Tort Reform: Help needed.

I have been in discussion with some friends in regards to the "Cheeseburger Bill."

One particular person who has worked in the legal field has voiced her opposition against Tort Reform.

This person claims that it is the insurance companies who are behind the Tort Reform agenda. That insurance companies use their cry for Tort Reform as an excuse to charge outrageous premiums for medical malpractice.

This particular person claims that insurance companies are 'master financial investors' and that they never actually lose money.

So, I have been challenged to come up with financial documentation to back up the last time an insurance company lost money.

I realize I've just had the premise changed on me for starters, but I know there are freeper-expert-debaters among us and request some help with my rebuttal.

This probably qualifies as a vanity-post. I apologize in advance. This is only the second time since 1998 that I've ever posted anything.

Actually, tell your co-worker you've changed your mind and support her side now. But, you'd go further. Any and all risky behavior should be taxed more. Rock climbing or hiking in the woods? Yep, do you realize how much it costs to save these guys when they get stuck or lost? Skiing? You bet. Running into trees and rocks causes us to have to pay for ski patrols and medical care. Twinkies? Oh heck yes. We should be taxing all fatty foods.

After we tax all these things, the next step is to sue all the manufacturers for producing products that are dangerous to society. With the tobacco tax and resulting law suits, there's a model to follow that works. Any and all behavior should get a pass while we blame the manufacturers.

Oh yeah. Insurance companies donate to both parties because they never know which one will have the most power to help them make money.

Don't know if it was the ''last'' (i.e. most recent) case, but in 1992-1993, virtually EVERY casualty insurer with exposure in the state of Florida, and EVERY re-insurer, lost huge sums, some even went bankrupt, after hurricane Andrew. Total insurable loss was in excess of $70 billion.

Lloyd's, which is principally a reinsurer, has lost for years and years due to the asbestos-tort racket. Swiss Re has taken huge hits from time to time (they were PanAm's insurer at the time of Lockerbie, for example). Numerous auto insurers in the states, Allstate in NJ, for example, have operated at a loss in several fiscal years -- which of course is why a number of auto insurers have stopped writing in various states.

For publicly traded insurers, annual P&L statements are readily available, free, on the EDGAR website. Should be a cinch to find any number of companies that have had losing years from time to time.

Your lawyer friend is wrong - insurance companies lose money all the time. For example, Conseco, a very large company, is currently in Chapter 11 reorganization, and London Pacific is in receivership. Insurance companies operate in the red when they incur excess losses resulting from claims on the risks against which they insure. This is especially so when losses exceed the financial reserves maintained for the purpose of paying claims, and when the companies' own investments perform poorly in a "down" market.

Allstate went through a period of extreme financial difficulty following Hurricane Andrew in Florida. Health insurance companies are all struggling right now - principally due to lawyers. Tort law as been warped beyond recognition from what it was for decades - even centuries -in common law. Time-honored concepts such as "contributory negligence" and "assumption of risk" have given way to "deep pockets" - and I think you know whose pockets are picked and whose are filled under that theory. Malpractice costs have become so egregious that in states like Pennsylvania and New York it is increasingly difficult to find specialists in "high-risk" fields like obstetrics and endocrinology. Insurers base their premiums on mathematical and actuarial relationships - unlike tort lawyers, who increasingly base theirs on greed and arrogance.

Ask your friend why doctors/hospitals need malpractice insurance in the first place....to pay lawyers, and the lawsuits they bring, regardless of merit? To pay settlements, when it is cheaper to pay somene off than to waste time in court against a lengthy, but unmerited lawsuit? ASK HER the last time lawyers as a group went into poverty. Also, ask her how directly profits by trial lawyers mirror the increase in malpractice premiums.

Thank you for your reply.

This whole debate started because she supports H.R. 339 and I poked fun at it because it always starts with a piece of legislation like this. And it's just a matter of time before the legislators throw their hands up and say, 'We have no choice but to tax this behavior.'

So then I commented on how the only true solution to turn this litigious ship around is to support Tort Reform. And then, she shifted the focus to insurance companies and how Tort Reform is an agenda to benefit business.

It's kind of the old 'big business boogey man' response.

Here is a link to Texas insurance insolvencies: http://www.txlifega.org/impairment.html . Workman's compensation carriers probably have had the most failures (as a percentage), but many property and casualty companies have failed, as have many reinsurers. Lloyds of London required a UK government bailout (or two) to survive. Annuity contracts have been the biggest risk for life insurance companies. And remember Equity Funding?

