LYNDON B. JOHNSON SCHOOL OF PUBLIC AFFAIRS POLICY RESEARCH PROJECT REPORT 
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A STUDY OF THE FEASIBILITY 
OF NO-FAULT AUTOMOBILE 
INSURANCE FOR TEXAS 

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A Report by The State Insurance Policy Research Project Lyndon B. Johnson School ofPublic Affairs The UniFersity of Texas at Austin 1975 

FOREWORD 

The Lyndon B. Johnson School of Public Affairs has established inter­disciplinary research on policy problems as the core of its educational program. A major part of this program is the policy research project, in the course of which three faculty members, each from a different profession or discipline, and about fifteen graduate students with diverse backgrounds research a policy issue of concern to an agency of government. This "client orientation" brings the students face to face with administrators, legislators, and other officials active in the policy process., and demonstrates that research in a policy environment demands special talents. It also illuminates the difficulties of using research findings to bring about change where political realities must be taken into account. 
This report on the feasibility of no-fault automobile insurance for Texas was produced by the State Insurance Policy Research Project at the LBJ School during the 1973-74 academic year. It was one of two studies undertaken at the request of the Texas State Board of Insurance and its Chairman, Joe Christie. The second study was on the feasibility of health maintenance organizations for Texas. 
The intention of the LBJ School is both to develop men and women with the capacity to perform 1effectively in public service and to produce research that will enlighten and inform those already engaged in the policy process. The project which resulted in these reports has helped to accomplish the former; it is our hope and expectation that the reports themselves will contribute to the latter. 
William B. Cannon 
Dean 
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TABLE OF CONTENTS 

FOREWORD iii 
PREFACE v 
POLICY RESEARCH PROJECT PAR TIC IPANTS vii 
CHAPTER I: THE TORT AUTOMOBILE REPARATIONS SYSTEM: PROBLEM OR PROMISE The Development of Tort Law The Current System and Its Problems 4 Criteria for Reform: The Characteristics of a Good Automobile Insurance System 5 
CHAPTER II : THE THEORY OF A NO-FAULT AUTOMOBILE INSURANCE SYSTEM 9 The History of No-Fault Automobile Insurance 9 Types of No-Fault Laws 11 Limiting the Right to Sue 17 
CHAPTER III: SPECIAL ISSUES AND PROBLEMS 21 The Constitutionality of No-Fault Automobile Insurance 21 The Potential Shift in Rates Among Insureds Under No-Fault Insurance: The Subrogation Issue 24 Coordination of Benefits: The Primacy Issue 26 Compulsory Automobile Insurance 32 
CHAPTER IV: EXPERIENCES OF OTHER STATES WITH NO-FAULT INSURANCE 42 
CHAPTER V: PROSPECTS FOR TEXAS 46 Characteristics of the Texas System 46 Recent Changes in t)J.e Texas System: Implications 48 Probable Effects of No-Fault Automobile Insurance for Texas 51 
CHAPTER VI: ALTERNATIVES AND CONCLUSIONS 61 Proposed Modified No-Fault Plan 62 Proposed Modified Tort Liability Plan 62 
BIBLIOGRAPHY 67 
APPENDIX A: A COMPULSION/COMPLIANCE IN AUTOMOBILE INSURANCE: SURVEY QUESTIONNAIRE 71 
APPENDIX B: ACCIDENT QUESTIONNAIRE 74 
v 


PREFACE 

Historically , damages and injuries resulting from auto­mobile accidents in the United States have been remedied through a system of tort law which makes a determination of who is at fault for causing the injuries and damages in a particular case and assesses against him the responsibility for paying the losses. Accompanying this legal system is an insurance system under which persons deemed liable for injuries to persons and property could look to insurers to pay the judgment rather than their other personal financial resources. As a result of problems and criticisms associated with these systems, among them the fact that many accident victims receive no reparation for their losses , there has developed in recent years a number of so-called no-fault automobile insurance plans which make substantial changes in the manner of compensating automobile accident losses. The essential characteristic of these plans is that they pay basic benefits for certain losses directly to the insured regardless of fault while limiting, at least partially, the person's traditional right to sue for recompense of those losses. The no-fault plans in existence at the present time have been adopted by states in their role as insurance regulators, but within the past few years, there has also been proposed legislation for a national system of no-fault insurance under consideration in the Congress of the United States. / 
In light of these developments and the growing interest in possible no-fault legislation in Texas, the State Board of Insurance through its Chairman, Joe Christie, requested the Lyndon B. Johnson School of Public Affairs to conduct a study of the feasibility of no-fault automobile insurance for Texas. This study was one of two undertaken during the 1973-74 school year by one of the School's policy research project seminars, a regular organizational component of the School's academic program structured with three or four faculty members and fifteen graduate students. In the instant case, with two major projects to accomplish, the graduate students were organized into two task groups, with six members assigned to the no-fault insurance study and nine members to the study of health maintenance organizations. The names of students and faculty associated with this study of no-fault insurance are indicated on the following page with the exception of Jared E. Hazleton, associate professor of public affairs. Professor Hazleton initially coordinated the project, but departed on a leave of absence at the end of the fall semester and is not, therefore, associated with or responsible for the findings and recom­mendations of this report. 
With a broad mandate to study any and all aspects of no-fault automobile insurance, including an assessment of the relatively limited experience of other states and to formulate appropriate alternatives and recommendations with respect to possible changes in the Texas system, it was inevitable that there would be a high level of interest on the part of the many individuals and groups who have professional, economic, social, and individual interests in the matters under study. Accordingly, every effort was made to make contact with these persons and groups and to elicit their experiences, individual points of view, and recommendations. The results of this effort were most beneficial and rewarding to the project and its ultimate product as presented here, and we wish to express our gratitude for the valuable contributions made by all who assisted us. These persons are too numerous to mention here, but they are listed at the end of the study. All of the faculty and students associated with this project express their deepest appreciation to the State Board of Insurance, and particularly Chairman Christie , for the unique and challenging opportunity to engage in this project, for able and prompt technical support on numerous occasions, and for providing a portion of the financial resources required to complete the study. Lastly and importantly, we are indebted to the Ford Foundation for funding a portion of the costs involved in this research effort. 
Lynn F. Anderson 
Project Coordinator 

vii 

POLICY RESEARCH PROJECT PARTICIPANfS 

Mary Lucia Urban Barras, B.A. (Mathematics), Hood College; M.L.S. (Library Sciences), The University of Texas at Austin. 
Peter Alan Bernstein, B.A. (Political Science), Wesleyan University. 
Thomas Dana Denton, B.A. (Journalism), Baylor University; M.S.J. (Journalism), Northwestern University. 
James H. Mitchell, B.A. (Mathematics), Huston-Tillotson College. 
Richard Lynn Tate, B.A. (Government), Pan American University. 
Mike Moeller, B.S. (Speech), Southwest Texas State University. 
Jerry D. Todd, Associate Professor ofInsurance, Graduate School ofBusiness, The University of Texas at Austin. Sarah Haynie, Attorney, Texas Legislative Council, State of Texas, Austin, Texas. 
Monti Callero, Colonel, USAF, United States Air Force Associate, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin. Lynn F. Anderson, Associate Professor ofPublic Affairs and ofFinance and Director ofConferences and Training, Lyndon B. Johnson School ofPublic Affairs, The University ofTexas at Austin, Project Coordinator. 
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CHAPTER I 
THE TORT AUTOMOBILE REPARATIONS SYSTEM: 
PROBLEM OR PROMISE 

THE DEVELOPMENT OF TORT LAW 

The chief function of government in any society is the maintenance of order. Rules are enacted providing that individuals should not impinge on the essential rights of others and discouraging willful disturbers of order from becoming disturbers again. Laws are enacted calling for the compensation of victims of disturbing activities so that these individuals may quickly become healthy members of society and so they do not feel that they must take revenge on the person who has done them a wrong. Order must be ' maintained. Governments, if they are to stay in' power, must provide sanctions against the disorderly, and must also take measures for insuring that the victims of disorder receive just and fair compensation for the wrongs that have been perpetrated against them. 
For the purpose of dealing with the disorder in society caused by automobile accidents, the United States has developed the "fault insurance system." This sytem is composed of two parts: (1) fault law, which determines who has caused the disorder; and (2) insurance, which is the means of correcting the wrong that has occurred. It is a system that theoretically deals punitively with the dis­orderly and also compensates victims so that they will not be encouraged to be disorderly themselves . 
Later portions of this report will deal with the ultimate feasibility of the total system. This section deals with the origin and development of tort law as it applies to automobiles and with some of the current problems facing this area of the law. It is noted that the law had to deal with the disorder caused by traffic accidents long before insurance became widely used to pay the bill. 
The Concepts of Tort Liability 
During the development of tort law there have been two concepts of liability : (1) the idea that men go about their daily activities at the risk of injuring others and are strictly liable for any injuries that may arise from their actions; and 
(2) the idea that a man is liable only for actions that were his fault. These concepts are as old as the history of tort law itself, and at one time or another each has been the guiding principle in the area of accidental physical damage. 1 * 
While the idea of fault has been around as long as the idea of tort law itself, the idea of negligence is a relatively new concept. In fact, the concept of negligence was a development of the nineteenth century. It arose from the 
. need for not placing an overly burdensome blame upon dangerous but useful activity. The industrial revolution needed an interpretation of the law that would protect it from having to spend its precious capital on the increasing number of injured workers. Proof that one's activities caused another's injuries was no longer sufficient as a grounds for the recovery of damages. Negligence had to be proved if any damage was to be compensated. It was this part of tort law that was applied to the first horse-and­buggy accidents, then railroad accidents, and finally to automobile accidents. Transportation was a dangerous but useful activity; and it needed protection to grow. Willful negligence was extremely hard to prove, and judges and juries who recognized the importance of industry to their communities were very unwilling to grant large damages even when negligence was proven. All industry anci not just transportation was in part subsidized by its innocent and unwilling victims. The cost of compensating the victim was definitely outweighed by the benefit derived by society from industry.2 
This concept of negligence, which supplanted the con­cept of strict liability based on pure fault, was at its height at the turn of the century. Since that time the law has begun to swing the other way, beginning with the enact­ment of the first constitutional workmen's compensation law in 1911 in Wisconsin. The concept of strict liability­whereby one individual is held accountable for injuries to another regardless of fault-has become more and more dominant.3 
In light of the ebb and flow of these varying concepts of tort liability it is interesting to examine just how and why they have grown in importance at one time or another. As 
*Footnotes at end of chapter, page 7. 

an important corollary it is also interesting to note the development of the negligence principle out of fault law, and the causes of its rise and apparent fall in importance in the field of automobile accidents. 
The Growth ofNegligence Law 
England, the birth place of our system of law, instituted the rudimentary steps in the development of common law with the introduction of the writ of trespass in the early thirteenth century. This was the first real attempt at maintaining order by something more advanced than the traditional approach of "an eye for an eye, and a tooth for a tooth." 
The remedies for wrongs during this period could only be gained by the issuance of a writ to bring a defendant into court, and only the king could issue such a writ since he determined what was to be considered by his court.4 Writs of trespass were issued for obvious breaches of the peace such as assaults, beatings, and destruction of property as well as unintentional actions which caused destruction of another's property. Trespass was totally criminal in nature, and if an action did not fall into one of the defined categories, then no remedy could be sought.5 
The purpose of the original remedies in trespass cases 
was the punishment of the wrongdoer. Eventually, how­
ever, the courts realized that the peace could only be 
maintained if the victim of a crime received some compen­
sation for the wrong that had been done to him, and this 
aspect was incorporated into the deliberations of the judges 
and juries. 
The primary problem with the writ of trespass was that 
new cases began to appear that were not covered by writs, 
but needed to be covered. In order to deal with this 
situation: 
...the King's Council (adopted) the Statute of Westminster II (in 1285) providing in substance that whenever in one case a writ was found and in like cases falling under like law no such writ was discoverable, Chancery was authorized, subject to certain precautions, to issue a new writ appropriate to the particular needs of the case before the court. Hence there came into being a companion form of action known as the action of trespass on the case. This form was available whenever the complaint showed a complete absence of force or an injury which 'was only indirectly afflicted. The new action had become familiar by the first half of the fourteenth 
6century.
An entirely new mode for recemng damages had been 
established, and our whole theory of tort liability was to 
spring from this new form of action. 
On face value it does not seem that anything new had 
happened with the adoption of the Statute of Westminster 
II. However, as Prosser points out in his casebook on torts: 
The distinction was not one between intentional and unintentional conduct. The emphasis was upon the causal sequence, rather than the character of the defendant's wrong. Trespass would lie for all forcible, direct injuries, even though they were not intended, while the action on case might be maintained for those which were intended but not forcible, . or not direct. There were, however, two significant points of difference between the two actions. Trespass, because of its quasi-criminal character, required no proof of any actual damage, since invasion of the plaintiff's rights by the criminal conduct was regarded as a tort itself; while in action on the case, which developed purely as a civil remedy, there could ordinarily be no liability unless actual damage was proved. Also, in its earlier stages trespass was identified with the view that liability might be imposed without regard to the defendant's fault while case from the beginning required proof of either wr~ngful intent or negligence.7 
Fault had been established as an important part of the common law, and with the coming industrial revolution it was to become the most important part. 
The fact that fault had been established as a means of determining liability in cases where actions were uninten­tional did not mean that the idea of strict liability was immediately abandoned. The defendant in action on case still had his actions linked to the injury that was suffered by the plaintiff. The establishment of this causal link, which was still fairly easy, meant that the defendant would have to pay for the damage he had caused. The only way in which the defendant could get out of this payment was by showing that he was absolutely without fault. The burden of proof rested on the defendant, and it was to remain there until the early 1800s. 
In the early 1800s, due primarily to the great increase in horse-and-buggy traffic collisions, this simple basis of liability for unintended hurts was quickly and radically changed. . . . The defendant was no longer required to show that the injury was unavoidable or utterly without his fault . . . .His duty was so modified that he was required merely to exercise reasonable care in the operation of his horse or vehicle. Reasonable care depended on whether as an ordinary prudent man he should have foreseen some harm to the injured person or someone so situated.8 
Freedom of the road-the cause and effect of the industrial revolution which could only thrive on mobility­in a few short years had caused the courts to replace strict liability with negligence. Society wanted its own fortunes increased and this meant that risks associated with traveling had to be greatly reduced. With the adoption of the concept of negligence in traffic accidents a traveler would only risk his fortune if a plaintiff could prove that he had not acted as a reasonable man would have acted. The burden of proof had been placed on the victim. Society, through its courts, had determined that the new order being brought about by the industrial revolution was an order that needed protection under the law.9 

2 
It must be pointed out that much of our law is not based on eternal natural rights, but on principles of morality and public policy which change over time. This is especially significant in the case of torts. Rulings in this area tend to reflect and protect the pervasive moral and political values during a given period of time. During the nineteenth century the prevailing public policy was that of making what was good for industry good for society. Negligence law both reflects this attitude and protects individuals in order that the attitude might become a reality. 
Just how far this protection extended can be seen in its application to traffic accidents. 
. . .If neither party had failed to exercise reasonable care, the collision was an accident and no liability ensued ..... If the danger was obvious, the victim assumed the risk. If he failed to exercise reasonable care for his own safety, even if the dangers were obvious, he too was negligent and could recover nothing for his injury. (This is the concept of contributory negligence.) If the injury was fatal, there could be no recovery for the injuries suffered before death or for death itself. And what is more, the victim was given the burden of proving his case at every step-the burden of showing that the defendant had harmed the victim ; that the law imposed a duty on the defendant to exercise care with respect to the victim; that he had failed to exercise reasonable care in his behalf; that the harm inflicted was a proximate consequence of defendant's conduct and not remote; ·that the victim had himself exercised reasonable care for his own safety; and what losses the victim suffered. 10 
Under these conditions, a plaintiff who was contributorily negligent could receive damages from a defendant only if he could prove that the defendant had enough time to see that an accident would be occurring, and subsequently did not take action to avoid it. Only if this could be proved could a victim's contributory negligence during the accident not defeat his suit. 
The Decline ofNegligence Law 

The staggering toll in property and human life that resulted from uncontrolled adventures of industry into more and more hazardous areas was a leading factor in bringing about the reform movement in this country at the turn of the century. Society decided that it could no longer pay the price in human capital which industry needed as input into its production schedules. The benefits of industry were outweighed by the costs to the families of injured individuals and to society as a whole. 
Child labor laws, 40-hour work weeks, and workmen's compensation were all adopted to reduce the number of victims of industrial mishaps. (Workmen's compensation encouraged factory owners to adopt safer procedures so that they would not have to be faced with paying large sums to accident victims.) Negligence law was modified to provide greater assurance to injured workers that they would be reimbursed for medical expenses and wage losses. 
Problem or Promise 
The concept of strict liability was reinstated in the area of job-related injuries. 
Workmen's compensation was the first, and probably most sensational return to the idea of strict liability. Employers were seen by the courts as being strictly liable for accidents that took place on their premises. Since the end of World War II there have been mounting efforts to replace negligence with strict liability in other areas-Le., product liability. In the area of automobile insurance, however, many are stressing just the opposite position. While negligence law is declared to be inadequate, it is suggested that the victim bear his own loss rather than hold anyone strictly liable . 
There is a different relationship between causer and victim in the driving situation than in the work situation. It is one thing to hold strictly liable the owner of a factory, or even the manufacturer of a product, but in most automo­bile accidents it would be almost impossible to prove that General Motors, for example, was the principal cause of every collision-nor could the price of automobiles embody the cost of accidents occurring in them over the years. 
In admitting that there is a significant difference between automobile accidents and those other accidents resulting from modern technology, this is not to say that the courts have not recognized the fact that the concept of negligence needed to be changed to meet the needs of the growing number of victims. Negligence may have been retained in this area, but that does not mean it has not undergone some changes. 
Action by the Courts 
A major change in the law of negligence as it applies to automobile accidents has been the introduction of the principle of res ipsa loquitur. This is a Latin phrase meaning that the action speaks for itself. The increasing use of this principle has made it easier for plaintiffs to win suits by in effect switching the burden of proof to the defendant. If the very nature of the accident indicates that the defendant was at fault, then the court will put the burden of proof on the defendant to show that he was not negligent. 
The courts have also decided that violation of some provisions of the motor vehicle code, traffic provisions, or highway safety acts should be construed as being "negli­gence per se." In other words, a violation of certain laws automatically makes the violator negligent and thus respon­sible for his tort. This imposition of strict liability has been of great help to many potential plaintiffs. 
Other areas in which the courts and legislatures have acted on behalf of the interests of plaintiffs are : (1) the abrogation of traditional common law immunities for charities and governments; (2) the increased use of the vicarious liability concept-Le., looking to employers and others responsible for the use or even the manufacture of 

3 
the automobile for compensation; (3) the defense of assumption of risk has been restricted or eliminated as an independent defense; and (4) 'the defense of contributory negligence has been qualified by the doctrine of last clear chance or even converted into comparative negligence. 
lbis is the current state of the tort liability law as it applies to automobile accidents. The negligence law of the nineteenth century, while not having been substantially changed in substance, has been procedurally altered in an attempt to reflect the value of an age in which automobile drivers have shown a propensity for colliding and thereby causing injury to their occupants. 
THE CURRENT SYSTEM AND ITS PROBLEMS 
As was noted earlier, the tort liability section of the law is only half of the "fault insurance system," and even this part has drawn criticism. However, when coupled with insurance, even the staunchest supporters of the current system of accident reparations see a need for modification. 
One of the main problems with the fault insurance system appears to be the inherent conflict between the concept of liability based on fault and liability insurance: 
Fault law, in theory shifts accident costs to wrongdoers. Liability insurance in theory, protects wrongdoers both by defense and by indemnity ....Liability insurance has stripped fault law of its purpose, but society is left to pay for and endure all the complexities of fault law decision-making. The emergence of the third expectation about the fault insurance. system-that it compensates victims-simply heightens the 
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tension among the purposes of the fault insurance system.
The result is a system that has been openly criticized on 
many grounds. 
One of the chief criticisms is that the system provides no 
reparation at all for many accident victims. There are 
several reasons for this. First, to be reimbursed for damages, 
the plaintiff must prove that the defendant was negligent. A 
plaintiff who cannot prove negligence, for whatever reason, 
will not recover anything. The ability to prove negligence is 
dependent on so many unpredictable variables, such as 
geographic location, time lapsed since the accident, exis­
tence and qualifications of witnesses, quality of attorneys, 
and many more, that little consistency exists even among 
similar cases. Second, even if the plaintiff can prove 
negligence on the part of the defendant he will not recover 
anything if he was contributorily negligent in those states 
where comparative negligence has · not been instituted. 
(Texas adopted comparative negligence effective in August, 
1973 .) He may also be restricted from recovery by guest 
statutes. (Texas has a modified guest statute in force, which 
restricts recovery only as to suits between certain family 
members.) Third, the plaintiff may be injured by someone 
who is financially irresponsible and who, therefore, cannot 
pay for the damages caused ~ven though he is legally liable 
to pay for such damages. 
Delay in the payment to accident victims is another problem of the current system. The 1970 U.S. Department of Transportation studies revealed that within 30 days after the occurrence of automobile accidents, on the average only 21 percent of paid claims had been settled. These settlements represented only 3.5 percent of the total payments made on all paid claims.12 The studies further showed that 90-day delays are not unusual and frequently years pass before some claims are paid.13 
Perhaps most significantly, the tort system is said to be the cause of inequitable overpayments and underpayments to accident victims. One study provides the example of a person with an actual loss of $250 who files a claim for $1,000 against the other driver and his insurer. lbis prospective plaintiff may well receive $1,000 in an out-of­court settlement because the cost of a $250 claim plus the cost of defending the claim in court would exceed $1,000.14 Thus, the expense of litigation imposed by the tort system can cause an insurance company to agree out-of-court to pay the claimant an amount much higher than he or she deserves. On the other hand, when higher claims do, in fact, go to court, there is a tendency for these claims to be underpaid. Still another DOT study provided some documentation for this unusual dichotomy. The DOT statistics revealed that seriously injured victims with medical expenses of $5 ,000 or more recovered only 55 percent of their expenses from tort insurance while victims with medical expenses of less than $5 ,000 recovered an 
15
average of 90 percent of expenses.There is, of course, much that can be questioned about these statistics (i.e., the validity of claimed medical expenditures). Likewise, there is some question as to the extensiveness of this under­payment/overpayment phenomenon throughout .the 50 states. However, logic and documentation indicate that both can and do occur as a result of the uncertainties involved in court trials of automobile injury cases (see Chapter Five). 
The finding of guilt involved in tort laws mandates that human injury, suffering, and degrees of guilt be translated into dollar and .cents figures. State Farm Automobile Insurance Company officials assert that these requirements have ''undoubtedly added costs to the reparation system."16 The 1970 Department of Transportation study provides some quantification of this excessive cost. According to the OOT's figures, in automobile accident litigation the defendant's attorneys receive an average of $819 per case regardless of the verdict.17 These costs are passed back through the automobile insurance system to the consumer. 
Critics charge that the current system has a number of 
other flaws: (1) There is a tremendous inducement for 
dishonesty due, in no small measure, to the large amounts 
of money that are involved in some cases. (2) The system 
does not provide adequate money for rehabilitation. (3) It 

