No-Fault Insurance Faulted As Some States Move to Drop It

THE tide appears to be turning against no-fault insurance, a two-decade-old legal experiment aimed at eliminating costly lawsuits from most vehicle accidents.

In Massachusetts, which in 1971 became the first state to enact a no-fault law, lawmakers have taken initial steps to repeal the no-fault system, following repeals in other states.

No-fault insurance ``is a 23-year experiment that has failed,'' says Michael Mone, president of the Massachusetts Bar Association. Like most trial lawyers in the state, Mr. Mone supports the repeal bill, which has been approved by the state Senate.

The real problem with no-fault insurance is that in most states it hasn't really been tried, counters Jeffrey O'Connell, a law professor at the University of Virginia and one of the fathers of the no-fault concept.

In 1965, Mr. O'Connell and then-Harvard law Prof. Robert Keeton co-authored a book and a model statute that launched the no-fault movement, under which most motorists involved in auto accidents would be covered by their own insurance companies, regardless of who caused the collisions. Today, however, O'Connell contends that in many states the concept has been gutted by special interests - mainly trial lawyers - and legislative dickering.

The auto-insurance industry and many state insurance regulators support no-fault. That is proof either that the system works or that it doesn't work, depending on whom one talks to. Each side in the complex debate produces mountains of data that the other side rejects or interprets differently. In the absence of unequivocal proof that no-fault has reduced insurance premiums, many consumers and state lawmakers are left befuddled.

In the 1970s, 16 states responded to projections of greater efficiency in settling accident claims and a corresponding decline in insurance rates by enacting no-fault laws. But some states now have abandoned no-fault: Nevada repealed its bill in 1980, and Georgia did the same in 1990. Connecticut jettisoned its law last year. (Pennsylvania repealed a no-fault law in 1984 but reenacted it in 1990.)

In January the Massachusetts Senate passed a bill to repeal the state's no-fault law by a wide 24 to 11 vote. Repeal supporters pointed out that, even with no-fault, Massachusetts motorists pay some of the highest insurance premiums in the country. The House has taken no action, yet.

Gov. William Weld opposes the repeal measure, favoring instead a bill that would permit motorists to choose a no-fault plan.

According to O'Connell, the traditional tort system tends to complicate auto-accident recoveries, delay payments, raise insurance costs, and siphon money away from accident victims into legal fees and other costs.

The system of torts, or lawsuits for injuries and property damage, is characterized by the need to assign ``fault'' for accidents, and by the ability of people injured by another person's negligence to collect money for ``pain and suffering'' - i.e., harm beyond economic loss.

In theory, no-fault schemes eliminate those factors. Claims for economic losses like medical expenses and lost wages are settled promptly by each party's own insurer; and as insurers don't have to hedge against legal fees and hefty pain-and-suffering payments, they can lower premiums.

But in fact, only a few states - notably New York, Michigan, and Florida - have enacted laws that approximate this rigorous model. Most states with no-fault laws allow vehicle-accident victims to sue for damages, including pain and suffering, if they cross a relatively low medical-expenses threshold.

This loophole lowers potential savings from no-fault, its advocates say, because:

* Insurers have to pay their own clients, even when they're negligent, and sometimes also have to pay other motorists on liability claims.

* There is little reduction of legal expenses from the system.

* Low tort thresholds induce fraud, as some claimants exaggerate injuries in order to sue for pain and suffering.

Fraud is endemic in low-threshold no-fault systems, many observers say. David Finnegan, a Boston lawyer who represents insurance companies in regulatory matters, says ``a cottage industry of [unscrupulous] extra-medical providers - like chiropractors and masseuses - applies itself to treating `soft tissue' injuries'' and thereby raising accident victims' medical costs beyond the state's $2,000 tort threshold.

Even Anthony Tarricone, a leading plaintiffs' attorney and president of the Massachusetts Academy of Trial Lawyers, acknowledges abuse of the system. Since Massachusetts raised its tort threshold from $500 to $2,000 in 1988, ``chiropractic billings have gone up fivefold,'' he says.

Isn't the solution to raise the tort threshold much higher, or eliminate it altogether except in extreme cases, as O'Connell proposes? No, says Mr. Tarricone, a leader in the no-fault-repeal effort in Massachusetts. The insurance system should not discourage legitimate lawsuits, he contends.

``People who have been wronged [in an auto accident] should have a right of redress through the best civil-justice system in the world,'' he says.

No-fault auto insurance seemed bright with promise when it appeared a quarter century ago. Its advocates, citing statistics from ``strong'' no-fault states and in other countries, insist that the promise can be realized in less costly and more equitable auto-insurance systems.

But if no-fault is to regain momentum in many statehouses, it appears that its champions will have to become more persuasive.