The biggest problem for insurance companies is that they have clerks running massive businesses. With a few notable exceptions, there are fewer IQ points per dollar of assets (or revenues) in insurance companies than in any other sector of the economy (except, perhaps, banks).

It's almost impossible to get the information you want--for several reasons.

1.Any major player in the insurance market will never want to publicly admit that they lost money--it will scare off agents who represent them, causing a reduction in their billings and thus in their income--a death spiral. Also, any admission that they lost money scares off customers who feel the company would not be able to pay claims--another death spiral scenario.

Therefore, they resort to 'adjusting reserves for losses'. Not all losses are paid in the month they occur. So reserves for anticipated losses make up a large part of the liabilities listed. Playing around with reserves is an arcane insurance practice that goes on all the time.

The next thing they do is to increase premiums to make up for actual losses plus an added amount for future anticipated losses plus a profit margin. When states try to regulate the market by limiting premium increases to adjust for these factors, many insurors will simply stop writing the particular policies that are giving them trouble (such as auto) or will withdraw entirely from the state because of the hampering regulations.

2.Smaller insurors don't have the luxury of enormus premium bases. They sometimes go belly-up because of losses that are higher than any viable recoupment by increases in insurance premiums.

Usually, one of two things happens: They are bought out by a larger insuror who accepts their lieabilities and assets with the goal of working their way out of financial trouble--or they go out of business and their insureds are protected by state laws that spread the losses around among all the insurors doing business in that state.

3. When a market like malpractice becomes a sure loser, most insurance companies simply refuse to write policies. This results in the rise of under-capitalized 'specialty insurors' who serve a 'niche market.' There are virtually NO large insurance companies that write medical malpractice any more. In some cases doctors have resorted to forming their own cooperative companies--with predictable results. Another practice, often entered into by dodgy insurance executives is to set up non-regulated insurance companies in places like Belize but which serve the American market. A lot of them are simply scams. As the losses start piling up, they don't pay off and often go into bankruptcy, laaving policyholders and agents holding the bag.

In short, insurance is a very involved financial business. I spent twnety-nine years in it and find it difficult to explain all the financial ramifications in a short time. You might get some additional information about companies which have actually gone into receivership from your state insurance commission.

I cut and pasted several of these responses, including yours, since you were in the business for twenty-nine years.

She also said that most of the large settlements are argued down but that that part doesn't get reported by the press. And the reason why she's against tort reform is because there shouldn't be a cap put on pay-outs..she uses the example of a person becoming wheelchair bound due to a doctor's carelessness. If this said person was only rewarded 250k, that amount would just cover all of the modifications to her house...how could this person live?

I see this worst case scenario example to be more of the exception that the rule. I mean, just in my short life, I've known SO many people who have profitted from false claims of disability. It's really quite infuriating.

I know that there is probably really no real way to measure the percentage of false claims but based on your experience, do you have any thoughts on this, Wildbill?

Best Regards,

There are several problems with tort reform, but that doesn't mean that the system doesn't need some changes.

the number of false claims is huge. Most are not the really big things you read about in the paper--beause the insurance companies investigate those. But almost everyone tries to get the repair shop to make their collision deductible "disappear" by padding the bill. This is in the billions of dollars.

Then there are the people who look on an auto accident as a winning lottery ticket and they are encouraged in this by the ads of attorneys who tell them how much money they got for their clients. Let her deny that. She'll say they are just getting what they are due--but face it, many of these people aren't even hurt. They get doctors who work with attorneys to fabricate some injury and then try to settle with the company without having to prove their case. In many instances the companies settle because trials are costly and you never know what a runaway jury will do.

Doctors often want to settle Malpractice lawsuits without any fanfare because they don't want a bad reputation. The issues are often obscure medical/scientific points that juries don't understand--some juries just want the 'victim' to get paid--by whoever is around--and paid handsomely at times. John Edwards made his fortune on these types of cases, specializing in birth defects or foetal deaths. Strangely enough, he often spoke to the jury about "hearing" the baby speak or cry out. I guess it was a person after all, in spite of his approval of abortion. Check out the internet and you'll find a story on Edwards' lawyer tricks.

Another problem is that certain locations in the almost every state in the US are noted for giving huge awards. Lawyers will try to find any excuse to put their lawsuit (called judge shopping or jurisdiction shopping)into one of these jurisdictions because the judges and juries are known to be defendent friendly. The practice is supposed to be unethical--but ask your friend if it doesn't go on.

Then their are the lawyers who bring nuisance suits against small businesses for not retrofitting their business to meet some new law--like no smoking or something.

