A Reagan Administration task force has recommended that limits be imposed on lawyers’ fees and punitive-damage awards to help stem the “rapidly expanding” liability-insurance crisis.
The Tort Policy Working Group, established last October and headed by Assistant Attorney General Richard K. Willard, presented its 80-page report on the subject to President Reagan last month.
Although the reasons for recent dramatic increases in insurance premiums and sharply curtailed availability of coverage remain a matter of debate, the report charges that the “extraordinary growth in tort lawsuits and the average award per lawsuit” is a major contributor to the crisis.
It notes that the average amount awarded by juries in medical-malpractice suits increased from $220,018 in 1975 to $1,017,716 in 1985, while the average award in product-liability cases increased from $393,580 to $1,850,452.
In addition, the report says, the “rules of the game” have become so unpredictable that the insurance industry often cannot assess liability risks with any confidence.
Cities, Day Care Affected
Municipalities are among the entities that have been hit hardest by the decreasing affordability and availability of of insurance, the task force found. Renewal rates have climbed by as much as 400 percent—often for lower coverage with higher deductibles, the report notes. (See Education Week, Feb. 5, 1986.)
The task force also singled out day-care centers as facing severe problems. A survey conducted by the National Association for the Education of Young Children found that 40 percent of the respondents had their insurance cancelled or not renewed, and the majority of those with coverage had their premiums increased by an average of 200 to 300 percent, the report notes.
The task force proposes capping awards for pain and suffering, mental anguish, and punitive damages at $100,000. Such awards, the panel’s report contends, are “entirely subjective and often defy quantification” and therefore are “particularly suitable for a specific limitation.”
The report also recommends limiting the fees of plaintiffs’ lawyers, arguing that “increasingly, there are indications of extraordinary abuses where attorneys receive fees in the hundreds of thousands for limited work.”
While the panel did not endorse the elimination of contingency fees, it suggested that such fees be scheduled to decrease as awards increase. For example, the report notes, lawyers could collect 25 percent for the first $100,000 in an award, 20 percent for the next $100,000, 15 percent for the following $100,000, and 10 percent for the remainder.
The restrictions proposed by the task force appear likely to be controversial.
While not disputing the existence of a serious problem in liability insurance, Craig McDonald, field director for Public Citizen Inc., a public-interest organization based here, argued that the task force is wrongly targeting the civil-justice system, rather than the insurance industry.
“Our findings show that $1-million settlements are still a rarity,” he said. “This is not a case of civil justice gone awry, but of problems manufactured by the insurance industry.”
Mr. McDonald said the proposed cap on awards would “limit victims’ rights.” He added that while his group agrees lawyers’ fees should be limited, such caps should apply to defense lawyers as well.
Much of the insurance crisis, Mr. McDonald maintained, stems from inadequate regulation. He noted that efforts are now underway to repeal the McCarran-Ferguson Act of 1945, which gave the insurance industry a permanent exemption from federal regulation and antitrust laws as long as it was regulated by the states.
The task force also recommended:
- Providing for periodic payments of damages, rather than requiring the losing defendant to pay a lump sum.
- Restricting “joint and several liability,” under which several parties can be held liable for damages caused by a single incident. Such joint liability has led to the inclusion of many “deep pocket” defendants whose involvement is only tangential—such as governments and large corporations—the report says.
- Developing alternative methods of resolving disputes through the help of bar associations, legislatures, and jurists. Particularly in the area of medical malpractice, the report adds, states should be encouraged to consider constitutional changes to permit the use of alternative means of dispute resolution.
A number of states are currently considering reforms similar to those proposed by the task force.
A version of this article appeared in the April 02, 1986 edition of Education Week