Be Careful What You Wish For On Tort Reform

We wouldn't blame insurers for being hard put to suppress a grin when they heard about all the tort reforms loaded onto the federal terrorism reinsurance bill by the House of Representatives. After all, many of the provisions for controlling liability costs have been at the top of the industry's wish list for years.

This all might be a moot point by the time you read this editorial, because Congress is expected to act at any time on its terrorism reinsurance initiative. However, when this editorial went to press, Congress was still debating the issue, and given the proclivity of our D.C. lawmakers to wait until the 11th hour or beyond to do what they must, we fear that the unnecessary inclusion of tort reforms might yet sink the entire bill. That would leave risk managers at the mercy of insurers, who will have no choice but to exclude many terrorism exposures.

The House bill would bar punitive damages and eliminate joint and several liability for non-economic damages such as pain and suffering. It would also eliminate the collateral source rule for terrorism losses, meaning that claimants couldn't collect for the same losses from two different policies.

One item sure to delight insurers is the cap on attorney fees, with plaintiff lawyers allowed to get no more than 20 percent of the damage award or settlement amount.

The bill passed the House by a 227-193 vote, but the fate of these various tort reforms is very uncertain given the determination of the Democratic leadership in the U.S. Senate to scuttle any law that would undermine the trial bar's earnings power. Indeed, our concern is that if the House insists on including tort reform in the final legislation, it will derail the entire federal terrorism reinsurance initiative, to the detriment of policyholders and the insurance industry.

Failure to pass a bill would be extremely bad news for the U.S. economy, which cannot afford the fallout if insurers exclude terrorism exposures. It would also come back to haunt insurers, who would inevitably get the blame for the consequences.

Without a federal safety net to cushion the potential blow from what for all intents and purposes are “war” risks in our global battle against terrorism, insurers have no choice but to protect themselves from another catastrophic loss like the one suffered because of the destruction of the World Trade Center. But try to explain that to a public that, poorly served by self-appointed consumer advocacy gadflies, is being told insurers are looking for a “bailout” of their business.

To be fair, the insurance industry never asked for the addition of tort reforms to the House bill, no matter how fervently they may support them in principle. Practically speaking, the passage of a pure terrorism reinsurance bill is the most important goal, and any unrelated item standing in the way of that goal must be eliminated.

Thus, if no progress has been achieved on a legislative compromise by the time you read this, we believe insurers must take the high road and push Congress for a clean bill that can be voted into law and signed by President George W. Bush this year. The clock is ticking on Jan. 1 renewals, and U.S. businesses can't be left hanging any longer.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 10, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Be Careful What You Wish For On Tort Reform

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