ALBANY, N.Y. Despite a decline in motor vehicle accidents in New York, auto insurance rates are increasingand a new study by the Public Policy Institute of New York State says an increase in liability claims and New York's unchecked lawsuit industry are to blame.
Auto accident-related litigation has increased in New York even though it adopted "no-fault" insurance to minimize such lawsuits, according to Driving Force: The role of lawsuits in pushing up the cost of car insurance in New York State. The report was released today by The Public Policy Institute, the research affiliate of The Business Council of New York State.
Reining in lawsuits and auto insurance rates may require a "fundamental overhaul of both tort law and lawyer compensation rules," the report said. The report cited two possible reforms: proposed "early recovery" guidelines, which encourage early settlements that mainly benefit victims and pay their lawyers only for effort expended; and "Auto Choice," under which consumers could opt out of the tort system in exchange for radical cuts in their insurance costs.
As accidents decline, insurance costs increase
Since the late 1980s, accidents have sharply declined in New York, both in absolute terms and relative to miles traveled, the report said. In 1988, there were 201,966 personal injury accidents in New York; by 1997, the number had shrunk by nearly 18,000 to 184,014even though there are more cars on the road than ever.
But between 1990 and 1996, Driving Force noted, average car insurance costs in New York rose by 36 percent. In 1980, when the Insurance Information Institute began comparing states' average insurance costs, New York ranked seventh, with average costs (about $706) 23 percent above the national average ($574). By 1996, the state's average was fourth highest, $960, 40 percent above the national average of $666.
The cause of rising insurance rates: lawsuits
The blame for increased costs goes to "New York's booming litigation industry and the trial lawyers who feed off it," the report noted. Personal injury lawsuit filings have nearly doubled since the late 1980s, and both the size and the frequency of liability claims have increased in the 1990s, the report said. This litigation boom came even though New York adopted no-fault auto insurance specifically to minimize litigation by ensuring the automatic reimbursement of property and personal injury damages stemming from most accidents.
The bulk of the increase came from motor vehicle tort filings in state Supreme Court, the report said. Those filings 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 that period. The report also noted that more than one of every five personal injury accidents in New York State now results in a lawsuit.
The report noted that a 1995 increase in New York's mandatory minimum auto insurance liability coverage was associated with a 10 percent increase in motor vehicle liability suits the very next year"and the average auto insurance premium in New York State rose 13 times faster than the national average," the report added.
The beneficiaries of these increased claims are not victims but their trial lawyers, the report said. "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," the report said.
(The Public Policy Institute released a broader and more detailed examination of the abuses of the lawsuit industry in the spring of 1998 entitled 'An Accident and a Dream.' )
The Business Council is New York's largest broad-based business group, representing more than 4,000 member companies large and small across the state. Based in Albany, it lobbies for a better business climate and offers cost-cutting services to its members.