Doctors often want to settle Malpractice lawsuits without any fanfare because they don't want a bad reputation. The issues are often obscure medical/scientific points that juries don't understand--some juries just want the 'victim' to get paid--by whoever is around--and paid handsomely at times.

And please don't overlook the costs of doing business every day in defensive mode--extravagant, excessive, and unneccessary procedures designed simply to stave off a claim of this or that.

My personal story is this: My wife and I each had a mole that we wanted removed. Mine was on the corner of my mouth, hers was at the base of her neck. To get our insurance to cover the procedures, we had to have a plastic surgeon handle it at a hospital as outpatient surgery. We had to check in to the hospital as outpatients, fully disrobe (put on the gown, hat, slippers, everything) be attended by several different nurses, be wheeled (couldn't walk!) down to an operating room with two surgical nurses and the surgeon.

In high school (early 80s) I had five moles removed from my back, in a doctor's office: cost, $55.00. The bill for these two moles was over $3300! The hospital laundry bill alone for my wife and I had to be more than the earlier procedure!

Why would these extraordinary measures be required for such mundane, minimal procedures? Lawsuits. A hospital has to operate in a condition of excessive defense, to go to elaborate lengths to eliminate and limit liability from even bizarre and extreme claims. How much does all that cost in the millions of cases that happen every year? And who pays these costs? Everybody, every day.

I have one small bit that I usually use when I try to explain this to people. It's fairly simple, but I think it works:

We can have the greatest medical care ever.
It can be cheap and easy to get.
We can sue for any problems, great or trivial, for large amounts of money.

Pick any two.

Dear possum:
"To get our insurance to cover the procedures, we had to have a plastic surgeon handle it at a hospital as outpatient surgery."

Don't you see it--you are part of the problem. You admit that the moles were a minor problem, easily handled in your doctor's office when you were either: (a) in a family without insurance or (b)in a family which took things like minor medical problems in stride as part of living and paid for the procedure themselves.

But now, when you are presumably wiser and richer as well as older, you want "someone else" to pay to remove your mole. The excuse is 'everybody does it' or 'I'm paying a lot for that medical insurance every year, so I'm entitled to finagle the coverage to get my money back."

So, rather than go to your doctor and have the mole removed at your own expense at a far lower cost, you go to all that trouble at the local outpatient clinic--and rack up those higher costs to the insurance company--which inevitably will factor your action (and all those who try to "beat the system" like you)into higher medical insurance costs--which you will no doubt complain and holler about.

Talk about spiraling health care.

Yes, you're right about the doctors and hospitals using costly "defensive" medical practices. For example, the reason why you had to be wheeled around the hospital was that patients' attorneys have sued because their clients weren't properly protected from fainting or whatever while walking down the halls. So they have to pay people to wheel you down the halls during your stay (and often right to the exits when you are discharged) as a protective measure to keep from getting sued.

Here on FreeRepublic we always talk about individual responsibility and our disgust for the "nanny state" mentality which postulates that government or insurance companies or someone is responsible for taking care of us, but far too many of us fall into the same trap without realizing it.

I stress the "not realizing it" part because I don't intend to criticize your action in particular as heinous. It's just that we all--even conservatives--have been conditioned over time to think someone else should pay for all our ills.

I'm not sure what you mean by a "policy with fixed caps on liability" as an answer to the problem. What you might be asking for is something like a deductible on your liability policy rather than a maximum cap.

Deductible liability policies work fine in theory--but are not very reliable in practice. For example, let's say you decide you can stand to pay the first $2,500 of a claim. That could lead to several types of disasters.

1. You would have to do all the negotiating about pain and suffering with little experience and try to settle it without legal safeguards.
2. You might prejudice the rights of the insurance company by inept or inexperienced actions or failure to investigate.
3. You might very well drive the claimant into the arms of an attorney, thus driving up the cost over the deductible at which time the insurance company would have to come in to pick up the pieces.

I don't know of any insurance company that is willing to write deductible liability insurance without an underlying base policy--especially for individuals.

To get back to your original question, in reality, all policies have fixed caps on liability now. It works in two ways. 1) In most states for example, you can buy an auto policy with state mandated "minimum limits" as the cap on the liability policy. These minimum limits are the state-determined public policy as the minimum protection necessary for the public-at-large.

2) However, you can also buy additional coverage with a higher maximum limit than the state mandated minimum. The higher limit caps the insurance company's potential payout. If a loss that you are obligated to pay goes over the limit you select, then you pay the balance.

Each individual makes the determination of how much protection he needs vs. the cost factor and then makes his decision based on the cost/benefit ratio.

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