4 
Problem or Promise 
fails in large degrees to deter negligent driving. (4) In reality, the system has very little to do with reparations because 97 percent of all claims are settled out-of-court. Thus, the concepts of negligence and fault are being handl~d in large. measure by insurance companies, or at least m proceedmgs that have very little to do with the concepts of what is fair and right for society .1 8 
A 1971 DOT publication said of the relationship ~tween inflation in the rest of the economy and the mflated costs of automobile insurance: 
Perhaps the most pervasive influence upon automobile insurance as a public issue in recent years has been inflation. Indeed, between 1960 and 1970, the Consumer Price Index (CPI) for automobile insurance rose 63 percent, slightly more than twice as much as the CPI for . all items....This rise...was caused in large part by cost increases in the products and services which insurance pays for •...19 
This drastic inflation of automobile insurance premiums is caused not only by increased labor costs and hospitaliza­tion and medical expenses, but, to a great degree by the rapidly increasing cost of automobile parts. State Farm has indicated that the greatest potential for cutting automobile insurance costs lies in the area of vehicle damage rather than bodily injury.20 That company reports that, according to its studies, the cost of crash replacement parts (bumpers, fenders, etc.) rose 104.7 percent from rnid-1963 to rnid­1974 while Bureau of Labor Statistics studies show that the cost of new cars increased only 10 percent during that same period.21 Statistics from the Insurance Information Insti­tute bear this out. According to these figures, the costs of repairing frequently damaged parts on a standard size 4-door Chevrolet sedan, 1967 model, were $231.65 for parts, $90.60 for labor or a total of $322.25. On a comparable 1973 model, the costs were $494.11 for parts, $91.80 for labor, and $587.91 total.22 Thus, dtiring the six-year period, average labor costs for repairs increased 1.3 percent, "crash parts" cost increased 114 percent, and total repair cost increased 82.4 percent.23 The effect of repair parts prices on overall repair cost and therefore on automobile insurance costs is obvious. 
This problem is compounded in still another way. Insurers and state insurance departments must attempt to predict the future effects of this inflation in establishing automobile insurance rates. The 1971 DOT report discusses various ramifications of these prediction attempts: 
...The inflationary spiral has been the overri<!ing reason for widespread and frequently severe underwriting losses of automobile insurers and, consequently, for the insurance price and availability problems that have followed in the wake of unprofitability. . ..Obviously; if the effects of inflation cannot be predicted with reasonable accura~, then the rates may turn out to be disastrously inadequate.2 
This same study explains the problematic chain of events set in motion when rates are determined to be inadequate: 
When an insurance company becomes convinced that the rates it is allowed to charge are inadequate to cover the expected losses of a specific group of its insureds, it understandably becomes more selective in accepting new applicants and attempts to drop those policyholders for whom the rates have become inadequate. As this attitude spreads to more insurers, increasing numbers of drivers find insurance unavailable in the voluntary market and are forced to seek coverage with assigned risk plans or the high risk (non-standard} market.25 
Those able to purchase special high-risk policies are confronted with still more problems: "Over and above the high rate of insolvencies, policies written by high-risk insurers have been noted for coverage gaps, restrictive provisions, and arbitrary and capricious denials of lia­
bility ... 2 6 It is difficult to ignore or disprove many of the criticisms leveled against the present fault insurance system. Clearly there are drawbacks that need correction. substantial drawbacks that need corrections. Tort law has been used over the past two centuries as a basis for the settlement of damages caused when vehicles used for transportation have collided with something. The purposes of this law appear to have been to punish the wrongdoers, encourage the elimination of disorderly behavior, compensate the injured victims, and in general provide for the best interests of society. The law has changed over the years in order to concentrate on the last of these four criteria. However, the increased pace of modern technology and the development of liability insur­ance have made the adaptive process difficult for the law. In fact, if the current criticism of the way in which the fault insurance system works is any measure of how well adaptation to the needs of the time has been, then it can only be concluded ~at the fault insurance system has fallen short of this objective. 
CRITERIA FOR REFORM: 
THE CHARACTERISTICS OF A GOOD 
AUTOMOBILE INSURANCE SYSTEM 

While it appears that the fault insurance system has not functioned effectively, before changes can be suggested, the objectives or characteristics of a desirable system must be determined. When discussing the desirable features of any good or service, the natural tendency is to focus on each characteristic from the standpoint of the buyers and sellers of that good or service. In the case of automobile insurance however, it is not so simple. Some consumers of automobil~ insurance-Le., accident victims-are more directly affected by the system than are consumers who are not involved in an accident. This fact should not, however, be taken as an 

5 
indication that a good automobile insurance system should be structured with only the victim in mind. The frequency and severity of automobile accidents determine the overall costs of an automobile insurance system, and, in turn, affect the rates paid by all consumers of automobile insurance. In addition, the resources devoted to the rehabilitation of victims and settlement of claims have a definite impact upon society as a whole . Desirable charac­teristics of a good automobile insurance system, then, would include those features aimed at serving the interests of accident victims, insurance consumers, insurance sellers, and society as a whole. 
Compensation to All Victims 
The ultimate objective of an automobile insurance system should be the compensation of all victims for losses suffered in automobile accidents. The very reason people seek automobile insurance is to protect themselves from losses which could result from their involvement in an automobile accident. At the very least, an accident victim should receive some compensation for out-of-pocket losses. The insurance system, as a whole, should seek to provide adequate coverage to all consumers who need insurance ; and in the event that a consumer becomes a victim, the system should at least seek to provide compensation for out-of-pocket, or economic losses. 
Adequate and Just Compensation 
An insurance system should seek not only to compen­sate all victims for their losses, but to compensate all victims adequately and justly. The interests of all involved parties (victims, consumers, sellers, and society) would be best served if this could be accomplished. As will be demonstrated later in this report, persons with small losses are often overcompensated while those with large losses are typically undercompensated. A good system would feature compensation levels which accurately reflect the actual losses sustained by victims of automobile accidents. 
Quick Delivery ofBenefits 
From the standpoint of the victim, any system that 
begins to deliver benefits quickly can reduce human 
suffering and hardship, thereby facilitating the rehabilita­
tion process. Prompt delivery of benefits is also in the best 
interest of consumers, sellers of insurance , and society as a 
whole. 
Tardy payment of benefits which delays the rehabilita­
tion .Process often necessitates longer, more sophisticated 
and more expensive treatment than would have been the 
case if rehabilitation could have started immediately. The 
overall monetary costs of the system are, as a result, greatly 

increased. The individual cotisumer is the~ forced to bear his individual share of the increased burden in the form of higher premiums. 
Delayed payment of benefits usually implies problems in the adjustment and settlement of claims. Sellers of insur­ance are therefore forced to devote more resources to the adjustment and settlement. A system of insurance which would epcourage and facilitate prompt payment would allow great savings for sellers as well as buyers. 
Increased settlement, litigation, and adjustment costs have ramifications for all of society. Devotion of excessive institutional and manpower resources to the claims settle­ment process, which could be avoided by a system which induces prompt payments, forces society to forego the goods and services that could have been produced by those resources if they were otherwise employed. 
Economic Efficiency 
The desire for maximum efficiency in the delivery of benefits is of utmost importance in any automobile insurance system. The most benefits for the least cost is the objective. 
Cost is a relative term, however. One may speak of cost in relation to income, for example, or to budget, to past costs, or to benefits. Many people would like to reduce their automobile insurance premiums because they are high compared to their current household budgets and compared to past costs. While these are important considerations, an even more important question is whether insured persons are getting "their money's worth "-that is, are the pre­miums low relative to the benefits provided? 
The system is efficient· if it returns to the accident victims as much as possible of the money that is paid into it in the forms of premiums. In so doing, the system will cut out unnecessary wastes while giving increased benefits to victims and decreased costs to consumers. System costs are minimized, then, any time benefits increase faster than costs or decrease slower than costs. 
Correlation With Other Insurance 
A good automobile insurance system must provide a 
means of correlation between the payment of benefits by 
automobile insurance and the payment of benefits from 
collateral sources of insurance. Duplicative coverage and 
double payment lead to increased costs within the system. 
Duplicative coverage has both advantages and disadvan­
tages. Double coverage does, of course, lend more ·security 
to the insured as it greatly increases the probability of 
receiving some compensation should an accident occur. On 
the other hand, a system which allows for double coverage 
can cause needless consumer expense. Quite often the 
consumer either out of carelessness or a misunderstanding 
of the exact terms of his coverage buys more insurance than 
is needed. Such purchases not only represent inefficient 

6 
consumption, but also give rise to double payment within the system. 
Double payment often allows the accident victim to profit from his losses. Although it is arguable that since the beneficiary of double payment has paid two premiums he should receive both payments, the fact is that since claims under both policies are increased, all of the insureds under both policies end up paying higher premiums. 
Availability ofReliable Coverage 
Naturally, the consumer is interested in purchasing reliable and stable policy coverage . A good system must allow the insured to rely on both the availability and quality of benefits coverage. Availability is an especially important problem when insurance is compulsory. It is crucial that coverage be available to all drivers and at a price that is affordable. No system will work without a high percentage of participation among drivers. The system must also insure stability of the policy itself. Cancellation should be allowed only when there exists an extremely justifiable cause. 
Public Understanding 
Both consumer and provider understanding of the terms 
of coverage and the workings of the system are important. 
If the system is complicated and generally misunderstood, 
it will not be generally acceptable. It will likely result in 
increased fraud, increased settlement costs both in and out 
of court, and ultimately higher rates combined with a 
readiness to change the system. 
Where there is confusion, there is generally ample room 
for undesirable dealings on the part of insurers and insureds 
alike, leading to a general _state of mistrust. Insureds will 
often not have the coverage they thought they had, and 
agents will often be hard pressed to give them good advice. 
A shrinking of the voluntary insurance market could re~ult, 
forcing more drivers into the assigned risk plan. litigation 
Problem or Promise 
could be increased, as the courts are left with the task of interpreting a confusing law. 
If the system is relatively simple and easily understood, it stands a greater chance of acceptance by consumers and providers alike. Of course, such acceptance will depend ultimately on the makeup of the system. 
Emphasis on Prevention and Rehabilitation 
The final desirable characteristics of a good insurance system is that it encourages the prevention of accidents and rehabilitation of victims. Great significance should be assigned to the need for safer automobiles and highways, as well as better education for drivers of vehicles. In addition, rehabilitation should be a primary goal of the system in the event that an accident does occur. The rehabilitation process should at all times take precedence over the adversary process in which one party seeks to minimize its loss, while the other party seeks to maximize its gain. The encouragement of accident prevention and victim rehabili­tation, aside from its humanitarian motives, will also bring about lower accident costs and, in the long run, lower insurance premiums. 
Summary 
Though the aforementioned characteristics may not represent an exhaustive listing, they do serve as a suitable basis upon which to judge the quality of an automobile insurance system. In the event that it is deemed necessary to change an existing automobile insurance systerri, these characteristics should definitely be included as important criteria for reform. It will likely not be possible to achieve each of these goals to its fullest degree in any one system. Consequently, tradeoffs must be considered so that a balance is achieved which is workable and generally acceptable. The remainder of this study will be presented with these criteria in mind. 

FOOTNOTES 

1Nathan Isaacs, "Fault and liability," 31 Harvard Law Review 951 (1918). 
2James .Fleming, "The Origin and Development of Negligence Action," in The Origin and Development of Negligence Action, a U.S. Department of Transportation Study (Washington, D.C., 1970), p. 37. 
3Jbid., p. 41. 4William Prosser, Torts: Cases and Materials, Foundation Press, (New York, 1971), p. 2. 5Jbid. . 
6wex Malone, "Ruminations on the Role of Fault in the History of Torts," in The Origin and Development of Negligence Action, a U.S. Department of Transportation Study, (Washington, D.C.; 1970), p. 15. 
7Prosser, p. 3. 8Leon Green, Traffic Victims: Tort Law and Insurance, Northwestern University Press, (Evanston, ill., 1958), p. 11. 
9/bid. 
10/bid., pp. 11-12. 
11 
state of New York Insurance Department, Automo­

7 
bile Insurance . . .for Whose Benefit. A report to Governor 
Nelson A. Rockefeller. (Albany, N.Y., 1970), pp. 13-14. 12
u .S. Department of Transportation, Personal Injury 

Claims, (Washington, D.C., 1970), p. 84. 13/bid. 
14u.s. Department of Transportation, Automobile 

Accident Litigation, (Washington, D.C., 1970), p. 7. 15
u.s. Department of Transportation, Economic Con­sequences of Automobile Accident Injuries, (Washington, 
D.c.t970), p. 28. 
6
1 State Farm Insurance Company, No-Fault Press 
Reference Manual, (Bloomington, Ill., 1973), p. G-103. 17
u.s. Department of Transportation, Automobile Accident Litigation, p. 7. 
18Prosser, pp. 622-626. 
19 

u.s. Department of Transportation, Motor Vehicle Crash Losses and Their Compensation in the United States, 
(Washington, D.C., 1971), p. 61. 
20

state Farm Insurance Company, p. G-403. 21Ibid., p. G-403. 221nsurance Information Institute, Insurance Facts 
1973. (New York, N.Y., 1973), p. 49. 231bid, p. 50. 24u.s. Department of Transportation, Motor Vehicle 

1 Crash Losses and Their Compensation in the United States, 
pp. 63-64. 
25lbid.,p. 65. 
26/bid., p. 67. 


8 
CHAPI'ER II 
THE THEORY OF A NO-FAULT 
AUTOMOBILE INSURANCE SYSTEM 

The term "no-fault automobile insurance" has many different meanings for different individuals. An acknowl­edged authority states that "the fundamental basis for a no-fault system is the abolishment of tort liability in automobile accidents, with each driver or owner accepting responsibility for some or all losses sustained by pedestrians and by occupants of his own vehicle in return for which he would enjoy immunity from liability for those losses."1 Simply stated, a true no-fault automobile insurance system pays basic benefits for out-of-pocket losses directly to the insured, regardless of fault, while limiting, at least partially, his right to sue for those losses. This limitation on lawsuits may be total in a "pure" no-fault system, or partial in a "modified" no-fault system. 
The problems with the tort liability system discussed in the preceeding chapter have led to calls for reform in the automobile insurance reparations system. Out of those calls has emerged the no-fault movement. Presently, 14 states have no-fault laws which both pay benefits without regard to fault and limit the right to sue. Eight other states have adopted laws establishing systems which, though not limiting the right to sue, do pay wage and medical benefits on a first party basis (the "first party" to an insurance contract is the insured himself; a third party would be someone to whom payments were made on behalf of the insured, i.e., because of his liability to such "third party").2 Events in some of these states have combined with increasing change in public attitude toward the automobile insurance system and increased attention at the federal level to support an opinion expressed by Professor Robert E. Keeton: "No-fault automobile insurance is definitely coming."3 How did the no-fault concept move into the limelight? What are the features which make it either desirable or undesirable? This chapter will examine the history of the no-fault automobile insurance "movement", the various proposals that have emerged, and the specific problem areas in an attempt to determine if the advent of no-fault is indeed inevitable and/or desirable. 
THE HISTORY OF 
NO-FAULT AUTOMOBILE INSURANCE 

The no-fault concept in automobile accident reparations was born of the same philosophy which prompted the passage of workmen's compensation laws in the United States.4 As early as 1919 advocates stated the desire, asin workmen's compensation, to change the system from one based on lawsuits against a negligent third party to one based on first-party compensation of an accident victim by the victim's insurer. These ideas were expressed by such scholars as Rollins and Carman in 1919, and in 1920 by Judge Robert Marx. 5 
In 1932, the Columbia University Committee to Study Compensation for Automobile Accidents developed what has been cited as the most important early proposal on no-fault automobile insurance.6 Under the plan, coverage was to be compulsory, liability limited, and benefits paid for out-of-pocket losses similar to workmen's compensa­tion. Payment would be made without regard to fault and recovery for pain and suffering would not be permitted. The plan did, however, omit recovery for victims ir1 single vehicle accidents, and victims of non-resident, hit-and-run, and uninsured drivers. The Committee made available model legislation which would provide for implementation of the plan. 
The Columbia University Plan remained purely academic until a 1944 political victory by the Cooperative Common­wealth Federation in the Canadian province of Saskatche­wan led to the adoption in 1946 of the first no-fault automobile irlsurance in North America.7 The Cooperative Commonwealth Federation, composed of farm and labor leaders, used the Columbia Plan as a guideline ir1 developing their "Automobile Accident Insurance Act" which was not designed to produce "absolute justice" for irldividual victims, but rather to produce "average justice" for all motorists.8 
Under the Saskatchewan plan, a schedule of benefits are paid to all accident victims regardless of fault, with compensation being denied only in tliose cases ~here the automobile is driven in breach of conditions specified by the law. Liability for fault is retained for claims in excess of basic coverage, and extension policies providirlg liability coverage are available. The Canadian legal system does not, however, recognize the contingent fee system; con­sequently, individuals seeking services of attorneys must pay whether they win or lose. In some cases, the court may 

9 
order the loser to pay a specified fee for the winner's attorney. Despite this fact, there is some reluctance to pursue liability claims. The plan is compulsory and the province has been quite successful in enforcing that requirement. Payment of the premium is required at the time automobile owners obtain a license or register their vehicles.9 
Following the Saskatchewan plan, the 1950s and early 1960s produced such proposals as the Collins Plan, which was considered by the California Legislature, Professor Albert Ehrenzweig's "Full Aid Plan," and Professor Leon Green's "Compulsory Motor Vehicle Comprehensive Loss Insurance Plan." Despite these plans, the no-fault concept in the United States remained, for the most part, an academic topic_ 10 In 1965, however, the concept experi­enced a "breakthrough" in the writings of two law professors, Robert Keeton and Jeffrey O'Connell. Their "Basic Protection Plan" led to belief among interested parties that some states might actually adopt a no-fault system. Why, after almost 50 yeais, was the no-fault concept finally taken seriously? The answer lies partly in the conditions which prevailed in society at the time and partly in the "Basic Protection Plan" itself.· 
In the 1960s pressures and criticisms of the tort liability system began to mount from both within and outside of the insurance industry. The number of automobiles on the road approached 100 million and the number of accidents approached IO million. 11 Costs of medical care and automobile repairs skyrocketed. Log-jams developed in the court systems and insurance became more difficult to secure, as well as more expensive, for increasing numbers of drivers.12 In addition, public concern had shifted signifi­cantly from a preoccupation with punishing the wrongdoer · to a concern for the injured accident victims regardless of fault. These attitudes of society combined well with some very practical aspects of the Keeton-O'Connell work. First of all, their plan was easily readable and understandable. Secondly, it provided a ready-made statute for adoption by legislatures. Finally, it incorporated these apparent shifts in the attitude of society into the plan itself.1 3 Thus, the no-fault concept became of interest to policymakers and the public at large. 
Under the "Basic Protection Plan" the insured, pas-, 

sengers, and pedestrians would be compensated by the 
insured's policy unless the person intentionally injured 
himself, and coverage was not provided for persons in other 
automobiles. The plan would be compulsory and would 
provide legal liability exemptions unless pain and suffering 
damages exceed $5,000, or other damages exceed $10,000. i 
Payment would be made as expenses occur. The original 
plan covered only bodily injury; however, it has since been 
revised to include property damage. 
In 1967, Daniel P. Moynihan, the chairman of the 

federal advisory committee · on traffic safety research for the Johnson Administration, created a further stir when he 
challenged the bar and insurance companies to reform or get out of the "traffic accident business" and let the government take ·over. Moynihan suggested the establish­ment of a national system of automobile accident compen­sation plan for federal employees. He advocated financing the plan with interstate highway funds or an increase in the gasoline tax. 14 
In 1968 there were three significant developments in the no-fault movement. Puerto Rico became the first U.S. jurisdiction to adopt a modified no-fault law. The Puerto Rico law, which became effective in 1970, features the payments of benefits without regard to fault, including medical payments, income replacement, dismemberment, death, and funeral benefits. The plan is both compulsory and government-administered so all persons are automati­cally covered and protected. As in the Saskatchewan plan, emphasis is placed on socially adequate benefits rather thart individual equity. The plan is financed by tax revenues. Tort liability suits are allowed above certain thresholds.1 5 
A second important .event of 1968 occurred mOctober, when after 18 months of study, the American Insurance Association announced its "Complete Personal Protection Automobile Insurance Plan." In this plan, the AlA advo­cated a pure no-fault system which would include: 
• 	
elimination of all reference to fault or third-party liability except in cases involving out-of-state drivers from states with conflicting laws; 

• 	
substitution of unlimited first party compensation for economic loss and medical and rehabilitation expenses; 

• 	
elimination of all payment for pain and suffering. 


