America's insurance crisis

Alex Finer

Many bartenders in California now add two olives on two separate cocktail sticks when 4 customer orders his second martini. They are not being generous, just cautious. They ;VII Put three olives in the third drink and "l en, after checking the number of sticks, rep'

to serve another.

The reason for such precise behaviour by uarMen is the same that has led local councils to stop holding boozy receptions !lid forced restaurateurs to rush out and '113' more insurance. For, in a court case in ;es Angeles last year, a jury awarded '1.9 Million dollars to James Stacy, a 39-yeardeld actor who lost an arm and a leg after a nrl-Mken driver hit his motorbicycle. It was -13t the driver but the Beverly Hills bar twhhat ere the driver had previously got drunk was ordered to pay the full damages. I,n This decision is just the latest example of e. willingness of juries throughout the united States to make multi-million dollar !wards in personal injury cases and to keep "tending the circumstances in which they are IDn.rePared to do so. There have now been tY-eigh t awards of more than one million ars in the past five years. Until recently, r vvas mainly the medical profession that :squired insurance to protect itself against a'41Practice and negligence. But now almost 1.Yune could find themselves facing crip"Ing damages for causing personal injuries even indirectly. Irving Green, the lawyer bleliq. won Stacy's 1,9 million dollar verdict, a 'eves that similar damages could even be owrarded in California against the host of a solvate dinner-party if a guest injures Teone. in an accident on the way home. dill his strange legal trend has already proA:led some very bizarre results elsewhere in erica. In Wyoming, for instance, a ea,„seere.t-arY was awarded 1.3 million dollars -ter this year against the son of a former

US ambassador from whom she had contracted gonorrhoea. Most VD carriers and dinner-party hosts are, however, probably best protected by their limited assets and lack of insurance. For lawyers in personal injury cases take a 30-40 per cent cut of the damages as their fee. Working entirely on payment by results, they therefore rarely go into court for a client unless the defendant has a sufficiently attractive bank balance or insurance policy. rare—and often criticised for being too low. Unacceptable delays occur and legal aid limits require raising urgently. But British negligence law works more evenly than the American system which encourages 'golddigging' actions at the expense of other plaintiffs and the rest of society.

Now that the American Bar Association has recommended that lawyers should be allowed to advertise in the yellow pages of telephone directories, legal entrepreneurs are likely to flourish as never before. Stephen Gillers, a New York lawyer, has already envisaged the legal advertising copy of the future. One of his invented examples (see above) includes the message: 'Stick it to the doctor . . . A sizeable verdict might even help restore your health.'

It is in medicine that the present effects of million dollar verdicts have been most clearly seen. With doctors facing malpractice premiums of up to 36,000 dollars, many newly qualified doctors may soon be unable to set up in practice at all. Insurance companies have quadrupled premiums in some areas in the past year. Increased premiums are passed on to the patient in higher bills for medical treatment which in turn leads juries to raise damages in personal injury cases. There have been several awards in excess of three million dollars.

Some doctors now refuse to take out insurance and continue to practise in the hope that their own limited resources will deter lawsuits. One in five Nevada doctors, for instance, have 'gone bare.' They risk bankruptcy if sued. But the innocent victim of their negligence risks being unable to recover the damages necessary to pay for the medical attention he subsequently required.

Dr Jack Talsma, a Reno eye specialist, discontinued his insurance last November. He says: 'If there are no apples on the tree, no one's going to climb it.' He describes his action as a protest against a system that opened him to 'nuisance' suits that were without merit and gave a plaintiff's lawyer too large a share of settlements. The philosophy may be healthy, but the outlook for a patient with a genuine claim for malpractice against an uninsured doctor is far from rosy.

The legal profession and the system of contingency fee payments attracts other criticism. It is easy to see why. Top personal injury lawyers now even have a club called the Inner Circle of Advocates which since its creation in 1972 has encouraged members to share the latest tricks for coaxing milliondollar verdicts out of juries in different state jurisdictions. To qualify for membership, a lawyer has to win a jury verdict of more than one million dollars in a personal injury case. So far, seventy-two lawyers are eligible.

A founder member and past president is forty-six-year-old Richard Grand of Tucson, Arizona. He says: 'We didn't pull that million dollar figure out of a hat. For an attorney to win that kind of money for a client, he almost always has had a very large settlement offer. That he didn't accept it, that he trusted his abilities far enough to turn down, say, 800,000 dollars, is a measure of his experience and skill.'

Richard Grand and other lawyers blame insurance companies for creating the present crisis, particularly in the medical profession. They claim that companies have arbitrarily and exorbitantly raised malpractice premiums to recoup losses on the stock market. 'Insurance is too important to leave in the hands of private industry,' says Grand.

The Arizona lawyer has floated the idea of a government insurance monopoly. He and other personal injury specialists would certainly lose a lucrative part of their practices if the proposal was ever adopted, for its effect would be to standardise settlements. By reducing the profit motive in insurance and by cutting the duplicated costs of competing companies, Grand believes that premiums would fall.

The legal profession's increased awareness of iniquities inherent in the present approach to negligence may be because they now sometimes find themselves in court on the receiving end of malpractice suits. Edward Freidberg's firm in Sacramento, California, has won 282,000 dollars for clients in four major legal malpractice claims against other lawyers. In Wisconsin legal malpractice insurance premiums rose by an average of 300 per cent in 1975. To discourage claims, lawyers are now advised never to disclose the fact that they carry insurance.

Lawyers concerned at the general malpractice and personal injury crisis could help to solve it. The profession might start by reforming the contingency fee basis of payment. But its main target must be the jury's power to determine astronomical damages. For the root cause of spiralling premiums, with or without profiteering by insurance companies, is the multi-milliondollar verdict.

The legal profession is well-equipped to lobby legislators to restrict the levels of damages that juries are allowed to award. A scale of maximum awards for various disabilities is used by British industrial injury tribunals. Scales for pain, suffering, medical treatment and loss of earnings may be distasteful and arbitrary—but less unfair than a system which over-compensates a few, prevents others getting to court, and threatens to wreak further havoc with the medical profession and the public.