. That was 23 percent above the national average of $574.
the latest year available, New York's average auto insurance expenditure
had risen to fourth highest, at $96040 percent above the reported
national average of $666. Hawaii was the only state to experience
a larger increase in its average auto insurance expenditure during
that period; only New Jersey and the District of Columbia had higher
overall average auto insurance burdens in the latest rankings.
victims actually receive only a small share of these insurance
expenditures. As shown in Table 1, more of the premium dollar in
New York flows to lawyers (including defense lawyers) than to medical
payments, economic damages or non-economic damages.
to national averages, 15 percent more of the auto insurance premium
dollar in New York State goes to pay personal injury claims, while
20 percent less flows to property damage claims.5
contingency fee factor
manner in which lawyers are compensated for motor vehicle and other
tort suits explains why lawyers in the personal injury field are
uniquely willing, among all professionals, to invest heavily in
expensive TV commercials and toll-free 24-hour hotlines to generate
to drafting contracts, house closings, uncontested divorces and
other common types of legal work, tort litigation offers plaintiff's
lawyers a piece of the action. In New York, as in most states,
trial lawyers are entitled to charge up to one-third of the damages
they recover for their clients in most personal injury lawsuits.
Apologists for the system defend these contingency fees as "the
key to the courthouse door" for clients too poor to afford
to pay hourly rates. However, as Professor Lester Brickman of Cardozo
Law School points out, contingency fees are also "the key
to untold riches" for lawyers.
where liability is not contested, the effective rates of compensation
for contingency fee lawyers can range from $1,000 all the way up
to $35,000 per hour, Brickman has calculated.6 Moreover,
lawyers often charge separate litigation expenses on top of their
New Yorkers' litigiousness in the tort arena does not extend to
contract cases (for which lawyers are paid on an hourly basis).
The filing rate for contract cases in the Empire State has dropped
in recent years and is among the lowest in the country.
a bipartisan, blue-ribbon panel appointed to study the liability
issue in New York concluded that the "compensatory thrust" of
the tort system "has greatly expanded the number of claims
the system must handle, increased the transaction costs that the
parties must bear, and stretched the concept of fault to the breaking
cause has now been taken up by New
Yorkers for Civil Justice Reform, a nonpartisan coalition of
citizens, businesses, municipal governments and organizations representing
hundreds of thousands of New Yorkers. It has drafted legislation
that would rein in liability costs, including the non-economic
damage awards and contingency fees that help drive up auto insurance
long run, the greatest breakthrough in reducing auto liability
costswithout shortchanging real victims or encouraging negligent
conductmay come from a more fundamental overhaul of both tort law
and lawyer compensation rules.
example, proposed "early recovery" guidelines for tort
cases would not alter the existing landscape of tort lawexcept
to change the basis on which plaintiff's lawyers are compensated.
The guidelines would encourage more low-cost settlements, in which
the lion's share of financial benefits flow directly to the plaintiffs
themselves while lawyers are compensated only for efforts actually
new approach is exemplified by the "Auto Choice" plan,
co-sponsored on the federal level by U.S. Sen. Daniel P. Moynihan
of New York, which would give consumers the ability to opt out
of the tort system entirely, in exchange for major savings in their
these approaches aim in the same direction, by de-emphasizing the
role of lawyers and returning the power of real choice to consumers.
Contractual relationships work well in defining other relationships
in our economy; they could be given a chance to work in the area
C. Connors and Sholom Feldblum, Personal Automobile: Cost Drivers,
Pricing and Public Policy.
the Work of State Courts, 1995," Center for State Courts,
in Auto Injury Claims, 1996 Edition, Insurance Research Council,
to reflect what consumers actually spend on insurance for each
vehicle, the average is calculated as total written premiums divided
by liability car years.
Information Institute estimate based on data from A.M. Best Co.,
Insurance Services Office, Inc., National Association of Independent
Insurers, and Insurance Research Council.
Contingency Fees," by Lester Brickman, Michael J. Horowitz
and Jeffrey O'Connell, Manhattan Institute, 1994.
Our Future: Report of the Governor's Advisory Commission
on Liability Insurance, Vol. II, July 1986, p. 191-192.