The AIA stated that its plan would not only. provide 
quicker and more adequate compensation, but would 
substantially reduce administrative and legal costs, there­
fore leading to a reduction in rates paid by consumers.1 6 
The third significant development of 1968 was the 
enactment of a law by Congress directing the Department 
of Transportation to conduct a $2 million, two-year study 
of the automobile insurance system in the United States. 
The results of the DOT study were to have been ready by 
May, 1970, but the report was not presented to Congress 
until March, 1971. The report pointed to the inequities and 
problems in the tort liability system and recomm'ended that 
Congress adopt a resolution encouraging the states to evolve 
a "rational, equitable and compatible reparations system." 
Then, Seci:etar}' cif Transportation John A. Volpe called on 
the states to promptly begin to shift to first-party, no-fault 
compensation systems.1 7 The findings of the DOT study 
will be discussed later in this report. 
The year 1970 was no less important in the no-fault movement. During that xear, Massachusetts _became the first state to adopt a modified no-fault law. The plart called for compulsory no-fault coverage for bodily injury up to a 

10 
specified limit. The right to sue for tort liability was retained in cases of serious injury or after medical expenses exceeded a $500 threshold. 18 The Massachusetts Plan will be included in a later discussion of the various no-fault plans. 
Also in 1970, interest in establishing minimum federal standards to be met by the automobile insurance systems of all states began to mount in Washington. Senator Philip A. Hart introduced a series of bills aimed at remodeling the automobile insurance reparations · system in the United States. The key bill in his proposals was the Uniform Motor Vehicle Insurance Act. The bill was modified and later reintroduced in 1971 as S.945 which failed to pass. 
The year 1971 was characterized by much action on the part of the states. Twenty-eight state legislatures debated some form of no-fault bill with Delaware, Florida, and Illinois approving bills. (The Illinois law was later declared unconstitutional because of a provision in that particular state's constitution.) President Nixon, also in 1970, en­couraged the states to act on their own in providing for insurance reform. 
The U.S. Supreme Court in 1971 rendered a decision 

which has been interpreted as adding fuel to the no-fault 
fire. On May 24, 1971, the Court struck down the 
provisions of the Georgia financial responsibility law which 
allowed for revocation of the license of an uninsured 
motorist involved in an accident regardless of the fault 
status. The Court ruled that before an uninsured motorist's 
license could be revoked a hearing must be held at which it 
must be proven that the uninsured motorist would be held 
liable for damages under the tort system. The ruling 
provided consistency to the fact that under tort liability 
only a motorist that negligently causes injuries is punishable 
by being held liable. This ruling forced 37 states to 
reconsider their financial responsibility laws. 1 9 
The year 1972 saw increasing action in the no-fault field. 

Senators Hart and Magnuson continue9, their pressures irt 
Congress with S.945. At least 32 state legislatures con­
sidered no-fault laws with five of them-Virginia, 
Connecticut, Maryland, New Jersey, and Michigan-passing 
some type of no-fault bill. Virgirtia and Maryland did not 
restrict tort liability. The Michigan bill, however, became 
one of the most far-reaching no-fault laws in existence. The 
law provides for unlimited first-party medical coverage and 
extensive loss of income coverage while restricting tort 
liability actions. The main problem with the law centers 
around the vagueness of its tort liability restriction.20 
In addition to these state actions, a variety of other 

plans surfaced, includirtg the "Guaranteed Protection Plan" 
advanced by the American Mutual Insuran~ Alliance, and 
the "Dual Protection Plan" of the National Association of 
Independent Insurers. Also in 1972, the National Con­
ference on Uniform State laws drafted a Uniform Motor 
Vehicle Accident Reparationg Act (UMVARA) as a stan-
Theory of a No-Fault System 

dard to be followed by state legislators in drafting no-fault legislation. UMVARA has received significant attention on both the state and federal levels. UMVARA provides medical benefits without any limit, except that hospital room payments would not exceed the semi-private rate. It provides up to $200 a week in work loss benefits and survivors' benefits . for an unlimited amount of time. Unlimited benefits are provided for replacement services. Funeral expenses up to $500 are covered.21 
Renewed action on the federal front came in 1973 as Senators Hart and Magnuson consolidated both their earlier bills and UMVARA into the formulation of S.354, the Federal No-Fault Automobile Insurance Act. The bill was referred to the Senate Commerce Committee where it was approved. The bill was then sent to the Senate Judiciary Committee where it was approved by a one-vote margin. However, the legislation did not receive final approval prior to the adjournment of the 93rd Congress in 1974. 
TYPES OF NO-FAULT LAWS 

Many different types of plans are called no-fault insurance. Some are called no-fault plans before some audiences, yet are proposed by groups definitely, against no-fault insurance. The main distirtction among the various proposed and effective no-fault plans is in the provisions limiting the right to sue. 
The concept of first-party no-fault insurance is not new. In fact, most of the typical driver's current automobile insurance premium goes for "no-fault" coverages-that is, coverages which reimburse the insured directly, regardless of fault. Collision, comprehensive physical damage, and medical payments coverages all fall irt this category. The introduction of Personal Injury Protection (PIP) coverage primarily adds wages to the list of damages which an insured can recover directly from his insurer on a first-party basis without regard to fault. 
The original concept of no-fault automobile insurance contemplated more than merely extending first-party coverages. It contemplated a restriction in the right to sue, thus forcing the insured to rely on his first-party coverages. The amount of restriction varies greatly among the dif­ferent state and federal plans, however. 
Restrictions on tort liability are most severe under the Hart-Magnuson Bill which would bar them completely; in Michigan, where they are barred except in cases of death or serious injury;. and in Hawaii, where they are barred except in cases of death, serious injury, or when maximum first-party benefits are exceeded. The other plans have less severe restrictions. In several states, includirtg Texas, there are nci restrictions on the right to sue. Another major difference among no-fault plans is in the degree of compulsion required in each law. The modified no-fault plans, as well as the Delaware, Oregon, and Maryland plans 

11 
TABLE 11-1 TABLE OF STATE ..NO.FAULT" LAWS Umitation on Effective State No-Fault Benefits Genenl Damaaes Vehicle Dalftlle Date 
Massachusetts $2,000 in benefits for 

Can recover only if 
Tort liability 

Jan. I, 1971 medical, funeral, wage 
medical costs exceed 
abolished. loss, and substitute 
SSOO, or in case of 
service expenses. Wage 

death, loss of all or part loss and substitute 
of body member, per-service benefits are 
manent and serious limited to 75% of 
disfigurement, lou of actual loss. 
sight or hearing, or a fracture. 
Delaware $I 0,000 per person 

None. But amount 
Stays under 

Jan. l, 1972. and $20,000 per 
of no-fault benefits 
tort system. accident. Covers 
received can't be 
medical costs, loss 

used as evidence in of income, loss of 
suits for general 
services, and funeral 

damages. 
expenses (limited to 
$2,000). 

$5 ,000 per person Stays under 

· Jan. 1, 1972. for medical costs, Florida 
Cannot recover unless 
tort system. wage loss, replace-
medical costs exceed 
SI ,000 or irtjury re­ment services, and 
suits in permanent 
funeral expense 

disfigurement, permanent (limited to $1,000). 
htjury, loss of body member or function, or death. 
Stays under 

Jan. l, 1972. benefits. 70% of 
None.
$5 ,000 medical Oreaon tort system. 

Jan. l, 1974, wage loss up to 
for benefits $750 month. $18 
at left. a day substitute services. Wage loss and substitute services paid from first day if disability lasts 14 days; are limited to 52 weeks. 
Jan. l, 1972. $2,000 in medical Stays under 
None.
Purchase is optional. 
South Dakota 

tort system. •. expense. $60 week for waae 1011, start-Ina 14 days after irtjury, for up to 52 weeks. $10,000 death benefit. 
12 
Theory of a No-Fault System 

Limitation on Effective State No-Fault Benefits General Damaaes · Vehicle Damage Date 












July l, 1972. $2,000 for medical Virginia Stays under Purchase is optional. 
None. 

tort system. and funeral costs. $100 week for wage loss with limit of 52 weeks. 
Connecticut $5,000 benefits for Stays under 

Jan. I, 1973. medical, hospital. 
Cannot recover 
tort system. funeral (limit 
unless economic 
loss exceeds $400. $2,000), lost wages, 
or there is per-
survivors' loss, and 

manent injury, 
substitute service 

bone fracture, 
expenses. Wage loss, 

disfigurement, 
substitute service, 

dismemberment, 
and survivors' 

or death. 
benefits limited to 
85% of actual loss. 

Maryland $2 ,500 in .benefits 
None. 
Stays under 

Jan. I, 1973. for medical, hospital, 
tort system. funeral, wage loss, and substitute service expenses. 
New Jersey Unlimited benefits 

Cannot recover 
Stays under 

Jan. I, 1973. for medical and 
if injuries are 
tort system. hospital costs; Wage 
confined to 
loss up to $I 00 a 

soft tissue and 
week for one year. 

medical expenses 
Substitute services 

excluding hospital 
up to $12 a day up 

costs are less than 
to $4,380 per 

$200. 
person. Funeral 
expenses to $1,000. 
Survivors' benefits 
equal to amount 
victim would have 
received if he had 
not died. 


Cannot recover 
Michigan Unlimited medical Tort liability 

Oct. I, 1973. and hospital 
unless injuries 
abolished. benefits. Funeral 
result in death, 
benefits up to 

serious impair­$1,000. Lost .wages 

ment of body 
up to $1,000 per 

function, or per-
month and substitute 

manent serious 
services of $20 a 

disfigurement. 
day payable to 
victim or survivor. 

Cannot recover 
Stays under 
Aggregate limit of

New York Feb. I, 1974. $50,000 for medical, 
tort system. wage loss, and 
unless medical 
expenses exceed 
substitute service 

$500, or injury 
benefits. Wage loss 

results in death, 
limited to 80% of 

dismemberment, 
actual loss up to 

significant dis­$1,000 per month 

figurement, a 
for three year$. Sub-

compound or com­stitute service benefits 

minuted fracture, or limited to $25 a day 
permanent loss of use for one year. 
of a body organ, mem­ber, function, or system. 
Limitation on  Effective  
State  No-Fault Benefits  General Damages  Vehicle Damage  Date  
Arkansas  Pun.:hase is optional.  None.  Stays under  July I, IIJ74.  
$2 ,000 per person  tort system.  
for medical and  
hospital expenses.  
Wage loss: 70% of  
lost wages up to  
$140 ll Wel~k, be·  
ginning 8 days after  
accident, for up to  
52 weeks. Essential  
services: up to $70  
a week for up to 52  
weeks, subject to  
8-day waiting  
period. Death  
benefit: $5 ,000.  
Utah  $2,000 per person  Cannot recover  Stays under  Jan. 1, 1974.  
for medical and  unless medical  tory system.  
hospital expenses.  expenses exceed  
85% of gross  $500, or injury  
income loss, up to  results in dismember·  
$150 a week , for  ment or fracture,  
up to 52 weeks.  permanent dis·  
$12 a day for loss  figurcment,  
of services for up  permanent  
to 365 days. Both  disability. or  
wage loss and service  death.  
loss coverages sub­ 
ject to 3-day waiting  
periods that disappear  
if disability lasts  
longer than two weeks.  
$1,000 funeral  
benefit. $2,000  
survivor's benefit.  
Kansas  $2,000 per person for  Cannot recover  Stays under  Jan. I, 1974.  
medical expenses.  unless medical  tort system.  
Wage loss: up to $650  costs exceed $500,  
a month for one year.  or injury results in  
$2 ,000 for rehabili­ permanent dis­ 
tution costs. Substi­ figurement,  
tute servh.:c benefits of  fracture to a  
$12 a duy for 365  weight-bearing  
days. Survivor's ·  bone, a compound ,  
benefits: Up to  comminuted, dis­ 
$650 a month for  placed or com- 
lost income, $12 a day  prcssl'd fracture,  
for substitution hcne­ loss of a hody  
fits, for not over  mcmher, pcrma·  
one year after death ,  ncnl injury.  
minus any disability  permanent loss of  
benefits victim re- a body function ,  
ceived before death.  or death.  
Funeral benefit : $1,000.  
Texas  $2,500 per person  None.  Stays under  90 days after  
overall limit. Covers  tort system.  adjournment  
medical and funeral ex- of 1973  
pehses, lost income,  regular session.  
and loss of services.  
Purchase optional.  

Theory of a No-Fault System  
Limitation on  Effective  
State  No-Fault Benefits  General Damaaes  Vehicle Damage  Date  

Nevada 
Colorado 
Hawaii 
Georgia Aggregate limit of $10,000. Pays for medical and rehabil­itation expenses: up to $175 a week for loss of income: up to $18 a day for 104 weeks for replace­mcnt servkes; sur­vivor's benefits of not less than SS ,000 and not more than victim would have gotten in disability benefits for I year; and SI ,000 for death. 
$25,000 for medical expenses. $25,000 for rehabilitation. Lost income: up to $125 a week for up to 52 weeks. Services: up to SIS a day for up to 52 weeks. Death benefit : $1,000. 
Aggregate limit of $15,000. Pays for medical and hospital Sl'rvices; rehabilitation; occupational, psychi­atric, and physical therapy; up to $800 monthly for income loss, substitute services and survivors' loss; and up to SI ;500 for funenl expenses. 
Aggregate limit of $5,000. Up to $2.500 for medical costs. 85% of lost inrnme with maximum $200 week . $20 day for nci:essary servicl'S. Survivors' benefits same as lost income benefits had victim lived. $1,500 funeral benefit. 

Cannot recover un­less medical benefits exceed $750 or irtjury causes chronic or permanent injury, permanent partial or permanent total dis­ability, disfigurement, more than 180 days of inability to work at occupation, fracture of a major bone, dismemberment. permanent loss of a body function, or death. 
Cannot recover un­less medical and re­habilitation services have reasonable value of more than 
$500, or irtjury causes permanent disfigurement, permanent disability, dismemberment, loss of earnings for more than 52 weeks, or death. 
Cannot recover from 9-1-74, to 8-31-75, unless medical and rehabilitation expenses exceed $1,500. Thereafter, must exceed a floating threshold established annually by the Insurance commis­stoner. Can also recow:r if injury results in death; significant, permanent 1011 of uae of body part or func­tion; or permanent and serious disfigurement that subjects injured person to mental or emotional suffering. 
cannot recover un­less medical costs exceed $500, disability lasts I 0 days, or injury results in death, fractured bone, permanent dis­figurement, dismember­ment, permanent loss of body function, permanent, partial or total loss of sight or hearin(l. 
Fch. I. 1974 . 
Stays under 
tort system. 
April l, 1974
Stays under 
tort system. 
Sept. I. 1974. 
Stays under 
tort system. 
.. 
Mar. ·1 , I 975. 
Stays under 
tort system. 

15 
Limitation on Effective State No-Fault Benefits General Damages Vehicle Damage Date 
Kentucky  Aggregate limit of $10.000. Covers medkal l' Xpt•nse ; funeral t•xpensc up to $I .000; in­<"<lllll' loss up Io $.200 wi:ekly, with as much as 15'/~ deducted for in­come tax savings; up to $200 a week each for replacement services loss, survivors economic loss, and survivors replace­ment services loss. Motorist has right to reject no-fault.  Cannot recover unless medkal expenses l'X -cccd $I .000. or injury rt•sults in permanent disfigurt'llll'llt ; fral'l lllT of wl'ight-bearing ho1w; a compound, cumminuted, displaced or compressed fracture ; loss of a body member; permanent injury; permanent loss of a body function; or death. But limitation does not apply to those who reject no-fault system or to those injured by driver who has rejected it.  Stays undl·r tort sysll'm.  July I. I•17:" .  
Minnesota  $20,000 for medical expense. $10,000 for other benefits, in-eluding 85% of los: income up to $200 weekly; $IS a day for replacement services, with 7-day waiting period; up to $200 weekly in survivors' economic loss benefits; up to $200 weekly for survivors' replace­ment service loss; and $1,250 for funeral benefits.  Cannot recover unless medical expenses (not including x-rays and rehabilitation) exceed $2,000; or disability exceeds 60 days; or the injury results in permanent disfigure­ment; permanent in­jury; or death.  Stays under tort system.  Jan. I. 1975.  
South Carolina  Aggregate limit of $1,000. Covers medical and funeral costs, loss of earnings, and loss of essential services.  None.  Stays under tort system. ..  Oct. I , 1974.  

16 
Theory of a No-Fault System 

Limitation on State No-Fault Benefits General Damages 
Pennsylvania Unlimited medical and rehabilitation benefits. Up to S15 ,000 for income loss, with monthly maximum determined by relationship of state's per capita income to nation's per capita income. Up to $25 daily for one year for replacement services. Up to $5 ,000 for survivors loss. Up to S 1,500 for funeral costs. 

Cannot recover un­less accident results in more than $750 worth of medical and dental services (ex­eluding diagnostic X-ray and rehabilita· tion costs above 
$100); more than 60 days continuous disability; permanent, severe, cosmetic dis· figurement; serious and permanent iajury; or death. 
Vehicle Dam91e  Effective Date  
Stays under tort system.  JulY. 19. 1975 .  

