September 13, 1991
"Even in the 1930s, No-Fault Insurance was a Bright Idea - What Went Around Comes Around"
San Jose Mercury News
By Timothy Taylor
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NO-FAULT AUTO insurance bills were debated before the California Legislature as early as the 1920s. But after last week's surprise announcement by California Insurance Commissioner John Garamendi that he now favors no-fault auto insurance, it might actually happen.

The case for no-fault hasn't changed much in the last six decades. Back then, the automobile was spreading through the middle class, bringing carnage in its wake. "For 1930, we find the immense totals of 33,000 persons killed and over a million injured by motor vehicles," said the 1932 report of the blue- ribbon Committee to Study Compensation for Automobile Accidents, based at Columbia University. By comparison, motor vehicle accidents currently kill about 50,000 people a year and injure 1.8 million. Because the U.S. population has doubled since 1930, auto accidents were proportionately a bigger problem then than now.

The rules of the road were a bit different back in 1930. Only 21 of the 48 states issued drivers' licenses, and in some of those a license was available for the asking, without any test.

Only one state -- Massachusetts -- required that all drivers carry insurance. Some other states had "financial responsibility" laws, which required those who had been at fault in a serious accident to buy insurance against future accidents. Only 40 percent of the cars in California were insured, but that proportion was high compared to most states.

People were complaining about rising insurance rates even then. Rates had risen nearly 30 percent from 1926 to 1930. In San Francisco, auto insurance cost $56 per year in 1931; after adjusting for inflation, that would be about $500 today.

Moreover, the Columbia University panel saw that the "financial responsibility" laws weren't enough. "So far as the protection of the public is concerned, financial responsibility laws cannot be shown to have had much effect," the committee wrote. "They have somewhat increased the number of insured cars and they have put some careless drivers off the road, but there is no evidence that they have been able to select a class of careless drivers and to fasten insurance upon all of them."

The harm caused by uninsured drivers prompted the committee to approve "requiring every owner of a motor vehicle to insure against whatever legal liability may be imposed on him." However, simply requiring insurance had its own problems.

Judging by the experience of Massachusetts, the one state that required all drivers to purchase insurance in 1932, the committee noted, "There seems to be no doubt that the compulsory liability law has greatly increased litigation... This is the natural result of assuring a financially responsible defendant to almost everyone injured in a motor vehicle accident."

Moreover, the committee noted that finding fault in motor vehicle accidents can be a difficult business. It requires "that the witnesses can be obtained, that they really tell what has happened, that the judge and the jury understand what has happened, that the damages can be measured with reasonable accuracy and that they can be collected."

The committee wrote six decades ago: "It is fair to conclude that in a great many motor vehicle accident cases it is impossible to fix the blame according to the facts, and that in personal injury cases it is almost always impossible to fix the damages accurately. The result of a jury trial in the ordinary automobile accident case is largely a matter of chance. To a great extent, the verdict and the amount of damages depend on who secured the best or the most witnesses, on who has the best lawyer, on the personal prejudices of the jurors, on the so-called 'breaks of the trial,' and on the intangible human element; they do not depend on a scientific ascertainment of the facts."

No-fault makes it easier and faster to be compen sated for the typical medium-sized accident, but harder to file lawsuits and maybe win big bucks. In the form being discussed for California, it would require that your own insurance company pay for the first $15,000 of lost wages and medical bills resulting from any accident, with a $500 deductible. You would be forbidden from suing for more money -- no "pain and suffering" damages -- unless the injury was severe, permanent and resulted in expenses of more than $15,000.

While no-fault won't make auto insurance cheap, it will reduce costs of paying the typical victim of the typical auto accident, and thus reduce auto insurance premiums. By contrast, the mischievous and misleading Prop. 103 was based on the alluring but wrong-headed idea that bashing insurance companies was sufficient to reduce insurance rates.

As the Committee to Study Compensation for Automobile Accidents put it back in 1932: "No system based on liability for fault is adequate to meet existing conditions. The committee favors the plan of compensation with limited liability and without regard to fault."

Since Garamendi's conversion to this point of view came so close to the end of the legislative session, it appears unlikely that California will pass an insurance reform this year. But next year, four years after passage of Prop. 103, the time may arrive for real auto insurance reform in California.

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