Liability and social reform

THE knot of issues involved in the liability insurance crisis is not going to be easy to untangle. But as we start with the loose outer strands and work our way inward, we have an opportunity to rethink what kind of society we want, what protection against risk we will demand, and what responsibility individuals must take for their own actions.

The stories of municipal swimming pools closed, obstetricians limiting their practices, taverns closing down early, or closing down, period -- all because of liability insurance problems -- are becoming commonplace.

To affix blame, each party in these dramas points to someone else. A tavern owner whose liquor liability insurance premium has increased twelvefold in a year, for example, blames litigation-hungry lawyers. The plaintiffs' bar, in turn, attributes the crisis to mismanagement in the insurance industry. The insurance industry blames our litigious society, full of people who will file suit at the drop of a hat, or the bend of a fender -- 13 million lawsuits filed in the United States in 1985, according to some sources.

The litigating citizenry squawks that the courts are its only defense against careless town officials, incompetent obstetricians, or irresponsible barkeepers.

All of these people are probably at least partly right, and partly in the wrong. It is clear we are a litigious society, and becoming more so. The number of wrongful-death lawsuits filed in a year nearly doubled between 1980 and 1983, for example. The insurance industry estimates that total commercial liability insurance premiums paid in the US work out to around $60 a head; the corresponding figure for Canada, where several reforms the US industry wants are already in place, is $18.

And if the US figures for 1965 were brought forward to today, adjusted for inflation and population growth, the per capita cost of premiums would be $38.

But even the insurance industry concedes it has no desire to go back to a 1965 standard of civil justice. As a society, we are demanding more accountability. The threat of lawsuits compels many to make their products and practices safer. Liability lawsuits are one of the ways we have of controlling bad behavior. Yes, an individual has his or her own responsibility to refrain from driving after drinking. But giving tavern owners a stake in preventing their patrons from driving drunk is like having a second lock on your door; it might hold even if the first doesn't. Accordingly, we have seen abolitions of ``happy hours'' and other drink discounting programs, ``alcohol awareness'' training for bartenders, wider availability of nonalcoholic drinks, and other manifestations of more responsible industry behavior.

Thus it is with other fields. Incompetent professional services, dangerous intersections, poorly designed products, and destruction of the environment are becoming less acceptable; our standards -- for other people's behavior at least -- are rising. And insurance premiums are going up with them.

At this point it's worth noting that it might be better to speak of liability insurance crises, in the plural. Many of the problem areas are new and quite specific; the system hasn't adjusted to them yet. Commercial truckers, for instance, have been required to carry more insurance since deregulation in 1980. And five years ago, who ever heard of day-care centers being sued?

Add to this the fact that much liability insurance is handled not by the usual licensed insurers within a state, but rather specialized ``excess and surplus lines'' carriers. A business may have only one or two carriers to choose from.

The property casualty insurance industry has been having a tough time of it lately -- it incurred an operating loss of $5.5 billion in 1985, though its net worth grew by more than $7 billion. Critics charge that the industry is finally paying the piper after years of offering cut-price policies, just to get premium dollars which it then invested in the heady days of double-digit interest.

The whole question of liability insurance is getting needed scrutiny at both the state and federal levels. We need to learn to relate legitimate claims to the pool of insurance money available to compensate them, and to learn to take individual responsibility for our actions.