Source: State Farm No-Fault Press Reference Manual. Published by the Public Relations Department of the State Fann Insurance Companies. (Bloomington, Illinois, August 19, 1974.) 
provide for compulsory first-party coverage. The Minne­sota, South Dakota, Virginia, and Arkansas plans allow for optional first-party coverage. The Texas law provides for a mandatory offering by insurers, but with optional rejection in writing by the insured. 
The amount of first-party benefits also varies widely among the many plans. The proposed National No-Fault Bill (Hart-Magnuson) and UMVARA, as well as the plans in effect in Colorado, Michigan, New Jersey, and New York, provide the most generous first-party coverages with pay­ments provided up to $50,000 in Colorado and New York, and unlimited medical and rehabilitation expenses in the others. 
The final difference concerns coverage for vehicle damage. All the states except Massachusetts and Michigan retain vehicle damage under the tort liability system. 
The following table gives details on the plans in effect in the various states as of August, 1974. 
LIMITING THE RIGHT TO SUE 

Placing limits on the right to file lawsuits for damages incurred in automobile accidents is probably the most essential component of a no-fault insurance system, the component from which the title "no-fault" is derived and the component which allegedly permits reductions in automobile insurance premiums. Debate has focused almost exclusively on the right to sue for bodily injuries as opposed to property damage, probably becaµse the actual size of bodily injury claims is considerably greater, as is the potential for exaggeration, fraud, and higher attorney fees. Also, property damage has already been covered on a no-fault basis (i.e., collision and comprehensive physical damage coverage) for years. Of the states that have enacted some form of compulsory no-fault automobile insurance, most have restricted lawsuits for bodily injuries while only two have successfully restricted lawsuits for property damage. (The courts have declared such restrictions uncon-. stitutional in more than one other state.) 
In acknowledgement of these practical considerations, the primary focus of this section will be on the limitation of law suits for bodily injuries under no-fault automobile insurance. Specifically, the following factors will be considered: · 
• 	
increases in bodily injury costs that have brought about increased demand for a change in the insurance system; 

• 	
the effect of the tort liability system on personal injuries claims costs; 

• 	
thresholds set on bodily injury payments in various no-fault proposals. 



lncreasea Bodily Injury Costs 
Total bodily injury costs in motor vehicle accidents have 
17 

increased significantly over the past decade. In 1963, the average dollars paid per claim for bodily injuries under liability automobile insurance for private passenger vehicles in the United States was $I , 113, while in 1972 this same cost in states which continued to have liability coverage for bodily injuries had risen to $1,938.22 .This was a cumula­tive increase of approximately 74 percent or about twice the cumulative overall inflation rate for the same period. 
Roughly, this cost (bodily injury paid claims) was comprised of about 75 percent wage loss and 25 percent medical expenses .23 The dramatic increase in the size of paid bodily injury claims is easy to understand when the relative increases in United States medical costs and wages over the same time period are analyzed. From 1967 to 1972, total medical care costs in the U.S. increased 32.5 percent, again well above the overall inflation rate for the period.24 As subcomponents of this overall medical care cost increase, physicians' fees increased 33 .8 percent while daily hospital charges shot up 73.9 percent.25 Wages also showed a significant increase. From 1967 to 1971, average weekly earnings for all U.S. workers increased by 21.1 percent.26 These increases of the components of actual paid bodily injury claims help explain, to a large degree, the overall increase in bodily injury claims cost. 
The Effect of the Tort Liability System 
A second set of factors causing increases in paid claims 

costs for bodily injuries exists in the tort system itself: the 
costs of lawsuits, and the threat of lawsuits in settling 
bodily injuries claims. One study reveals that as much as 16 
cents of each premium dollar goes . to pay lawyers as 
compared to 42 cents returned in benefits.2 7 
The role that lawsuits play· in bodily injury claims is 

demonstrated by a 1970 Department of Transportation 
study. At that time, according to the study, nearly 41 
percent of all death and permanent injury claims in the 
United States actually went to suit while another 31 
percent had attorney representation but did not result in 
actual lawsuits.28 Comparable figures for all other personal 
injury claims resulting from automobile accidents were 15 
percent and 29 percent.29 It is evident from these statistics 
that while actual lawsuits occurred in only a minority of 

personal injury claims, the reliance on attorneys was 
significant, ranging from 72 percent of the claims for most 
serious injuries to 44 percent for all other personal injury 
claims. Texans' reliance on attorneys is not extensive. While 
46.2 percent of paid claimants in all states included in the DOT study were represented by attorneys, only 28.9 percent of Texas claimants were so represented.30 Never­theless, it is still reasonable to assume that out-of-court settlements resulting from threatened lawsuits as well as actual lawsuits play a significant role in personal injury claim settlement. 
The DOT study revealed further that smaller economic losses, probably due to their greater frequency, provided the vast majority of legal clients and lawsuits in automobile personal injury cases. Eight-two percent of lawyers' clients accounted for 73.3 percent of the successful lawsuits and 42 percent of plaintiff attorneys fees.31 It is also pointed out that elimination of these cases would have an even greater impact on defense counsel than plaintiffs' counsel because defense counsel fees tend to be spread more evenly over all lawsuits.32 
. If the figure involved is increased to $2,500, then fully 
93.7 percent oflawyers' clients are included, accounting for 
89.5 percent of the lawsuits and 67.4 percent of plaintiff attorneys fees. 3 3 
While actual legal costs can be expressed as a percentage of . premium, it is difficult to estimate the effect of threatened litigation on total claims cost and thus pre­miums on the same basis. One automobile insurance 
company summarizes by stating that this litigation (and threat thereof) have "undoubtedly added costs to the ...system." 34 In addition to whatever legal defense fees may accrue (according to one source, an average of $819 per case, regardless of verdict 3 5) the resulting overpayment of smaller claims probably compounds total system cost. Still another DOT report cites"...the threat of suit in minor personal injury cases" as "the basic reason for the 'overpayment' of small claims." 36 Actual overpayment of small claims is difficult to ascertain since the "over­payment" is made in response to an "overclaim" by the individual involved. Ho.wever, the DOT studies showed that in those cases where the actual out-of-pocket or economic losses (not including pain and suffering) were less than $500, claimants on the average received four-artd-a-half times such economic losses. 3 7 
On the other hand, large losses are often underpaid. In 1971 , claimants with expenses of $5,000 or more recovered an average of only 55 percent of their expenses · from automobile liability insurance. 3 8 These large claim cases represent only a small percentage of total claims, however, and the net underpayment in these cases probably does not represent a significant savings to the system. 
Thresholds 
No-fault automobile insurance is, in part, an attempt to limit the cost involved with bodily injury claims to the actual economic losses incurred by the injured party. In order to accomplish this, the right of lawsuit is curtailed in varying degrees according to different no-fault proposals. This restriction of compensation to "out-of-pocket" ex­penses only normally excludes paymep.ts for "pain and suffering" or intangible physical losses because, by their · very nature, these losses are not readily translated to actual dollar amounts. Under the liability insurance system, 

18 
general damages (including reimbursement for pain and suffering, mental · anguish, etc.) are normally compensated only through resort to lawsuit or threat of suit. The DOT in its 1971 no-fault proposal suggested a modification to total restriction on lawsuits, a modification which has been generally incorporated into existing no-fault programs: 
The existing right to sue for damages resulting from negligence in car crashes might be continued for intangible losses, and if so could be subject to one limitation: no person should recover for intangiole losses unless he establishes that he suffered permanent impairment or loss of function or permanent disfigurement, or that he incurred personal medical expenses (excluding hospital expenses) as a result of the accident in excess of a rather high dollar threshold. 39 

lt is a question of the amount of the dollar threshold that causes considerable variation among no-fault plans. Numerous trial lawyers argue that any threshold is uncon­stitutional since it denies "equal protection" to automobile accident victims by restricting their right to sue while not similarly restricting the right to sue of victims of other types of accidents.40 In addition to this very real legal problem, trial lawyers have generated several charges against restricting lawsuits such as " . . . closing the courthouse door in the face of the innocent victim in an automobile accident and prohibiting him from looking beyond his own in­surance that he bought and paid for himself to recover total damages for all his injuries from the guilty offender .. .." 41 . Further it is suggested that no-fault may well create more lawsuits than it eliminates by generating litigation between insured individuals and their insurance companies. 4 2 A final possibility is that those who can afford to make the payments will simply pile up enough costs to get above whatever threshold has been established and back into the tort system.4 3 
The states that have set up true compulsory no-fault insurance for bodily injuries have adopted a variety of thresholds, ranging from a low of $200 in New Jersey to one requiring death or serious disfigurement in Michigan.44 The National Conference of Commissioners on Uniform State Laws in its proposed Uniform Motor Vehicle Acci­dent Reparations Act suggests barring lawsuits unless pain and suffering losses exceed $5 ,000 ;µid injury results in death, serious injury, or inability to work for six months.4 5 
It is difficult to ascertain what effect various thresholds 
Theory of a No-Fault System 
would have on the Texas system. The actuarial firm of Milliman and Robertson projected the total costs of general damages under three different lawsuit thresholds for Texas. Under the current tort system, payments for general damages are almost $36 million per year.46 Under a "tight threshold" system, general damages are projected at $12 million; and with no threshold, the total amounts of general damages would be $34 million or about the same as under the present tort system.47 Milliman and Robertson's data have been subjected to close scrutiny as a part of this study. The analysis is presented in Chapter Five. 
A final suggestion offered by Austin attorney Paul Conner is that thresholds might be set in terms of defined injuries.48 For example, a broken arm might not qualify 
•
for lawsuit and would simply be compensated according to actual medical expenses while a broken back, because of its long-term effect on the victim, would be an injury for which the victim could sue for compensation. At the moment, this system is merely a suggestion and has not been seriously investigated. Clearly, the job of defining which injuries would be "sueable" and which would not would be extremely difficult and time-consuming. It would probably be impossible to project with any accuracy the impact this sytem would have on general damages and on insurance premiums. It should be mentioned, however, that several states have similar kinds of measures as a part of their systems. Michigan, for example, has no dollar threshold, but limits recovery for general damages unless injuries result in death, serious impairment of body function, or permanent serious disfigurement. (see Table 11-1, page! 2.) Many of the states with dollar thresholds also permit recovery under these conditions. Some extend the conditions to include bone fracture or loss of use of a body organ or member. 
One state, Hawaii, has no fixed threshold. Instead the insurance commissioner establishes one armually. 
Summary 
Limiting the right to sue is the backbone of all no-fault insurance plans. It is supposedly this limitation that enables the lowering of automobile insurance premiums. The extent to which such premium reductions are possible under varying tort restrictions is examined in Chapter Five. 

FOOTNOTES 

1willis Park Rokes, No-Fault Insurance, Insurers Press 3Robert E. Keeton, "No-Fault Developments in Per­(Santa Monica, California, 1971), p. 3. · spective," an address before the National Conference of 
2The Kentucky law fits neither of these classifications in Commissioners on Uniform State Laws, 1972. that it gives each insured fl!e option to choose or reject 4Rokes, p. 18. no-fault insurance. · 5lbid. 
19 
6State Farm Insurance Company, No-Fault Press Refer­ence Manual. Published by the Public Relations Department of State Farm Insurance Companies (Bloomington, Illinois, Sepjember 1, 1973),p.G-120. 
Rokes, pp. 18-34. 
8Ibid. , p. 34. 
9Ibid ., pp. 18-34. 

10State Farm Insurance Company, No-Fault Press Reference Manual, p. G-120. 
11 United States Department of Transportation, Motor Vehicle Accidents and Their Compensation, a report to Congress and the President by John AVolpe, Secretary of Transportation. March, 1971. 
12The Insurance Information Institute, "No-Fault Gets a Green Light," The Journal of Insurance. July/August, 1973 . pp. 13-20. 
13Rokes, p. 19. 
14/bid., pp. 18-34. 

15 For a discussion of Puerto Rico law see National No-Fault Conference Transcript ofProceedings, remarks by Mr. Frank W. Fournier, Executive Director of the Puerto Rican Automobile Accident Compensation Administration, pp. 51-72. Conference held in Dallas, Texas, July 22-23, 1973 , sponsored by the Texas Association of Insurance Agents. 
16Tue Insurance Information Institute, "No-Fault Gets 

a Green Light," p. 15. 
17/bid.,p.16.
18state Farm Insurance Company, No-Fault Press 

Reference Manual, p. G~140. 
19Rokes, pp. 26-27. 
20state Farm Insurance Company "A Watershed Year 

for No-Fault," State Farm Year, 1972. 
21 State Farm Insurance Company, No-Fault Press 

Reference Manual, p. G-123. 
22Insurance Information Institute, First-Party Auto 

Insurance (New York, July, 1973), p. 50. 
23u.s. Department of Transportation, Economic Con­

sequences of Automobile Accident Injuries (Washington, 
D.C.1970), pp. 75-78. 
4

2 Insurance Information Institute, First Party Auto Insurance, p. 50. 
25/bid. 26u.s. Bureau of Labor Statistics, Monthly Labor Review, March, 1972. 27Public Affairs Research Council of Louisiana, No­Fault Insurance-A Rt1Uonable Alternative? (Baton Rouge, Lo~fana, January, 1974),p.4. 
U.S. Department of Transportation, Automobile Personal Injury Claims, Volume II. (Washington, D.C., 1970), p. 122. ­
2CJ/bid. 
30/bid., p. 123. 
31/bid., p. 75. 
32/bid. ­33/bid. 

34State Farm Insurance, No-Fault Press Reference Manual, p. G-103. 35
u.s. Department of Transportation, Automobile Acci­denjfitigation, (Washington, D.C., 1970), p. 7. 
U.S. Department of Transportation, Motor Vehicle Crash Losses and Their Compensation (Washington, D.C., March, 1971), p. 131. 
37/bid. ­38

u.s. Department of Transportation, Economic Con­seq~9nces ofAutomobile Accident Injuries, p. 28. 
U.S. Department of Transportation, Motor VehicleO'".f3 Losses and Their Compensation, p. 136. Leroy Jeffers, Statement before U.S. Senate Com­
merce Committee, April 11, 1973, p. 2. · 
41/bid -5

., p.. 
42Ibid., p. 19. 
43Wayne Fisher of the Texas Trial Lawyers Association, Comments before L.BJ. School No-Fault Seminar, December 4, 1973. ­
44See ''Table of State No-Fault Laws" presented earlier. 45Insurance Information Institute, First-Party Auto Insurance , p. 50. 
46Milliman and Robertson, Inc., Cost Estimate Study of No-Fault Automobile Insurance (Pasadena, California, November 7, 1973), Appendix 144. 
47/bid. 
48statement by Paul Conner, Comments before L.BJ. School No-Fault Seminar, January 29,J974. 

20 
CHAPTER. III 
SPECIAL ISSUES AND PROBLEMS 

THE CONSTITUTIONALITY OF 
NO-FAULT AUTOMOBILE INSURANCE 


No-fault automobile insurance-because it proposes to eliminate or curtail traditional tort actions for damages resulting from automobile accidents, and to limit the amount of recovery under tort actions-raises some funda­mental questions in relation to both the federal and state constitutions. Included among these issues are denial of due process, equal protection of the laws; the right to trial by jury, and the limitation of the common law tort action for recovery of damages. Additional issues may be raised depending on the particular provi~ions of each state constitution. 
Constitutional Issues Under the United States Constitution 
Although the federal courts have not as yet considered the constitutionality of a no-fault automobile insurance law, there have been decisions relating to other matters that may shed some light on whether such a law would withstand a test under the United States Constitution. Also, federal constitutional questions have '. been considered by state courts in ruling on the constitutionality of state no-fault laws. 1 
Federal constitutional issues which could be raised in the challenge of a no-fault law include denial of due process, equal protection of the laws, and abrogation of the right to trial by jury. The guarantee of due process of the law is included in both the Fifth and Fourteenth Amendments to the United States Constitution. Features of the various no-fault plans that m!ght be subject to attack under these sections are the limitations on amounts that may be recovered for injuries, and elimination of the right to trial by jury in deterrning the right to and the amounts of damages. 
The equal protection of the laws is guaranteed to all persons under the Fourteenth Amendment to the United States Constitution. Interpretations of this concept were limited for many years to the struggle for racial equality;2 however, during the last decade, the equal protection clause has been expanded to cover other areas of political and social equality.3 The important question concerning any proposed no-fault law is whether or not classifications made under that law constitute ''invidious discrimination." 
Under a true no-fault law, the right to bring suit to recover damages from the person at fault is either partially or completely abolished, thus removing the opportunity of an injured person to have the amount of his damages determined by an impartial jury. The right to trial by jury in a civil case under the Seventh Amendment to the United States Constitution has not been extended to actions in state courts through the Fourteenth Amendment; thus, the question in a suit challenging a state no-fault as denying the right to trial by jury under the federal constitution would be whether or not the coverage of the Seventh Amendment could be extended to the states through the Fourteenth Amendment, and, if so, would the statute deny the right to trial by jury. 
The actual impact of the United States Constitution on the validity of a particular no-fault law is not known and can only be determined by a suit challenging the particular provisions of that law. However, some state courts have passed on the constitutionality of their no-fault laws and in doing so have considered federal constitutional issues. These cases should serve as guidelines to persons drafting no-fault laws to show the features of such a law that might not meet the tests under the United States Constitution. 
Constitutional Issues under the Constitutions ofOther States 
Since the adoption of the first no-fault automobile insurance law in Massachusetts,4 a number of other states have adopted no-fault laws, and in some of these states challenges have been made as to the constitutionality of these laws. The first final court decision concerning the constitutionality of a no-fault law was in Massachusetts. This law, which exempted the tortfeasor from liability up to $2,000, prohibited suits for pain and suffering in cases that involved less than $500 in bodily injury damages, and 
21 
limited the amount of lost wages that could be collected, was declared constitutional by the Massachusetts Supreme Judicial Court.5 The court found that the statute in question did not unconstitutionally abolish a vested right in a common law tortsaction or deprive the plaintiff of due process and equal protection of the laws. 
The Florida no-fault law6 was challenged in two separate cases. In Kluger v. White, 7 the Florida Supreme Court found the property damage portion of that state's no-fault law to be unconstitutional because the law abolished the right to seek damages in tort, thereby leaving some persons without any redress for injury. The portion of the law relating to property damage provided for the purchase of first-party coverage but did not make the purchase manda­tory. At the same time it abolished the right of all persons to sue a driver at fault if damages did not exceed $550. Since motorists were not compelled to purchase the insurance and those not purchasing it had no remedy, the statute abolished a long-standing right without providing a reasonable alternative remedy for uninsured drivers. The bodily injury portion of the Florida no-fault law was challenged in Lasky v. State Farm Insurance Company.8 · The plaintiff alleged that the law unconstitutionally re­stricted the right to sue for pain and suffering and created "invidious classifications" that violated the equal protec­tion clauses of the federal and state constitutions. The court upheld the statute as being constitutional. 
In Grace v. Howlett, 9 the Illinois Supreme Court declared the Illinois no-fault law1 0 to be unconstitutional. This statute was found to violate several sections of the Illinois Constitution. First, the limitation on damages recoverable by persons not covered by no-fault benefits violated the Illinois Constitution, which prohibits a special law where a general law can be made applicable. Also, the law was unconstitutional because it provided for review of an arbitrator's decision by trial de novo, required the losing litigant to pay the arbitrator's fee, and violated the Illinois Constitution's provision for trial by jury, by requiring compulsory arbitration of certain cases. 
In preparing any no-fault law for Texas, careful consider­
ation should be given to the cases cited in this section plus 
others to be decided in the future that relate to federal 
constitutional questions and state constitutional provisions 
similar to those in the Texas Constitution. With such 
consideration, many constitutional obstacles may be 
avoided. 
The Texas Constitution 
Under the Texas Constitution, issues concerning no-fault automobile liability insurance are siniilar to those in other states where no-fault laws have been challenged on constitu­tional grounds. The areas for analysis that appear to be most applicable to Texas and its constitutional mandates and protections are due process, equal protection of the laws, access to the courts, and right to a trial by jury_ 
Due Process. One of the main arguments made against no-fault automobile insurance laws is that these laws deny an injured party the due process of the law guaranteed under both the federal and state constitutions. Article I, Section 19, of the Texas Constitution reads: 
No citizen of this state shall be deprived of life, hllerty, property, privileges or immunities, or in any manner dis­franchised, except by the due course of the law of the land. 
The Texas Supreme Court has interpreted the require­ment of Section 19 to mean that no person can be deprived of life, liberty, or property without legal proceedings according to rules and forms established for the protection of private rights. This course must be appopriate to the case and just to the party affected. It must give notice and provide a hearing. 11 
The term ''law of the land" is synonymous with "due process of law" and means the general law operating equally on every member of the commwlity .1 2 Section 19, then, is construed to place the same restrictions on the Texas legislature as those imposed by the United States Constitution.1 3 However, the Texas Supreme Court has ruled that the liberty assured to every person does not grant an absolute right in each person to be at all times and in all circumstances wholly free from restraint.1 4 

Under due process, a statute is subject to the constitu­tional challenge that it is unreasonable, oppressive, and arbitrary to such an extent that it deprives someone of life, liberty, or property without due process. Reasonableness is a question of law, but it is dependent on the facts to be established in the particular case .1 5 Due process of law is secured if the law operates on all alike and does not subject the individual to the arbitrary exercise of the powers of governrnent.1 6 
No person, the Texas Supreme Court has held, has a vested right in a given mode of procedure and, so long as a substantial and efficient remedy remains or is provided, due process of law is not denied by the legislative change. 1 7 The remedy of first-party payment for actual damages under a no-fault automobile insurance law would slibstitute for the right to recover damages in a court of law. The determination of whether this remedy would be adequate to satisfy the requirements of due process under the Texas Constitution is a question for consideration by the courts. A determination of reasonableness can only be made on the facts of the particular situation and the provisions of the particular statute in question. 
Equal Protection. If a single issue consistently raised to challenge the constitutionality of various no-fault automo­bile insurance laws throughout the country was selected, equal protection of the laws appears to be that issue. The contention is made that classifications provided in the laws 
22 
Special Issues & Problems 

violate a person's right to equal protection of the laws. In Texas, persons are guaranteed equal protection of the laws under both the federal constitution and under Article I, Section 3, of the Texas Constitution; which provides that: 
All free men, when they form a social compact, have equal rights, and no man, or set of men, is entitled to exclusive separate emoluments, or privileges, but in consideration of public service. 

Section 3 generally has been interpreted to mean that all persons enjoy equality of rights. 1 8 The provision is designed to prevent any person or 'class of persons from being singled out as a special subject for legislation which is hostile or discriminatory .1 9 
However, this provision does not prohibit the legislature from making classifications for purposes of implementing legislation.2° Classification for the ' purpose of law is a legislative function, 21 and a state may place its citizens into reasonable classes without violating any person's rights to equal protection of the law. 2 2 
For a classification to be valid, there must be a reasonable basis for classification and the law must operate equally and the burdens rest impartially on all persons within the same class.23 All members of a class must be treated alike under the same conditions.24 The fact that a statute discriminates in favor of a certain class, however, does not make it arbitrary if the discrimination has a reasonable basis.2 5 A classification is reasonable if it is based on a real and substantial difference having relation­ship to the subject of the particular law and operates equally on all within that same class.26 
The classification, however, must not be arbitrary or capricious.2 7 Any legislation that discriminates against persons of the same class and other persons in similar situations does violate equal protection.28 Unequal treat­ment of persons under a state law· which is founded on unreasonable and unsubstantial classification constitutes discriminatory state action and violates both the state and federal constitutions.2 9 
A challenge to a classification must bear the burden of showing that the classification does not have a reasonable basis, because courts assume that a set of facts existed at the time the classification was made which would sustain the classification, if the facts could reasonably sustain it.30 In short, courts allow wide discretion on the parts of legislatures in enacting laws and assume lawmakers had a valid purpose for a law before enacting it. . 
The question of violating the right .of equal protection of the law under a no-fault statute ordinarily arises under statutes which prohibit the institution of suits for general damages unless the injured party has damages exceeding a certain threshold, or has suffered the loss of life or limb. For the equal protection challenge under the Texas Constitution to succeed, the challenger would have to show that the threshold and other exceptions were unreasonable by presenting a case that would indicate that the law did not substantially operate equally on all persons within the given class of automobile accident victims. 
From basic principles for determining violation of equal protection, a challenge to no-fault in Texas would carry a burden to show that limitations on tort actions were unreasonable, arbitrary, and capricious. However, any decision on the question again lies with the court's determination of whether or not the particular statute adopted by the legislature included acceptable constitu­tional criteria in limiting or eliminating damage suits. 
Access to the Courts. Under the Texas Constitution, every citizen is guaranteed access to the courts for remedy of injuries by due course of law. The provision is found in Article I, Section 13 of the Texas Constitution: 
All courts shall be open, and every person for an injury done him, in his lands, goods, person, or reputation shall have remedy by due course of law. 
Under a no-fault law, access to the courts for remedy of injuries sustained in automobile accidents is either partially or completely abolished. The question arises whether this partial or complete -ab.olition of common law tort action results in a violation of Article I, Section 13. 
Several cases in both federal and state courts have 
interpreted the provisions of Section 13, the most impor­
tant being Middleton v. Texas Power and Light 
Company.31 In the Middleton case, the Texas and United 
States Supreme Courts upheld the Texas Workmen's Com­
pensation Law and made an exhaustive analysis of Section 
1332 of the Texas Constitution. 
The provisions of Section 13 must be read into every 
valid statute and the provisions of the statute must conform 
to this constitutional provision.33 To conform, a statute 
may not abrogate vested rights because vested rights of 
action given by the common law are property rights and are 
protected by the constitutiori.34 
Since the courts have held that the right to be protected 
by the constitution must be a vested right, a mere 
expectancy based on an anticipated continuance of an 
existing law is not protected. The right must be a legal or 
equitable title to the present or future enforcement of a 
demand or legal exemption of demand from another to be 
vested. If the state amends or repeals a law before rights 
become vested in a person, that person is left without a 
remedy at law to enforce his claim. 35 
The Texas Constitution does not hold inviolate the rules 
of common law which were adopted and may be changed 
by the Legislature.36 No person has a vested right in the 
continuance of the present law in regard to a particular 
subject. The laws may be changed by the Legislature so 
long as they do not destroy or prevent an adequate , enforcement of vested rights. 37 

23 
Actions for accidental injury are creatures of common law and not the constitution. An action to recover for accidental injury in an automobile accident is based on the common law doctrine of negligence and, without this rule, there would be no liability for the injury and no cause of action. 38 Because of its authority to enact laws and to supercede common law, the Legislature is competent to alter or abolish this common law action.39 
In Middleton, the Texas Supreme Court held that abolishing the common law negligence action of an em­ployee against his employer did not divest the employee of a property right.40 The statute only removes the right of action for future injury, substitutes another law governing recovery, and provides a different remedy. 41 This may be construed to be parallel to a situation in which the victim of an automobile accident may have his cause of action against a negligent driver partially or completely abolished, and be required to look to his own insurer for recovery. 
This situation presents an interesting point. Since vested rights have constitutional protection, a statute may not have retroactive effect which will deprive a person who has an accrued cause of action from his opportunity to seek a remedy for his injuries in the courts. 4 2 
Other limitations on the Legislature in enacting a statute abolishing or limiting a cause of action are that the Legislature may not adopt a statute denying a citizen resort to the courts for recovery of damages for an intentional 
. . 43 d tha 
m1ury, an t Article XVI, Section 26, of the Texas Constitution, prohibits the Legislature from abolishing a right of action for recovery of damages in cases of death resulting from a willful act or ommission or gross neglect. 44 
Generally, the indication is that a no-fault law partially or completely abolishing a common law negligence action as a remedy would not violate a person's right to access to the courts.if the law: 
• 	
acts prospectively on causes of action which have not vested at the time the statute is adopted; 

• 	
provides an adequate substitute remedy for the injured party; 

• 	
does not abolish rights to action for intentional injury and death resulting from a willful act or ommission or gross neglect. 



Triol-by.JllT)I. Partial or complete abolition of the i common law tort action for recovery of damages resulting : from automobile accidents also raises the question of whether or not the constitutional right to trial by jury is denied under a no-fault law. Two sections of the Texas Constitution, Article I, Section 15, and Article V, Section 10, relate to the right to trial-by-jury: 
(Section 15} 
The right of trial by jury shall remain inviolate. The 

Legislature shall pass such laws as may be needed to regulate the same and maintain its purity and efficiency ... . 
(Section 10} In the trial of all cases in District Courts, the plaintiff or defendant shall, upon application made in open court have the right of trial by a party to the case, and the jury fee be paid by the party demanding a jury, for such sum, and with such exceptions as may be prescribed by the Legislature. 

Under the United States Constitution, there is no guarantee of the right to a trial-by-jury in the state courts. Its provisions are applicable only to trials in federal courts.45 
The right to a trial-by-jury in the Texas Courts is not conferred in all classes of cases, but merely guarantees the continuance of the right unchanged as it existed in the common law or by statute at the time the constitution was adopted.46 The inviolate right to a trial-by-jury is regulated by the rules which specify its availability. The rules now require some affirmative action to be taken by all parties to insure a jury trial.4 7 The right is granted to all litigants who demand the right to a jury in the manner provided by law. On properly and reasonably demanding the jury and paying the fee, the right then becomes inviolate.48 
The argument that a no-fault law that completely or partially abolishes the opportunity to seek a remedy in the courts would violate the right to trial-by-jury probably would not be sustained since the suit for damages is a civil action for which a jury demand must be made and a fee paid before the right becomes inviolate. With the abolition of the cause of action by law, it does not appear that a person would be in a position to argue successfully that the law deprives a person of an inviolate right. 
THE POTENTIAL SHIFT IN RATES AMONG 
INSUREDS UNDER NO-FAULT INSURANCE: 
THE SUBROGATION ISSUE 


The Texas Ratemaking Structure 
There are several major objectives of any good rate­making procedure. Rates are designed and regulated with these objectives in mind: (1) rates should be adequate to enable the insurer to earn a fair profit and remain solvent; 
(2) they should not be excessive; (3) they should not be unfairly discriminatory among insureds-that Is, they should allocate the cost burdens among insureds on a fair basis; (4) they should be flexible enough to reflect current loss experience and trends; and (5) they should be designed to encourage loss-prevention efforts among insureds where possible.. 
Frankly, the questions of rate adequacy and excessive­ness are not significantly affected by the no-fault issue. The same general procedure is currently used in Texas to establish rates for both fault coverages and no-fault 
24 

coverages (i.e., medical payments, collision, and compre­hensive physical damage). Thus, whether or not a no-fault insurance system would cause a reduction in premiums would not affect the ratemaking procedure used to deter­mine adequate rates (although some of the factors in the formulas might be changed-Le., the percentage allowed for loss adjustment costs). 
There is, however, a great potential for significant adjustments of rates among different insureds (i.e., through a change in the rate structure) under ·a no-fault insurance system. To understand how, we must briefly examine the current rating structure in Texas. 
The automobile insurance rating system is basically a combination of a "manual" rating system and a "merit" rating system. This simply means that part of an indi­vidual's rate is determined by "grouping" factors such as geographic location, age of driver, and use of the automo­bile, while part is determined by the individual's own driving record. To determine an individual's liability insur­ance rate, for example, we would first determine the rating territory (there are four in Texas) in which the automobile is principally garaged. We would then determine the appropriate rating classification among the following: 49 
BASIC RATING CLASSIFICATIONS : (Private passenger autos owned by an individual or by two or more relatives' who are' residents of the same household.) For all coverages under Family-Standard Policy the "6" and "8" classifications are used when there is a driver 65 years of age or older. Farm autos may be owned by a family partnership or corporation. 

1A(6A)  No male driver under 25, no unmarried female  
driver under 21, no business use, not driven to  
or from work or school. Clergymen with no  
male driver under 25 and no unmarried female  
driver under 21.  
1B(6B)  No male driver under 25, no unmarried female  
driver under 21 , no business use, driven to work  
or school.  
1AF(6AF)  Farm auto, no male driver under 25, no  
unmarried female driver under 21, not used in  
business other than farming, not driven to or  
from work or school other than farming.  
3(8)  No male driver under 25, used for business, or  
not individually owned. If'business use is for  
U.S. Government by an employee thereof, class  
may be 1A(6A), 1B(6B) or 2D if appropriate  
restrictive endorsement is attached.  
2A-l  Male driver under 21 is married or if single is  
not owner or principal driver.  
2A-2  Male driver 21 or over but less than 25 is  
married or if single is not owner or principal  
driver.  
2C-l  Male driver under 21 is single and is owner and  
principal driver.  
2C-2  Male driver 21 or over but less than 25 is single  
and is owner or principal driver.  
2D  Unmarried female driver under 21, no male  
driver under 25, no business .use.  
2AF-1  Farm auto, male driver under 21 is married or if  
single is not owner or principal driver, not used  

Special Issues & Problems 
in business other than farming, not driven to or  
from work or school other than farming.  
2AF-2  Farm auto, male driver 21 or over but less than  
25  is  married  or  if single  is  not  owner  or  
principal driver , not used in business other than  
farming, not driven to or from work or school  
other than farming.  
2CF-1  Farm auto, male driver under 21 is single and is  
owner or principal driver .  
2CF-2  Farm auto, male driver 21 or over but'less than  
25 is single and is owner or principal driver.  
2DF  Farm auto, unmarried female driver under 21,  
no  male driver under 25, not used in business  
other than farming, not driven to or from work  
or school other than farming.  


This rate is then reduced if the car is a second or third car in the family or if the driver had had a driver training or defensive driving course. It is increased if he has been convicted of any traffic violations according to the follow­ing scheduled: 50 
DRIVING RECORD POINTS: Points shall be assigned in accordance with the following for motor vehicle violations for which the applicant or any operator of the vehicle currently a resident in the same household has been convicted during the experience period. 
1. Three points shall be assigned for conviction of: 
(a) 	
driving while under the influence of intoxicating liquor or narcotic drugs; or 

(b) 	
failure to stop, render aid, or disclose identity when involved in an accident; or 

(c) 	
negligent homicide, murder by driving while intoxicated or aggravated assault arising out of the operation of a motor vehicle; or 

(d) 	
any offense punishable as a felony under the motor vehicle laws of the State of Texas. 


2. 	Two points shall be assigned for conviction of: 
(a) 	
driving while license is suspended or driving without a valid driver's or operator's lkense in force and_effect;~!" _________.. _ 
_ ___ 

(b) 	
any other moving traffic violation as a result of which an operator's license was suspended or revoked. 


3. One point shall be assigned under either the following 
(a) 
or (b), whichever produces the highest number, for conviction of each speeding violation, per operator: . 

(a) 
· beginning with the second· such conviction within the latest 12 consecutive months; or 

(b) 	
beginning with the third such conviction within 


the latest 36 consecutive months. EXPERIENCE PERIOD: With respect to a policy or re­newal obtained through the voluntary market, the experience period shall be the 36 months ending 3 months prior to the effective date of the policy or renewal. DRIVING SUB.CLASSIFICATION AND SURCHARGES: The number of "Driving Record Points" accumulated during the experience period shall determine the sub-classification to be applied. Apply surcharge shown below to bodily injury property damage and medical payments at the selected limits and collision at the selected deductible form . 
25 

Number of 
Driving Record Driving Record 
Points Sub.Classification Surcharges 

0 0 0 
I I 15% 
2 2 35% 
3 3 60% 
4 or 4 90% 
more 

Inherent in this rating system is the desire to vary individuals' rates according to two factors : their likelihood to be involved in accidents, and the likelihood that they would be at fault in any such accidents. It can be seen from the above illustration that teenage drivers are expected to be involved in and at fault in more than their share of accidents while those over 25 are far less accident prone as a group. 
One of the early criticisms of no-fault automobile insurance was that the relatively dangerous drivers would be given lower rates while relatively safe drivers' rates would be increased.5 1 The fairness in this result is seriously questioned. Nevertheless, if insurers are responsible to reimburse their own insureds for their injuries, regardless of how caused, then without some offsetting mechanism they would have to charge rates based solely on the likelihood of being involved in accidents and the probable size of resulting claims. Medical payments insurance is a good example of this kind of rate structure. While the younger drivers are still charged higher rates, the differentials are far less than those for liability insurance. 
One possible solution to this problem of equity in rates is the subrogation clause. This mechanism for adjusting losses essentially between insurers has been used in most no-fault laws in the U.S. and Europe. 
Subrogation 
In a strict legal sense subrogation is the substitution of one person for another as a creditor, the new creditor succeeding to the rights of the former. In the insurance field subrogation developed as an offshoot of the principle of indemnity. Under the principle of subrogation, an insurance company that has indemnified the insured's loss is entitled to recovery from a liable third party. Thus, if A negligently causes damage to B's person or property, B's insurance company will indemnify B to the extent of its liability for B's loss and will then have the right to proceed against A and his insurance company for any amounts it has paid out under B's policy. Subrogation has been a long-standing part of the tort liability system, and it is interesting to examine the purposes for which it has been used in the automobile insurance industry. 
As presently practiced, subrogation has two distinct and _ preventing insureds from collecting more than their actual losses (if B's company did not have the right to sue A then B might collect from his insurance company and also from A in a lawsuit); it is used as a means for shifting losses between insurance companies. 

Interestingly, while the subrogation clause has been used for years in property insurance, it has not been applied in health insurance, nor in medical payments coverage under the automobile policy. This inconsistency has also been extended to the new Personal Injury Protection. The result of these practices is a rating system that does not reflect fault. 
Subrogation is permitted in most if not all the true no-fault laws. While insureds are not permitted to sue those at fault in the accident, their insurers are permitted that right. Since the insurer is given a right which the insured does not have, a legal expert might argue that, technically speaking, this is not "subrogation." The intent of the practice, however, is to permit insurers to adjust losses among' themselves on the basis of fault. As long as everyone is insured, then insurers will only deal with other insurers. If a driver does not have insurance, then he is violating the law since all true no-fault plans are compulsory. Consequently, he loses his immunity from suit. 
By permitting insurers to recover their losses when their insureds are not at fault and requiring them to reimburse other insurers when they are, no-fault automobile insurance can operate under the existing rate structure. Thus, drivers who tend to cause accidents will pay the higher rates, while those who are safe drivers but might have greater losses in case of accident (i.e., because of age, health, income level, etc.) pay the lower rates. 
The actual dollar amounts transferred under this arrangement should be tabulated in the early years of no-fault plans, as well as the costs associated with making these settlements between insurers. The system could prove to be expensive, greatly reducing the benefits provided. In any case, however , it should prove cheaper than making such settlements through the current legal system. 
Another limitation of this practice is the potential effect on some insureds' rates because their insurers settled claims even though the insureds were not at fault. This same limitation exists with the present system, however, since only the insurer has the right to settle or refuse settlement with an injured third party. Also, in Texas, rates are determined by traffic violations, not by at-fault accidents unless a traffic violation was issued. 
COORDINATION OF BENEFITS: 
THE PRIMACY ISSUE 


The Family Automobile Policy (F AP) is the automobile insurance policy usually purchased by private automobile 
owners. It consists of four major parts: 

often mutually exclusive functions: it is used as a means of 
26 
liability for bodily injury and property damage; 
• 	medical payments; 
uninsured motorist protection; and 
physical damage. . 


Payment under each of these sections, except the medical payments section, at some point involves the question of fault. 5 2 Medical payments insurance is actually a health insurance contract and pays for the medical claims of occupants of an insured's car, regardless of who may have been at fault in the accident. In addition, the automobile insurer must pay these medical claims regardless of any collections made by the insµred from other sources, even when the insured sues and receives payments from the other motorist in the accident. For example, the insured might collect compensation for losses incurred in an accident: (I) from the medical payments portion of his policy, (2) from a liability judgment against the other driver, and (3) from the insured's health insurance plan. Some will argue that a victim, seriously injured in an accident because of some other driver's negligence, deserves all the compensation he can get. However, insurers point to the undesirable results brought on by the excessive cost of an accident when duplication of benefits occurs, as in the example cited. Each claim made with an insurance company is eventually reflected in the premiums paid by every person insured by that company .. 
The high cost of automobile insurance in the present fault system has been one of the principal factors leading to the widespread discussion of no-fault automobile insurance. However, the overlapping of benefits, which contributes to the high cost of automobile insurance, might also occur within a no-fault system. To prevent this overlap, most proposed no-fault systems make . provisions for a coordination of benefits between · various insurance companies. 
The question of coordination of benefits revolves around 

three issues: Should a person be permitted to carry two types of insurance, each of which pays t;he same benefits in certain situations? If yes, should one of these types be primary, i.e., should one insurance pay first, and the second one pay only if the first one does not ,cover an costs? If the answers to both of the previous questions are yes, which insurance should ' be designated as primary? 
Each of these issues will be addressed and arguments, both pro and con, for allowing automobile insurance to be primary will be presented, and recomm'endations made. 
Duplicative Benefits 
In the tort liability system which still dominates • automobile insurance today, an automobile accident victim ; 
Special Issues & Problems 

receives compensation after he has proved the other person has caused the accident. The person determined to be at fault -or his insurance company-pays the victim for his losses, as determined by the court. As mentioned previously, the victim frequently is entitled .to similar benefits from health, accident, or income continuation plans. However, the principal idea behind the present fault system-that the negligent driver should "pay" for the damage or injury he has caused-has led to the "collateral source rule," which holds that the negligent driver should not benefit just because the victim receives compensation from other sources. Thus, "these other benefits are generally disregarded in setting the automobile liability insurance award. " 5 3 
Duplication of benefits might also be the result of: (1) consumer confusion about benefits from various insurance plans, and (2) the requirement to purchase more than one plan.54 If a consumer does not desire or need duplicative benefits, then the imposition of such requirements upon the consumer is an economic waste, both for the consumer and for society as a whole. 
With no-fault insurance, which is generally compulsory, an owner is required to provide medical and wage benefits for anyone injured in his car. The compulsory aspect renders duplication of benefits much more likely. Those who desire extra benefits should pay extra premiums Jor them, and those who feel that benefits from one plan are sufficient should not be required to pay for both. Many consumers might choose to pay smaller premiums and eliminate duplicative benefits. Many are interested principally in full compensation for loss, but not in possible profit from illness or injury. For the individual consumer, the fairest and most desirable course would seem to be the benefit of a choice between lower total premiums and coverage of actual expenses, or higher premiums and duplicative or excessive coverage. In fact, although coverage under two different plans might overlap, the consumer might need both plans to insure complete coverage of all possible expenses, because of the limitations in each plan. A health-insurance program and "any automobile insurance system should afford the consumer the widest range of informed choices, should subject him to as little compulsion as is compatible with other objectives, and should give him as much influence as possible over the quality he buys." 5 5 However, as pointed out earlier, duplicative payments have an escalating effect on the premiums paid by all those insured under both plans. 
Present Practices in Texas. In Texas, when an automobile insurance company receives a claim against a medical payments portion of a policy, the company automatically pays the claim. No attempt is made to discover if the victim or claimant has other coverage or receives other payments.56 The same policy applies to any 
27 

claims against the new Personal Injury Protection (PIP) plan in Texas. Thus, the stacking of benefits for an automobile accident victim is a likely occurrence. Health insurance companies usually check to see if the victim has other group insurance and some do not pay if Workmen's Compensation covers the medical costs.57 Mrs. Mildred Hurt, supervisor of the Health and Group Life Policy Unit of the Texas State Board of Insurance,58 explained that the Health Policy Unit approves group contracts, which provide for coordination of benefits with other group health plans. However, this unit does not approve group contracts which would coordinate health benefits with private or individual insurance, except automobile insurance. The last official ruling which the Health Policy Unit is using states that a "company can coordinate benefits with automobile insurance policies, whether no-fault or otherwise, but they cannot coordinate with individual A & H (accident and health) policies."5 9 
A legal counsel with Blue Cross/Blue Shield of Texas, Steven McDonald,60 stated that this health insurance company has a subrogation provision in its contract. This provision is exercised in connection with liability compensation for automobile accident victims but cannot be applied to the medical payments portion of the automobile insurance policy. On the form which must be filled out by or for a hospital patient requesting Blue Cross compensation, the company tries to determine if a patient was admitted because of an automobile accident injury, and if other group insurance would cover the patient. According to a spokeswoman at Brackenridge Hospital in Austin61 and Ms. Hurt with the Insurance Board, Blue Cross/Blue Shield coordinates with other group plans so that, between the groups, they pay 100% of the medical expenses of the insured, with the proportions of the total claim paid by each group plan decided between the two companies. In numerous cases, this proration system achieves a coordination of benefits where two group health plans are concerned. According to one source, such coordination is in the interest of the buyers of insurance:' 
It keeps down premium costs. If benefits are paid in e~cess ~f expense, neither the patient nor the doctor has a _financial incentive to control the use of cost of medical serYJces. As a result , medical expense goes up; premiums for insurance go 
up. 
To the person concerned, it may seem desirable to receive benefits in excess of his expense; but every time he does so, he increases the future premium cost for himself and others carrying like insurance. When others _do J~e same thing, they increase the cost for themselves and him. 

The obvious conclusion to be drawn from these comments is that duplication of benefits should be avoided if premiums are to be kept as low as possible. 
The Question ofPrimacy 
Methods for avoiding a duplication of benefits (or, to 

put it another way, for coordinating benefits) have been 
discussed by the insurance industry for years. An insurance 
industry study group in November, 1961, explored the 
problem of health over-insurance. The report of this group 
indicated the need for an anti-duplication provision "which 
will permit the regular benefits of the group plan to be 
payable when the individual has no other coverage, but 
which will reduce these benefits to such a point that the 
individual does not make a profit when he has other 
insurance covering the same loss."63 This group excluded 
from its study the overcompensation resulting from the 
collateral source rule employed in liability cases; instead, it 
devoted its attention to duplication between strictly health 
plans. It investigated the difficulties involved in imple­
menting anti-duplication provisions. One of these problems 
is the necessity of relying on the patient or victim to supply 
information on other health or medical coverage which 
might apply in a particular situation. "Since no one likes to 
have his benefits reduced, there is a strong temptation for 
· th "6. Furthermore,

the claimant not to report o er coverage. 4 
an anti-duplication provision in a group insurance policy 
"must define ...the basis of measuring over-insurance in 
terms of both expenses and time .. . (and) also must indicate 
how the regular benefits will be reduced when over­
insurance is deemed to exist."65 
Two methods might be employed to determine the 

benefits each plan will pay a claimant who has duplicated 
benefits. One method is for the insurance companies to 
specify which insurance will pay first in each instance, i.e., 
which insurance would be the primary source of benefits 
for a particular claim, while the secondary source would 
pay only if the first source were exhausted before all 
expenses were paid. Another method provides that each 
insurance company pays a pro-rata share of the claimant's 
allowable expenses, such that all the claimant's expen8es are 
paid, with proportions determined by the insurance com­
panies involved. As pointed out earlier, this is already done 
in some instances by Blue Cross/Blue Shield. 
The study group of the Health Association of America 

was requested to draft sample group anti-duplication 
provisions. The group wrote a model provision using two 
guiding principles: 
· The provision should permit recovery of all medical 
expenses. 
The claim settlement should be simpie.66 
The decision to recommend a provision based upon the 

order of benefit determination system (i.e., the priJnary­
. secondary method) was based on public understanding. It 
was felt that an average person would have difficulty 
calculating a mathematical ratio and thus understanding a 

28 


proration system. The intricacies of the proposed model provision need not be included in this report. The study was devoted to a discussion of coordination of ben~fits between health plans and apparently did not consider payment of medical expenses through automobile insurance policies. However, the study does add emphasis to the contention of no-fault automobile insurance proponents that, where medical coverages overlap, one source should be designated as a primary source and the other secondary. In addition to the overall savings to the compensation system engendered by this policy, the designation of one source as primary would permit the loweririg of rates of the secondary source. The same comments which apply to coordination of medical benefits might be made in connec­tion with wage-continuation plans. Coordination of col­lateral sources in both instances would certainly be sup­ported by many consumers and would produce a more efficient system. 
Designation ofa Primary Source 
This brings up the third question--:-which source should be primary? Given two possible sources of compensation for the automobile accident victim, which source might best meet the criteria of economic efficiency, quick delivery, and adequate and just compensation? The auto­mobile insurance package has been offered as the secondary and as the primary source in different plans. Both alterna­tives will be discussed in this section. These discussions will disregard possibilities under some form of national health care. A national health care plan might impinge definitively on the primary issue. "If a health program designed primarily against 'catastrophic illness' is enacted, its narrow provisions may enable automobile carriers to preserve their traditional primacy in automobile accident cases. On the other hand, should a more compr-ehensive method be successful, its advocates are expected to fight hard to make health insurance primary. " 6 7 
Automobile Insurance as the 
Secondary Source 
Medical expenses. The principal supporters of health insurance as the primary source for oompensation ~f medical expenses are the health-insurance companies and _ particularly Blue Cross. The Texas Blue Cross division ha8 made no statements in this respect but rather has adopted a "wait and see" stance.68 This company has apparently ignored the duplication of benefits which occurs at present with the medical payments and PIP sections of the automobile insurance policy. In some other states, Blue Cross has negotiated actively to write coverage for the first-party medical benefits in automobile insurance policies.69 In Maryland, Blue Cross entered a contract with the state fund to service altmotorists insured through the 
Special Issues & Problems 

Maryland Automobile Insurance Fund. However, in New Jersey, Co~IOiier McDonough ordered thatBiUe Cross contracts be written to exclude benefits of persons eligible under the state's no-fault law. In other states; stich as Virginia and Wisconsin, Blue Cross has requested of legislators that the company at least be granted the opportunity to compete with other companies for primary coverage. The overall policy of Blue Cross has apparently followed that of the Texas division-the policy of waiting until no-fault passage seems likely before making the move to make health insurance primary. 
The principal arguments for making health insurance primary revolve around the reputedly greater efficiency of health care plans as opposed to automobile insurance plans. "One analysis addressing the cost efficiency of the auto­mobile accident liability insurance system from the con­sumer's perspective has indicated that 44 cents out ofevery premium dollar collected is used to compensate accident victims for their losses."70 
Several specific proposals making automobile insurance secondary will be considered here: 
The New York Plan. The New York Insurance Depart­ment elaborated on the DOT figure of 44 cents: (1) eight cents of the 44 cents actually paid out to victims duplicates compensation from other sources; (2) 21.5 cents goes for "pain and suffering;" and (3) only 14.5 cents goes to compensation for net economic loss. 71 
Partially on the basis of this documented inefficiency, the New York study chose to make automobile insurance secondary to other benefits, a decision designed to: 
.. .facilitate the integration of benefits, while letting insur­ance mechanisms of proven high efficiency continue to provide basic health and income coverages. It also permits the new plan to give full compensation to the seriously injured and still to reduce automobile insurance premiums sharply.72 

However, the New York Insurance Department never documented its statement that other insurance mechanisms have proven high efficiency. Furthermore, the inefficiencies of the automobile insurance system related above refer only to the bodily injury liability system. It does not address the efficiency of the medical payments portion of the auto­mobile policy, which pays on a first-party basis, operating in a manner comparable to other health insurance plans. As many proponents of no-fault insurance are prone to point out, comparing the bodily injury liability automobile insurance program to the average health care program "is an apples-and-oranges comparison. " 7 3 
The New York study does point out that without statutory specifications making automobile insurance either primary or secondary, the latitude for voluntary arrange­ments will permit numerous variations, including the possible evolution of automobile insurance as primary. Apparently, the Insurance Department was not strongly opposed to the primacy of automobile insurance. 
29 


Another statement made by the Insurance Department­that making automobile insurance secondary would "facili­tate the integration of benefits"74 is never explained or amplified . If it refers to all benefits accruing from an automobile accident , the statement is incomprehensible. Logic would argue that automobile insurance primacy would "facilitate the integration of benefits" more easily because of the experience of automobile insurance com­panies with all aspects of automobile accidents. The arguments for making automobile insurance secondary in New York are tenuous and the recommendation was followed only partially in New York's Comprehensive Auto Insurance Reparations Act. In this law , first-party benefits for economic loss due to injury are to be paid, less "amounts recovered or recoverable on account of such injury under state or federal laws providing social security disability benefits or workmen's compensation benefits," 75 but apparently it does not make private health insurance primary. However, provision is made for the superintendent to permit deductibles over $200 in the. case of an insurance plan "designed and implemented to coordinate frrst-party benefits with other benefits." 76 Thus the New York Plan does allow flexibility as the Insurance Department recom­mended. 
The Hawaii Plan. Hawaii's original no-fault plan, which was to take effect on July 1, 1974, but was amended and became effective September 1, 1974, declared that benefits payable by motor vehicle insurers were to be secondary to benefits from health insurance, as well as from social security and workmen's compensation. This was done after a comprehensive study by the State Legislative Auditor's office.77 The consultants for this study gathered extensive data to present on the current situation in order to be able to develop an alternative preferred automobile insurance system. Some of the data were incorporated in a table which compared the loss payout ratios for several lines of insurance .78 This table showed that health plans and group accident and health coverages were more efficient in delivering benefits from 1960 to 1970 than third party liability coverages . While it cost $1.66 to deliver $1 of bodily injury benefits under automobile insurance , non­commercial and commercial health care plans were able to deliver the $1 of benefits for $1 .09 to $1.33.79 After determining that these health care plans were substantially more efficient than automobile plans, the report recom­mended that a Hawaii no-fault law make automobile insurance secondary to these existing,. efficient health care plans. The final recommendation seemed to be a justifiable conclusion from the data except that, again, the health care plans were compared only to the bodily injury liability portion of the automobile insurance policy. Evidently for this and other reasons presented later, the Hawaii legislature reversed itself and made automobile insurance primary except for social security, workmen's compensation, and public assistance. 
The Massachusetts Plan. The no-fault law in Massachu­setts is a variation which permits automobile insurance to duplicate other medical payments unless the insured elects to have a deductible for himself or his whole family. Massachusetts thus gives drivers wanting to tailor auto­mobile coverages to other sources of benefits a chance to cut costs 6 to 30 percent-depending on the size deductible (up to $2,000) they choose.80 
The Pennsylvania Plan . The Pennsylvania No-Fault Motor Vehicle Insurance Act, approved July 19, 1974, and effective July 19, 197 5, gives motorists an option to designate other group or individual insurance policies as primary insurers. If the option is exercised, the automobile insurance rate is to be reduced to take into consideration the reduction in expected claims payments. Even if not exercised, automobile no-fault benefits are excess over workmen's compensation; state-required, non-occupational temporary disability insurance; social security (with certain exceptions); and all other government provided benefits. There also appears to be an attempt, when the automobile policy is the primary insurer, to force the excess insurer to lower rates to the insured [see Section 203(a)]. 
Wage Losses. While the medical payment portion of the automobile policy does not cover wage loss, the new Personal Injury Protection portion of Texas automobile insurance, as well as all no-fault laws and similar PIP plans in other states, does pay lost wages or the cost of replacement services. 
In New York, compensation for wage losses by an automobile insurance policy is secondary to other wage­continuation plans. The arguments for this policy are the same as those used in connection with medical benefits. 
Hawaii also originally extended its policy of . making automobile insurance secondary with respect to wage continuation, with a limit of $600 per month. It was determined that this would fully cover 50 percent of all Hawaii wage earners. However, optional excess wage-loss coverage could . be purchased by those with incomes over $700 per month. Work-loss benefits are based on an economic determination of income in the immediate past. This policy was a deliberate attempt "to avoid most or all of the expensive and time-consuming hearings procedures with which the workmen's compensation process is encum­bered." 81 The table comparing various insurance plans had demonstrated that, where it cost $1 .66 to deliver $1 of bodily injury benefits under automobile insurance and $1.09 to $1.33 to deliver bodily injury benefits under other health plans, it cost workmen's compensation $1.90 to deliver $1 worth of benP-fits. Since workmen's compensa­tion was shown to be more inefficient than liability plans, it was decided to avoid any plans similar to it. Again, however, the legislature abandoned this plan for one making automobile insurance primary. 
Massachusetts adopted a unique approach. Compensa­tion for wage loss is secondary to other wage continuation 
30 
plans, but "if one should exhaust the employer's sick leave or wage-continuation plan benefits as a result of an automobile accident and subsequently sustain a non­vehicular accident or sickness, then personal injury protec­tion steps back into the picture to pick up this loss."82 In this instance, duplication is avoided. However, the possible reinvolvement of automobile insurance when an insured experiences a non-vehicular accident or sickness might create additional administrative costs, which could be avoided if automobile insurance were primary. 
The Pennsylvania Plan treats wage losses the same as medical expenses, except there is a limit of $15 ,000 on the amount which must be carried. The insured again has the option of making such benefits primary or excess. 
Automobile Insurance as the Primary Source. Most other current plans call for automobile insurance to be primary with respect to medical and wage-continuation benefits. Many automobile insurance companies, including those in AIA, support automobile insurance as the primary source. Both the Department of Transportation studies and the proposed Hart-Magnuson federal bill, support the primacy of automobile insurance. Virginia Knauer, the Director of the Federal Office of Consumer Affairs, stated that "benefits obtainable by the victim from other benefit sources should be coordinated and meshed with those obtainable from the automobile accident reparations system with a view toward internalizing automobile acci­dent loss costs by making automobile insurance the primary benefit source where feasible."83 State Farm, in its No-Fault: Press Reference Manual, presents the most complete arguments for making automobile insurance primary under a no-fault system: 84 
(l) 	
Automobile insurance should be effective and efficient­thus, it must be mandatory and should avoid duplication of benefits. The mandatory automobile insurance, if primary, would provide swift, full coverage and the health care program would need merely to verify that a loss occurred due to an automobile accident. However, if the automobile insurance were secondary, the automo­bile insurance system would have to go to great expense to discover the existence of other insurance benefits, a lengthy and costly procedure. 

(2) 
Health care plans do not cover wage losses. If health care plans were primary, compensation for wage loss would require a separate claim to another company. The necessary coordination between several plans would create additional costs to the compensation system. 

(3) 
Health 	care benefits might be used up on an accident if these benefits were primary, and thus not available for a sickness. 

(4) 	
If health care plans were primary, automobile insurance costs would vary according to the other benefits a person has purchased. An affluent suburbanite who has other benefits would thus have lower automobile insurance premiums than the center-city dweller without the alternative health care plan. 


Special Issues & Problems 
Certainly someone who has other health coverage should pay lower rates on automobile insurance. How­ever, that person is also paying extra premiums for the primary health care plan, which the poorer person is not doing. Still, it is true that making health care plans primary does accentuate the difference between the situations of these two persons. 
(5) 	
Health care plans, as non-profit corporations, do not pay the same rate of state and federal taxes as insurance companies do. If health care plans were primary, State and Federal governments could lose millions of dollars. 

(6) 	
Finally, and most importantly, even the New York insurance department agrees that the internalization of motoring costs is desirable. "The costs of motoring . . . [should) be distributed equitably among automobile owners" (State Farm, p. G-262), rather than among participants of health care plans, some of whom may have no car and do not drive. 


In addition, if automobile insurance is primary, automobile insurance companies would be able to better plan and predict future costs, rather than guessing at possible outcomes of court suits. This would permit lower rates. Finally, health care plans should be able to lower rates if they are to provide only supplementary coverage for automobile accident victims. 

Summary 
Most authorities agree that duplication of benefits creates higher total costs for the consumer. In order to reduce total costs, provision should be made for a coordina­tion of benefits so that one source of compensation is made primary and the other source is not used to compensate automobile accident victims unless the primary source is exhausted before all losses are paid. More benefits, or duplication of benefits, could be made available on an option to consumers willing to pay the extra premiums, but duplicate claims on the same accident would escalate premium costs for all. 
Some correlation of benefits might be achieved within the fault system. At present, the feeling that the person responsible for an injury in an automobile accident should pay for his negligence precludes any coordination between liability payments and health care benefits. However, coordination between the medical payments portion of an automobile policy and other health care plans (or the personal injury protection available in Texas) should achieve a reduction in rates. All the arguments advanced by the insurance companies (as presented in the State Farm Manual) for making automobile insurance primary over other health and wage-continuance plans are also applicable to the "no-fault" portions of the Texas automobile insurance policy.85 If Texas retains the fault system, reduction in premium rates should be achieved through coordination of benefits. If full payment of losses is guaranteed, many consumers would probably welcome the rate reductions attendant to coordination of benefits. However, this correlation should be made clear to con­
31 

sumers. Richard Walsh,86 in his statement to the National No-Fault Conference, said that automobile insurance "medical coverage should be primary as among private systems. " 8 7 He does not explain that public or government systems are deducted from automobile insurance benefits in the Federal plan. Leroy Jeffers, President of the Texas State Bar, has pointed out this "hidden hooker which is .. . designed to reduce the amounts of the benefits paid."88 Although many consumers might not object to this "hidden hooker" if it means reduction of premiums and speedier compensation, the consumer should be made very aware of these deductions. If a no-fault plan is proposed in Texas, all benefits and limitations of both the fault and no-fault system should be well-delineated. If consumers elect a no-fault system without being made aware of the facts, they will protest vigorously as all aspects of the system are revealed, and may force expensive changes in the future. 
COMPULSORY AUTOMOBILE INSURANCE 
Introduction 
Until recently, automobile insurance has been a volun­
tary expense of a car owner or operator, except in 
Massachusetts, North Carolina, and New York, where some 
form of automobile liability insurance has been compulsory 
for a number of years. The automobile liability policy 
" .. . began as a protection for the driver-policyholder 
himself against liabilities he might incur due to his own 
conduct."89 This was later extended to cover a driver 
operating someone else's car with the owner's permission. 
However, this voluntary coverage was by no means wide­
spread. As a result, many accident victims were not 
compensated for their loss. The number of accident victims 
grew over the years, as did the costs incurred by these 
victims. 
With a growing number of automobile accident victims 
crippled physically, mentally, emotio4ally, and financially, 
most states responded with the passage of financial respon­
sibility laws, hoping to increase compensation to accident 
victims. These laws required that, after being found at fault 
in an automobile accident, a driver .must show proof of 
adequate insurance or other monetary resources before 
being permitted to drive again. As a result, the number of 
insured drivers increased significantly. For example, Table 1 
at the end of this chapter shows the large jump in the 
percentage of insured automobiles in Texas in 1952, the 
year the state's Financial Responsibility Law became 
effective.90 
In spite of the financial responsibility laws, however, 
many victims remained uncompensated. Three states con­
cluded that compulsory liability insurance would aid in 
improving compensation of automobile accident victims. 
Massachusetts introduced compulsory bodily injury liability in 1927. New York and North Carolina required bodily injury and property damage liability beginning in 1957 and .19 58, respectively. 
These compulsory programs have had varying degrees of success, but none of them have been completely satis-· factory. Massachusetts and New York have moved on to no-fault automobile insurance and a no-fault program has been proposed in North Carolina. ''The evidence is com­pelling that social attitudes in the U.S. are focusing more upon the loss of the injured than upon his moral short­comings."91 At this point, it is necessary merely to note the trend towards compulsory, as opposed to voluntary, automobile insurance. 
Numerous questions arise concerning the effects of compulsory automobile insurance. The motives for compul­sion include the desirability of increasing the number of insured motorists and thus increasing the number of automobile accident victims who would be compensated. After decades of experience with compulsory automobile insurance in Massachusetts, New York and North Carolina, it was presumed that the effects of the laws in these states and the difficulties with enforcing them would be well­documented. However, although numerous references were located documenting the woes of the Massachusetts situa­tion, data concerning the change in the number of insured drivers or cars in Massachusetts, New York, or North Carolina after their compulsory laws became effective, proved illusory. In order to obtain this data, questionnaires were sent to the insurance departments in these states and three other states (Connecticut, Florida, and New Jersey) which had instituted compulsory no-fault laws at least a year previously. The results should have provided some basis for comments and. recommendations on compulsory insurance, especially as it might apply in Texas. Unfortu­nately, although all six states responded, many of the questions were . either left unanswered or were not com­pletely answered. Because of this incomplete response to the questionnaire, conclusions will be somewhat specula­tive. 
The Purpose and Form ofthe Questionnaire 
The questionnaire was devised as an aid in determining 
the effect of a compulsory factor in automobile insurance 
on the number of uninsured motorists in a state. Related to 
this question were the problems of enforcement and 
administration of compulsory automobile insurance, in­
cluding the problems with high-risk motorists and out-of­
states motorists. The other aspect considered was the 
problem of any remaining uninsured motorists. 
The first question of the survey asked for the coverage 
required by the state. Every state included requires bodily 
injury and property damage liability. The minimum re­

32 
S_pe_c.ial Issues & Problems 

quired ranges from $5,000 per person and $10,000 per accident ($5,000/$10,000) in Massachusetts to $20,000/$40,000 in Connecticut. The only state which does not require personal injury protection (PIP) is North Carolina, which has instituted a no-fault law. The PIP coverage limits in the other five states range from $2,000 in Massachusetts to no-limit on medical expenses in New Jersey. 
Enforcement and administration generally are performed by a state motor-vehicle department. New York created an Insurance Control Bureau to administer its law. The "original FS certification program increased personnel by approximately 350 employees."92 Later changes reduced personnel to 200 and the Insurance ID program, introduced in June, 1972, reduced personnel to about 100. The new ID program should permit a $1.5 million savings from the previous $7 .5 million annual costs. New York appears to have experienced substantial costs with its compulsory program. Florida apparently avoided these costs by shifting the burden of checking on insurance policies to private motor-vehicle inspection stations. However, the Florida law has been in effect too short a time to determine the real costs of the program. The other four states did not enclose any information on the effect of the administration of their compulsory laws on the motor vehicle departments. Three of the six states have undertaken strict enforcement of their compulsory insurance program. 
The effectiveness of Florida's method of requiring evidence of insurance when applying for car inspection, which depends on the cooperation of hundreds of non-state employees, will be of great iJiterest to other states contemplating compulsory insurance. Massachusetts and North Carolina require evidence or certification of auto­mobile insurance at automobile registration. The other three states check on insurance after reportable accidents and, in New York, perform spot checks of ID card verifications of insurance. Although New Jersey did not mention this in its reply, other evidence indicates [hat it also has adopted an ID program.93 
Penalties for non-compliance include a fine and/or imprisonment in all states, accompanied (in all states but North Carolina) by a suspension of the driver's license for varying time periods. Data concerning the change in the number of ullinsured motorists would prove valuable in . evaluating the effectiveness of the various plans. Unfortu­nately, many state insurance departments are apparently unaware of the ratio of uninsured motorists in their state before the institution of their compulsory programs. New Jersey was the only state which submitted data, showing that 9.8 percent of its motorists were uninsured, based on 1969 data-the latest available. Connecticut estimated a change from 10 percent to 7 percent with the inception of no-fault, and Florida and New York said they expected some change. New York estimated that its 1957 compul­sory law changed the uninsured percentage from a previous 10 percent-IS percent to 1.5 percent-4 percent. Massachu­setts made no comment on this question. However, another source indicated that there were about 2 million motorists in Massachusetts in 1968, with 1.8 million cars covered by compulsory liability insurance.94 Since more than one 
motorist frequently is covered by a policy, this appears to indicate a very low percentage of uninsured motorists in 1968. The extreme discrimination of insurance companies in North Carolina, which had placed 30 percent of all North Carolina motorists in the Assigned Risk Program, un­doubtedly persuaded many motorists to take a chance on driving without insurance.95 North Carolina hopes to alleviate this particular problem with its new Reinsurance Facility, which replaced the Assigned Risk Program on October 9, 1973. Up to 1974, however, North Carolina either has not succeeded in reducing the number of uninsured motorists or is unaware that it has. Massachusetts also has a reinsurance facility, where no rate distinctions are based on individual risk characteristics. Florida replaced its Assigned Risk Program with its Joint Underwriter's Asso­ciation. The other states have insurance plans for licensed motorists who have difficulty obtaining insurance else­where. 
Connecticut and North Carolina require some minimum coverage of out-of-state motorists. Florida requires compli­ance with no-fault laws if a car has been in the state 90 days out of the past 365 days. The other three states surprisingly indicated no laws with respect to out-of-state motorists. 
Only two states indicated any problems in the adminis­tration of a compulsory automobile insurance law. Connecticut's respondent indicated difficulties in obtaining convictions for non-compliance. New York pointed out that enforcement of orders of revocation was low priority for urban police because of the crime rate. 
Detailed data on the six states as reported by the questionnaire are tabulated in Table 2 at the end of this chapter. The questionnaire sent to the various insurance commissioners is reproduced in Appendix A. 
Compulsion: Its Effects on Automobile Insurance 
Compulsion by a government in any area indicates the high degree of importance attached to that area by the public at large. Compulsory automobile insurance is reflec­tive of a society's desire to: (I) assure compensation to automobile accident victims and, (2) to place the burden of that compensation on those who drive automobiles. Judging by the comments in the LBJ School survey, each insurance department contacted believes that cost is the main reason some motorists remain uninsured. Other motorists do not believe they will (or they hope they will not) be involved in an accident. · 
33 
Enforcement of Compulsory Automobile lnsurantt_ Compulsion does not lower the costs of automobile insurance premiums and thus induce uninsured motorists to purchase insurance_ The effectiveness of a compulsory automobile insurance program is probably tied to deter­mined enforcement of the compulsory law and convincing 
penalties for non-compliance. Florida's Regional Vice­President of State Farm Insurance Company, Merrill Grafton, reported that the compulsory insurance aspects of the Florida law have not solved the problem of uninsured motorists. 'The law was intended to be compulsory, but the legislature didn't put enough teeth into it."96 Minor 
punishment does not spur compliance with the law. 
Punishment by fine and/or imprisonment for non­compliance seem to be univerul penalties as well as the suspension or revocation of the driver's license, and sometimes the loss of car registration. New York's license revocation is for a year-others range from 30 days to 6 months. 
Most of the respondents stated that permission to 
operate an automobile on state roads is contingent upon 
the assumption by the driver of the fmancial respoDSIDility 
for injury or damage that he might cause or experience. 
Thus, the compulsory aspect is usually enforced at the time 
the vehicle is registered. Unfortunately, some states still 
detect non-compliance only after a reportable accident, the 
method which was used under the financial respoDSIDility 
laws, i.e., Connecticut. New York's employment of the 
same technique has been reinforced by the use of spot­
checks of ID cards bearing verification of insurance, and has 
been effective in reducing the percentage of uninsured 
motorists to a minirnwn (1-4 percent). The use of this 
method or the requirement for evidence of insurance during 
car registration appear to be the most desirable and 
effective methods for enforcement of compulsory auto­
mobile insurance, although Florida's innovative method 
warrants attention. 
Police cooperation with enforcing a compulsory program 
would also be required, as indicated in the New York 
response. If police are engrossed in reducing a large crime 
rate, enforcement of compulsory automobile insurance will 
either necessitate enlargement of the police force or will 
become a low priority item. Reliance on reportable 
accidents as a principal means of detecting non-compliance 
may be a necessity in many states, even though it might not 
be the most effective method. 
Adminiltration. It would be expected that the enforce­
ment of compulsory automobile insurance and administra­
tion of such a program would pose problems. It must be 
assumed that additional personnel w~uld be required to 
check insurance policies, issue ID cards if those are used, 
and maintain records. New York's program indicated this 
result, as well as an expected cost element. Even though 
Florida indicated no increase. in personnel or cost with the new program, the new program bad just begun. Some expense will undoubtedly be generated in processing paper work. If Aorida succeeds in reducing the percentage of uninsured motorists without additional administrative costs, then other states may wish to employ the same enforcement and administration procedures_ Statistical information on state costs incurred with the adoption of a compulsory program are difficult to locate. Most of the concern centers around the costs to the consumer. 
A rmlabOil)' of lllSllnllltt. If inmrance is compulsory it must be available to all licensed drivers. Some of the assigned risk plans or comparable plans permit surcharges for drivers with adverse driving records. The reinsurance facilities of .Massachusetts and North Carolina apparently prohibit a difference in rates which are based entirely on risk characteristics of an individual. The implication is that rate differences must be based on driving records. In North Carolina, the insurance companies were evidently placing all drivers under 25 and over 65 in the Assigned Risk category without reference to the individual's driving record.97 1his type of arbitrary rate classification by insurance companies has drawn considerable criticism and outcry from con­swners, and is an issue which becomes more critical when a state's automobile insurance is compulsory. 
RmulininK Uninsllrt!d Motorim. Compensation will still be unavailable e-ven after compulsory insurance and guar­anteed availability programs are adopted. Many will still remain uninsured. Even if a car is insured, insurance companies are not required to pay if the driver is committing a felony and causes injury or dam.age. Compen­sation may not be forthcoming from or to bit-and-run drivers, and out-of-state drivers, even though the latter are generally expected to carry the minimum coverage required of residents. Of course, all victims will be compensated if they carry their own no-fault coverage and uninsured motorist coverage. For losses above first-party limits, many of the problems that exist today will continue. Relatively high first-party limits will assure compensation; such increased limits should be made available for this realOD. 
Summary 
Arguments for and against compulsory automobile insurance are plentiful.98 Most of the documented criticism is directed at compulsory tort liability, especially as implemented in Massachusetts. Insurance companies in general have been particularly outspoken against compul­sory tort liability, but on the other hand, many insurance companies are urging adoption of compulsory no-fault automobile insurance. Compulsion appears to be taken for 
grantedatthepresenttime,evidenceofacoosensus~ 
opinion that compensation for automobile accident victims must be improved. If Texas decides to adopt a compulsory plan. the State 

34 
Special Issues &: Problems 

Board of Insurance must be aware of and address the probable cost, and the increase in personnel; problems attendant with compulsion: • The assurance of availability of insurance to all 
• 	Enforcement of the law, which includes methods for licensed motorists, which would include considera­determination of compliance and penalties for non­tion of rating systems; compliance; • The provision of compensation for victims of Administration, which includes a determination of .. problem drivers," such as hit-and-run drivers, drivers which agency or agencies will implement the law, the who are committing a felon, or out-of-state motorists. 
TABLE lll-1 
(I) 	(2) (3) (4) (5) (6) Number of Liability Number of Registered Insured Passenger Private Passenger Percentage oOf Texas Automobiles t Number of Registered Automobile Automobiles3 Private Passenger In Use And AMual Passenger Liability And AMual Automobiles Insured 
Registration 	Percentage of Automobiles In Use2 Insurance Percentage Of For Liability Year Increase .95 x (2) Accident Year Increase ((5) + (3)) x 100% 
4/1/71To3/31/72 5 329,004 {+ 4.6%) 5,062,554 7/1/71 To 6/30/72 3,977,692 (+ 3.5%) 78.6 
4/1/70 To 3/31/71 5,092,881 (+ 2.4%) 4,838,237 . 7/1/70 To 6/30/71 3,844,478 (+ 5.6%) 79.5 
4/1/69 To 3/31/70 4,974,678 (+ 3.6%) 4,725,945 7/1/69 To 6/30/70 3,641,834 (+ 3.6%) 77.l 
4/1/68 To 3/31/69 4 ,799,710 {+ 4.7%) 4 ,559,725 7/1/68 To 6/30/69 3,515,105 (+ 6.9%) 77.1 
4/1 /67 To 3/31/68 4,586,188 (+ 3.3%) 4,356,879 7/1/67 To 6/30/68 3,288,519 (+ 4.6%) 75.5 
4/l/66To3/31/67 4,440,155 (+ 3.5%) 4 ,218,147 7/1/66 To 6/30/67 3,142,509 <~ 4.5%) 74.5 
4/1/65 To 3/31/66 4,291 ,048 (+ 2.2%) 4,076,496 7/1/65 To 6/30/66 3,006,247 (+ 5.8%) 70.1 
4/1/64 To 3/31/65 4,197,483 (+ 4.5%) 3,987,609 7/1/64 To 6/30/65 2,841,942 (+ 6.4%) 71.3 
4/1/63 To 3/31/64 4,016,616 (+ 4.8%) 3,815,785 7/1/63 To 6/30/645 2,669,911 (+ 53%) 70.0 
4/1/62 To 3/31/63 3,832,445 (+ 5.3%) 3,640,823 7/1/62 To 6/30/63 2,535,731 (+ 7.0%) 69.6 
4/1/61 To 3/31/62 3,639,208 (+ 3.6%) 3,457,248 7/1/61 To 6/30/62 2,369,169 (+ 5.9%) 68.5 
4/1/60 To 3/31/61 3,5 I 2,620 ( + 2.6%) 3,336,989 7/1/60 To 6/30/61 2,237 ,468 (+ 4.0%) 67.l 
4/1/59 To 3/31/60 3,423,342 (+ 4.0%) 3,252,175 7/1(59 To 6/.30/60 2,151,848 (+ 4.5%) 66.2 
4/1/58 To 3/31/59 3,291,857 (+ 1.9%) 3,127,264 1/1/58 To 12/31/58 2,059,587 (+ 6.6%) 65.9 
4/1/57 To 3/31/58 3,231 ,426 (+ 3.7%) 3,069,855 1/1/57 To 12/31/57 1,931,813 (+10.2%) 62.9 
4/1/56 To 3/31/57 3,115,525 (+ 3.1%) 2.959,749 1/1/56 To 12/31/56 1,752,761 (+ 7.4%) 59.2 
4/1/55 To 3/31/56 3,023,114 (+ 8.0%) 2,871 ,958 1/1/55 To 12/31/55 1,631,379 (+ 4.4%) 56.8 
4/1/54 To 3/31/55 2,798,122 (+ 6.9%) 2,658,216 1/1/54 To 12/31/54 1,563,083 (+ 5.7%) 58.8 
4/1/53 To 3/31/54 2,617,848 (+ 5.9%) 2,486,956 1/1/53 To 12/31/53 1,478,988 (+ 2.1%) 59.5 
4/1/52 To 3/31/53 2,472,840 (+ 2.5%) 2,349,198 1/1/52 To 12/21/52 1,448,789 (+4Ll%) 61-7 
4/1/51 To 3/31/52 2,412,022 (+ 4.1 %) 2,291,421 1/1/Sl-To_i2/31 /51 4 1,026,823 (+74.0%) 44.8 
4/1/50 To 3/31/51 2,316,279 (+13.2%) 2,200,465 i71/50 T~ l2/21/50 590,286 (+29.5%) 26.8 
4/l/49To3/31 /50 2,045,543 (+15.0%) 1,943,266 1/1/49 To 12/31/49 455,802 (+16.1%) 23.5 
4/1/48 To 3/31/49 1,778,748 (+10.9%) 1,689,811 1/1/48 To 12/31/48 392,661 (+16.6%) 23.2 
4/1/47 To 3/31/48 1,604,641 (+11.5%) 1,524,409 1/1/47 To 12/31/47 336,744 (+28.4%) 22.1 
4/1/46 To 3/31/47 1,439,255 (+10.5%) 1,367,292 1/1/46 To 12/31/46 262,175 (+16.3%) 19.2 
4/1/45 To 3/31/46 1,302,292 ---1,237,177 1/1/45 To 12/31/45 225,460 --18.2 
l 1ncludes all the passenger automobiles registered in Texas except those automobiles declaring an exemption. Source: Texas Highway Department-. Motor Vehicle Division. 2Total number of passenger automobiles registered (2) reduced by 5 percent to recognize those automobiles not in use such as aut_omobiles for sale on dealer's lots, salvaged automobiles, etc. 
31ncludes non-fleet private passenger automobiles only' since most fleet private passenger automobiles are insured. Also includes those private passenger automobiles in the Assigned Risk Plan. Does not includes those private passenger automobiles insured for liability by the Texas County Mutuals, It is estimated that in 1972 the County Mutuals insured for liability approximately 4 percent of the total private passenger automobiles insured for liability in Texas. Source of those figures displayed in Column (5): Insurance Service Office annual consolidated report of Texas private passenger automobile liability insurance experience. 
4nie Texas Financial Responsibility Law calling for $5,000/$10,000/$5,000 basic limits liability coverage became effective January I, 1952, and accounted for the tremendous increase in the number of automobiles insured during the latter part of 1951 and during 1952. 5The Texas Financial Responsibility Law was amended to require basic limits liability of $10,000/$20,000/$5,000 on January 1, 1964. 
Source: Texas State Board of Insurance, Texas Private PaW!11ger Automobiles Insured for Bodily Injury and Property Dam11ge liability, Comparison of the Number of Passenger Automobiles Registered by the Texas Highway Department and the Number of Private Passenger Non-Fleet Automobiles Insured for Liability Insurance, Prepared on July 1, 1973, Austin, Texas, page I. 
35 
TABLE 111-2 

ELEMENTS OF A COMPULSORY AUTOMOBILE 
INSURANCE PROGRAM IN SIX STATES 


CONNECTICUT 
1. 	Required Coverage: 
Effective-January 1, 1973 Bodily Injury Liability . . $20,000/$40,000 Property Damage Liability $ 5,000 Basic Reparation Benefits $ 5,000/$200 
maximum weekly amount Uninsured Motorist . . . . . . . . . $20,000/$40,000 

2. 	Methods for Discovery ofNon-Compliance: 
When reportable accident occurs (bodily injury or $400 property damage) Motor Vehicle Department then refers case to local police department for appropriate action. 

3. 	Penalties for Non-Compliance: 
1) a fine up to $500 
2) a jail sentence up to 90 days 
3) loss of license and registration 


4. 	Reasons for Non-Compliance: 
1) cannot afford coverage 
2) don't expect to be involved in accident 

5. 	Program for High-Risk Motorists: 
Availability through Connecticut Automobile Insur­ance Plan, in which all insured licensed drivers in Connecticut must participate. Eligibility for this insurance depends on: 
1) Applicant unable to obtain insurance at rates 
no higher than those of plart in last 60 days, 
2) Applicant has a valid license and registration in 

effect. 

6. 	Change in Number of Uninsured Motorists: 
Unknown because evidence of insurance not a re­quirement at registration. Estimate 10 percent unin­sured motorists before January 1, 1973, and 7 percent after that. 

7. 	Problems in the Administration of a Compulsory Insurance Law : 
Problems in obtaining convictions for non­compliance. Arrests are made from referrals by Motor Vehicle Department, ·or by confession of the motorist. There is some question as to what would be considered admissible evidence should an owner contest a prosecution for non-compliance. 

8. 	The Law with Respect to Out-of-State Motorists: 
All private passenger out-of-state vehicles are required to maintain the minimum coverages while operating their vehicles in Connecticut. Any owner who fails to provide the required security will be held personally liable for the payment of basic reparation benefits. 

9. 	
Uninsured Motorists Coverage: 

10. 	
Other Comments by Respondent: 


One possible solution to difficulty in obtaining convictions for non-compliance might be the require­ment of evidence of insurance at the time of an accident. A non-car owning person, injured in Connecticut and not entitled to benefits under another policy, may apply to the Connecticut Assigned Claims Plan for benefits. 

FLORIDA 
1. 	Required Coverage: 
Effective-January l, 1972 Personal Injury Protection . . . . . . · $5 ,000 Bodily Injury Liability . . . . . . $10,000/$20,000 Property Damage Liability . . . . . . $5 ,000 

2. 	Methods for Discovery of Non-Compliance: 
l) Processing of accident reports, DWI convictions, etc. 2) Requirement for automobile liability insurance coverage in order to be inspected 3) Insurance industry must advise of cancellations of new or renewed business within six months 

3. 	Penalties for Non-Compliance: 
l) Suspension of driver's licenses and tags/registra­tion 2) Owner is unable to have vehicle inspected 

4. 	Reasons for Non-Compliance: 
Cost, especially in urban areas. In rural areas, indi­viduals feel that they will not be exposed to automobile accidents. 

36 
5. 	Program for High-Risk Motorists: 
A Joint Underwriters Association, which consists of 14 companies. 

6. 	Change in Number ofUninsured Motorists: 
Expect fewer after enactment of Motor Vehicle 
Inspection Law, effective January 1, 1974. No record 
of insured drivers before 1974. 

7. 	Problems in the Administration of a Compulsory Insurance Law: 
No major problems ....expect Motor Vehicle Inspec­tion Law to assist in administration of compulsory insurance law. 

8. 	The Law with Respect to Out-ofState Motorists: 
Every owner of a motor vehicle which was physically present in the state for more than 90 days during the preceding 365 days must comply with the state's no-fault law. Financial Responsiblity Laws apply in Florida for uninsured out-of-state 'motorists. 

9. 	Uninsured Motorists Coverage: 
No state program to cover uninsured motorist. 

10. 	Other Comments by Respondent: 
Insurance Department administers compulsory pro­gram and experienced no change in the number of personnel or administrative costs .. 
MASSACHUSETIS 

1. 	Required Coverage: 
Bodily Injury Liability ........ $5,000/$10,000 
(Effective -1927) 
Property Damage Liability . . . . . . $5 ,000 
(Effective -1971) 
Personal Injury Protection ...... $2,000 
(Effective -1970) 


2. 	Methods for Discovery ofNon-Compliance: 
Evidence of insurance required when registering vehicle. 

3. 	Penalties for Non-Compliance : 
Criminal offense. 
Special Issues & Problems 

4. 	Reasons for Non-Compliance: 
Attempt to avoid premium payment. 

5. 	Program for High-Risk Motorists: 
Reinsurance facility-no rate distinctions based on individual risk characteristics. 

6. 	Change in Number of Uninsured Motorists: 
No comment on previous experiences. Basic group of primarily young drivers fail to pay premiums and thus originally obtained insurance terminates so expect the same number next year. 

7. 	Problems in the Administration of a Compulsory Insurance Law: 
No problems enforcing compulsory law. 

8. 	The Law with Respect to Out-ofState Motorists: 
Mandatory uninsured motorist coverage protects Massachusetts residents but Massachusetts laws do not affect out-of-state motorists. 

9. 	
Uninsured Motorists Coverage: Mandatory uninsured coverage. 

10. 	
Other Comments by Respondent: 


NEW JERSEY 
1. 	Required Coverage: 
Effective-January 1, 1973 Bodily Injury Liability ...$15,000/$30,000 Property Damage Liability . $5 ,000 Uninsured Motorists ....$15 ,000/$30,000/$5 ,000 Personal Injury Protection . . . ·. . . . . . . . . . . . . ? 

2. 	Methods for Discovery ofNon-Compliance: 
Under jurisdiction of Division of Motor Vehicles. 

3. 	.Penalties for Non-Compliaiice: 1 
First offense: either a $50-200 fine, 30-90 days in jail, or both, 6 months license revocation 
Second 	offense: 3 months in jail, 2 year license revocation and such persons must make applica­tion to the Director of Motor Vehicles for restora­tion. 
37 

4. 	Reasons for Non-Compliance: 
Cost 

5. 	Program for High-Risk Motorists: 
Automobile Insurance Plan provides coverage for every insured. Those with an adverse motor vehicle record of accident or convictions are subject to additional charges established according to objective criteria. New Jersey does not allow "non-standard" programs which are not based on objective criteria. 

6. 	Change in Number of Uninsured Motorists: 
Previous uninsured ..9.8 percent-expect reduction in number of uninsured with redistribution of cost and rate reduction as result of no-fault plan. 

7. 	Problems in the Administration of a Compulsory Insurance Plan: 
None, except social problems of relatively high cost of insurance. 

8. 	The Law with Respect to Out-of-State Motorists: 
None 

9. 	Uninsured Motorists Coverage: 
IO. 	Other Comments by Respondent: 
NEW YORK 
1. 	Required Coverage: 
Effective January l, 1957 Bodily Injury Liability ....... $10,000/$20,000 Property Damage Liability ...... $5,000 Effective February 1, 1974 Personal Injury Protection . . . . . $50,000 

2. 	Methods for Discovery ofNon-Compliance: 
Under ID card program-verification of insurance on a random basis after registration and on a specific basis checking convictions, accidents, and complaints on date of occurrence. 

3. 	Penalties for Non-Compliance: 
Non-operating condition-30 day revocation of regis­tration Operating condition-one year revocation of driver's license and registration plus $300 civil penalty 

4. 	Reasons for Non-Complillnce : 
1) hard core uninsured motorist 2) non-payment of premium due to economic con­ditions or habit Primary Reason-Law does not require a non­cancellable policy during period of registration 

5. 	Program for High-Risk Motorists: 
New York Automobile Insurance Plan, the state's assigned risk program, provides insurance for any licensed motorist unable to secure required coverage in the voluntary market. The Insurance Department has approved premium schedules which impose sur­charges on motorists involved in chargeable accidents or violations of traffic laws. 
6. 	Change in Number ofUninsured Motorists: 
Before 1957, 10-15 percent of motorists were unin­
sured. 
After 1957, 1.5-4 percent. Expect reduction in that 
percentage with ID program. 

7. 	Problems in the Administration of a Compuhory Insurance Law: 
Police enforcement of orders of revocation. This occurs primarily in the larger metropolitan areas, where it is difficult to locate revokees and where the problem has low police priority due to crime rate. 
8. 	The Law with Respect to Out-of-State Motorists: 
Until February l, 1974, out-of-state motoristS driving on roads in New York were subject to New York's tort laws. Motor Vehicle Accident Indemnification Corporation provides indemnity to persons injured by uninsured persons. 
9. 	Uninsured Motorists Coverage: 
IO. 	Other Comments by Respondent: 
In ·an attempt to enforce the compulsory insurance law, New York tried a monetary penalty to reimburse police but this was unsuccessful. The Deparment has a self-enforcement program utilizing ''stops" on driver's license and registrations records which prevent revokee from effecting a transaction with Department while under revocation. 

38 
NORTH CAROLINA 
1. 	Required Coverage: 
Effective-1957 
Bodily Injury Liability ....... $l5,000/$30,000 

Property Damage Liability . . . . . $5 ,000 

2. 	Methods for Discovery ofNon-Compliance: 
1) Owner must certify insurance policy in effect at annual registration with Department of Motor Vehicles 
2) Insurers must notify Department of Motor Vehicles of cancellatio!_l of policy 

3. 	Penalties for Non-Compliance: 
1) Department 	of Motor Vehicles to pick up license plate if insurance is not obtained 2) Fine or imprisonment at discretion of court­misdemeanor 

4. 	Reasons for Non-Compliance: 
Cost 

5. 	Program for High-Risk Motorists: Special Issues & Problems 
Instituted a reinsurance facility to replace the Assigned Risk Program on October 9, 1973. Com­panies and agents must write minimum coverage for every one. Companies may then reinsure the risk with the reinsurance facility which all insurers in North Carolina are required to participate in proportion­ately. 

6. 	
Change in Number of Uninsured Motorists: No comment 

7. 	
Problems in the Administration of a Compulsory Insurance Law: 


Biggest problem was the assigned risk system which has been replaced by the reinsurance facility. 

8. 	The Law with Respect to Out-of-State Motorists: 
Liability coverage required to operate car in North Carolina. 

9. 	Uninsured Motorists Coverage: 
Must be provided by insurer if desired by motorist. 

10. 	Other Comments by Respondent: 


FOOTNOTES 

•Pinnick v. Cleary, 271 N.E. 2d 592 (1971); Lasky v. State Fann Insurance Company et. al., 296 So. · 2d 9 (1974). 
2slaughterhouse Cases, 83 U.S. (16 Wall) 36 (1873); Civil Rights Cases, 109 U.S. 3 (1883); Plessy v. Ferguson, 163 U.S. 537 (1896}; Sweatt v. Painter, 339 U.S. 629 (1950); Brown v. Board of Education, 347 U.S. 483 (1954). 
3Baker v. Ca", 369 U.S. 186; Levy v. Louisiana, 391 

U.S. 68 (1968); Shapiro v. Thompson, 394 U.S. 618 (1969). . 
4chapter 670, Acts of the Massachusetts General Court, 1970. 
5Pinnick. 

6Florida Automoblie Reparations Reform Act (Chapter 62y Florida Insurance Code}. 281 So. 2d 1 (1973). 
8Lasky. 
9283 N.E. 2d 474 (1972). 
10 Article XXXV, Illinois Insurance Code. 
11 steddum v. Kirby Lumber Co., 221S.W.920 (1920). 
12Ex Parte Sizemore, 8 S.W. 2d 134 (1928). 


13Mellinger v. City ofHouston, 3 S.W. 249 (1887), 14c;ty of New Braunfels v. Waldschmidt, 207 S.W. 303 (1918).15City of West University Place v. Ellis, 134 S.W. 2d 1038 (Tex. Comm'n. App., 1940). 
16Sizemore. 17Luse v. City of Dallas, (Civil Appeals) 131 S.W. 2d 1079 (1939) error refused. 18Friedman v. American Security Co. ofNew York, 151 
S.W. 2d 570 (1941); Bu"oughs v. Lyles, 181 S.W. 2d 570 (1944). 
19/bid. 

20Ex Parte George, 215 s,.w. 2d 170 (1948);Bu"oughs; Friedman; Middleton v. Texas Power and Light Co., 185 
s.w. 556 (1916). 21/bid. 22Railroad Commission of Texas v. Miller, 434 S.W. 2d 
67~~1968};Bjorgo v. Bjorgo, 402 S.W. 2d 143 (1966). Bu"oughs; George;Friedman;Beaumont Traction Co. 
v. 	State, 122 S.W. 615 (1909). 24Union Central Life Insurance Co. v. Chowning, 26 
s.w. 982 (1894). 
39 

25Nichols v. Park, (Civil Appeals) 119 S.W. 2d 1066 

( 1938), no writ. 26Railroad Commission of Texas; Friedman; George. 27George. 28George.29Rucker v. State. 342 S.W. 2d 325 (1961). 
30
ceorge.31 Middleton v. Texas Power and Light. 32Articles 8306-8309, Revised Civil Statutes of Texas 

1925, as amended. ' 330lschewske v. Priester, 276 S.W. 647 (Tex. Comm'n. App., 1925). 
34Middleton. 

35City of Dallas v. Trammel, 101 S.W. 2d 1009 (1937); National Carloading Corporation v. Phoenix-El Paso Exl?J£ss, Inc. , 176 S.W. 2d 564 (1944). 
Middleton; Castleberry v. Frost-Johnson Lumber Co., 

283 S.W. 141 (Tex. Comm'n. App., 1926). 
37Ibid. 

38/bid. 
39
Castlebe"Y· 
40Middleton. 

41Ibid. 
42 .
International and G.N.R. Co. v. Edmundson, 222 S.W. 

181 ~Tex. Comm'n. App., 1920). 4 Middleton; Castleberry. 44castleberry.45 White v. White , 196 S.W. 508 (1917); Texas Liquor 
Control Board v. Jones, (Civil Appeals) 112 S.W. 2d 227 (1937) no writ. 46White; Ex Parte Gamer, 246 S.W. 371 (1922);Texas Liquor Control Board. 47Green v. W.E. Grace Manufacturing Co. , 422 S.W. 2d 723 ~1968). . 
4 Blair v. Paggi, 238 S.W. 639 (I922); Central and M.R. Co. v. Moms, 3 S.W. 457 (1887); Barker v. Kidd, (Civil Apieals) 357 S.W. 2d 490 (1960) no writ. 
9Texas Automobile Insurance Rating Manual (Austin: Texas Insurance Department), under Private Passenger Rating Rules. 
50/bid. 

51 Calvin Brainard, "Is Equity of Insurance Being Sacri­ficed?" Trial Magazine , October/November, 1967, pp. 3840. 
52Liability by definition is concerned with fault. The uninsured motorist protection is payment for bodily injury by a person's own insurance company, if the driver of the other car is uninsured and is determined to be at fault. An insured person may also collect for physical damage to the insured car from his own company without reference to fault, but the company may collect the costs of the damage from a liable third party. 
53state of New York, Department of Insurance, Auto­mobile Insurance . . . For Whose Benefit? A Report to Governor Nelson A. Rockefeller, (Albany, N.Y., 1970), p. 

31. 
54For example, an employee might be required to participate in a company's health program. The same person might also be required to buy personal injury protection under a state law. 
55State of New York, Department of Insurance, pp. 120-121. 
56nus policy was stated definitively by Jack Puryear of Neiman, Hanks, and Puryear (an insurance agency in Austin), and by Dennis Washkoviac, with Royal-Globe Insurance in Austin. Both were interviewed by telephone on April 22, 1974. 
57According to Shirley Jenkins, with Boon-Chapman Insurance Managers, in a telephone interview on April 22, 1974. 
~:From a telephone interview on April 22, 1974. 
Memo to Mrs. Mildred Hurt, dated September 28, 
1973. . 
601nterviewed by telephone on April 23, 1974. 
61 Mrs. Bartley with the Medical Insurance Section of 
Brackenridge Hospital, Austin. 
62Llfe and Health Claim Association of Greater Kansas 
City, Coordination of Benefits can help Keep Down the 
Cost of Health Care, pp. 23-33, of attachments to Second 

Report of the Industry Task Force on Coordination of 
Benefits to the Accident and Health Protection (C-1) 
Subcommittee of the NAIC life, Accident and Health 
Committee, November 13, 1970. 

63Health Insurance Association of America, Group Health Insurance Viewpoints on Overinsurance, Group Insurance Bulletin, No. 3-61, prepared by a Joint ALC­HIAA-LIAA Study Group, (Chicago, November 30, 1961), 
p. 8. 64/bid., p. 9. 65!bid., p. 22. 66Health Insurance Association of America, Group 

Insurance Bulletin, No. 3-62, Second Report of the Joint ALC-LIAA-filAA Study Group on Non Duplication of Accident and Health Insurance Benefits October 22 1962 
p. 2. ' .• ' 
67An editorial, "Auto Primacy: . Pro and Con," the Journal of Insurance, Vol. XXXIV, No. 4, July-August, 1973. pp. 5-6. 
68'steve McDonald, Counsel, Blue Cross/Blue Shield, 
Dallas. 
69Tue information on Blue Cross efforts in other states 
co~3s from the editorial "Auto Primacy: Pro and Con." 
U.S. Department of Transportation, Motor Vehicle Crash Losses and their Compensation in the United States: 
A report to the Congress and the President, March, 1971, p. 
51. The quote is a reference to a statement by Robert 

40 
Special Issues & Problems 

71 	For Whose Benefit? A Report to Governor Nelson A.
state of New York, Department of Insurance, p. 36. 72Ibid., p. 114. Rockefeller, Albany, 1970, p. 45. 73T. Lawrence Jones, (President of the American 901n 1971, the Supreme Court declared that a drivers license could not be withheld or revoked under a financial 
Insurance Association), The Case for Making Auto Insur­
ance Payments "Primary," dated April 27 1973 p 4 
74 	. ,_ , .. state of New York, Department of Insurance, p. 114. 
75
New York Statutes, Article 18, Section 671, 2(B). ' 16lbid, Section 672, 3. 77Hawaii, Legislative Auditor, A study of Hawaii's 

Motor Vehicle Insurance Program; a report to the Legisla­ture of the State of Hawaii, conducted by Haldi Associates, 
lncSpecial Report No. 72-1, January, 1972. 
7
8Ibid., p. 42. 
19Ibid., p. 4243. 
80Texas Association of Insurance Agents, (TAIA) 


National No-Fault Conference: Transcript of Proceedings, 
July 22-23, 1971, (Insurance Publishing House, Austin, Texas, 1971), p. 46. 
81 Legislative auditor of the State of Hawaii, p. 135. 
82TAIA,p.45.
83lbid., p. 283. 

84state Farm Insurance Companies, No-Fault Press Reference Manual; (Bloomington, Illinois, 1973), p. G-262. 
85Tue medical payments and personal injury protection portions of the Texas Standard Family Automobile Insur­ance Policy. 
86Deputy Director of the Office of Policy and Plans Development in the Office of the Secretary of Transpor­tation. 
87TAIA, p. 98. 

88Leroy Jeffers, Statement before the Committee on the Judiciary of the United States Senate (Washington, D.C.December4, 1973),p.15. · 
9
8 	N.Y. Insurance Department, Automobile Insurance ... 

responsibility law unless a judgement of fault in an automobile accident had been rendered. See Bell v. Burson, 91 S. Ct. 1586, 1971 and Gayton v. Cassidy, 91 S. Ct. 2202, 1971. Thus these laws are virtually ineffective now. 
91 Willis P. Rokes, No-Fault Insurance, Insurors Press, Santa Monica, California, 1971, p. 7. 92L.B.J. School, Survey Questionnaire: Compulsory Comf,liance in Automobile Insurance, N.Y., 1974. 
9 	New York Times Index, 1973. 

94Massachusetts Special Commission. First Interim Report Relative to Compulsory Motor Vehicle Insurance and fertain Related Mat~ers, _(Springfield, January, 1970). 
9 

From a speech by John Randolph Ingram, Commis­sioner of Insurance, to the Communications Workers of America on February 5, 1974. He also pointed out that "65 percent of the people placed on Assigned Risk were safe drivers with no driving violation points on their driving records for the past three years." 
96state Farm Insurance Company, "A Watershed Year for No-Fault," State Farm Year, 1972, p. 24. 
97John Randolph Ingram, North Carolina Commissioner of Insurance, in a speech to the Communications Workers of America, February 5, 1974. 
98See, f~r example, Robert E. Keeton and Jeffrey O'Connell, Basic Protection for the Traffic Victim. (Boston: Little, Brown and Co., 1965), pp. 76-118; Mark 
R. Greene, Risk and Insurance, 3rd Ed. (Cincinnati, Ohio: Southwestern Publishing Co., 1972), pp. 395-396; Willis P. Rokes, No-Fault Insurance (Santa Monica, California: Insurors Press, 1971 ). 
41 

OIAPTEll IV 

EXPERIENCES OF OTIIER STATES 




WITH NO-FAULT INSURANCE 

No-fault automobile insurance in the United States was instituted first in Massachusetts on January 1, 1971. Florida's no-fault law was effective on January 1, 1972, and the New Jersey and Connecticut laws a year later. Ten other states have since adopted true no-fault laws. F.ach of these laws is compulsory and contains restrictions on tort liability. 
Information on the results of the no-fault laws in Massachusetts and Florida is gradually becoming available, but is still incomplete. With the exception of New York, statistical data on the experiences of other states is not yet available. The paucity of information on the effects of a no-fault law thus limits the conclusions which can be drawn concerning its effects. However, this section will summarize the information available from the Massachusetts, Florida, and New York experiences and indicate possible conclu­sions and concerns for other states. 
Massachusetts 
The consensus of numerous studies of the Massachusetts no-fault system is that few conclusions can be drawn from the Massachusetts experience. "Serious students of auto­mobile insurance hereby discounted the Massachusetts experience as a valid inferential base for predicting the true impact of no-fault on case results in other and more nationally representative state markets."1 The principal reason for Massachusetts' lack of applicability to other states is the unique situation in Massachusetts prior to the adoption of its no-fault law. 
Massachusetts had instituted compulsory bodily injury liability automobile insurance in 1927. However, property damage liability was not required. The result was a tremendous number of claims for bodily injury. Many of these apparently were spurious "whiplash" claims by victims suffering property damage.2 "Many people feigned injury to collect for damage to their cars caused by an at-fault driver, especially when they carried deductible collision or no collision coverage at all.',3 This tendency of motorists to file bodily injury claims in order to recover property damage loss led to high bodily injury rates ...When no-fault was introduced, Massachusetts had the highest claim frequency in the country.'>4 In anticipation of reduced expenses, because of the expected elimination of most of the negligency claims, the Massachusetts insurance department mandated a 15 percent cost-reduction in personal injury protection. However, the number of per­sonal injury claims, which had been expected to rise 30 percent, actually decreased by 34 percent. Profits for the insurance companies from this miscalculation were quite large-about "$50 million according to one source."5 In 1972, State Insurance Commissioner Ryan ordered a 
27 .6 percent decrease in personal injury rates. "On top of that, motorists in 1972 got a govemment--0rdered rebate of about 26 percent on 1971 bodily injury premiums-an average of $12 per car-because no-fault was cutting costs of settling claims faster than had been expected."6 How­ever, although bodily injury rates were reduced substan­tially, "property damage coverage went up during 1971 by 
38.4 percent over 1970."7 In the end, the total insurance bill increased as the benefits under no-fault d"creased (personal injury payments were limited to $2,000 _and 75 percent of wage loss payments, with the latter secondary to other wage continuation plans). On the other hand, rates in Massachusetts had been fro7.e11 for four years8 and insur­ance agents are quick to point out that "the collision and property damage rates would have gone up in Massachusetts regardless of no-fault. "9 
A compulsory property damage no-fault provision was added in 1972. The three options under this proviSion apparently track those in the proposed Uniform Motor Vehicle Accident Reparations Act· (UMVARA) (see page .) The options are: 
• 	
coverage permitting recovery without regards to fault; coverage permitting recovery only if the insured can show the other driver is at fault; 

• 	
no coverage except protection against potential law­suits, which would be very rare. 


No record of the Massllchusetts experience under the 

42 
property damage law could be found for inclusion here. 
Florida 
Florida's no-fault law, the second to become effective, inevitably has been compared with Massachusetts. Florida's law provides more no-fault benefits, including medical costs and 85 percent of wage losses up to a $5,000 maximum. Florida's threshold of $1,000 is higher than Massachusetts' $500. {In both states, lawsuits are also permitted where death, dismemberments, disfigurement, loss of certain bodily functions, or certain fractures occur). 
One of the first analyses of the results of Florida's no-fault law was done by Joseph W. Little.Io He divided data from the claims files of two Florida insurance companies into two subsamples: (1) an exhaustive sample containing every closed personal injury claim, and (2) a major cases sample containing only the more serious cases. The data from both samples indicated the anticipated redistribution of the types of claims filed. The pre-no-fault split where tort cases were at least half of the claims gave way to a situation where tort cases were only 5 to 15 percent of the total (the 15 percent applies to the major cases sample). First-party personal injury protection (PIP) claims greatly outnumbered the tort cases in 1972. Because all of the major claim cases had probably not been filed when the study was done, Mr. Little was unable to evaluate the impact of no-fault on the courts. However, from the data available, no-fault evidently produced some of the desired effects. The time delay between a crash and initial receipt of benefit payments was shortened, which suggests more economy in processing, as does reduction in the presence of lawyers from the process."I I Obviously, however, this analysis was written too soon after the institution of no-fault to allow definitive conclusions. 
A later and more revealing study was made by the Automobile Insurance Study Section of the American Risk and Insurance Association. Insurers representing about 65 percent of the Florida private passenger automobile insur­ance market supplied incurred accident-year experience for 1971 and 1972 for the study. The results of this study indicated that while Massachusetts experienced a 52 per­cent reduction in pure premiums (i.e., accident costs) after introduction of no-fault automobile insurance, Florida actually experienced a 10 percent increase. I 2 The reason for this, according to the authors, is that while the reduction in tort claim frequencies, 71 percent in Florida and 75 percent in Massachusetts, were quite similar, Florida's reduction produced a savings of only 24 percent over the preceding year's incurred dollar losses. I 3 This savings was inadequate to finance the add-on benefit costs provided by PIP amounting to 42 percent of the prior year's losses. One of the reasons for the large increase in add-on benefit costs is that Florida experienced a 15 percent increase in drivers covered by insurance under the 
Experiences of Other States 
new law (Massachusetts experienced only a 3 percent increase since insurance was compulsory even before the ­no-fault law). I 4 
There are several shortcomings in the Association study, some admitted, some not, which are important in weighing the impact of the results. First, medical payments insurance was completely ignored. Bodily injury claims before no­fault were compared to bodily injury and PIP claims after. Many individuals, however, surely carried medical payments insurance before the no-fault law and dropped it when they were required to carry the PIP coverage, just as they have in Texas. Consequently, the net increase in claims payments would not have been as large as the Florida study suggested. In fact, neither total-claims frequency nor average-claims cost would have varied to the extent indicated had medical payments coverage been included. 
The study also ignored the subject of expense ratios. A 71 percent decrease in tort-claim frequencies could result in lower claims-adjustment costs and thus lower expense ratios. Only the loss portion of the premium dollar was considered in the study. 
Possible reductions in overall plaintiff lawyers' fees and resultant increases in net benefits to injured victims was another factor that was not considered in the study. Even if, all factors considered, there was a IO percent increase in premiums after no-fault was enacted, there might also be a 20 percent increase in net benefits received by injured victims. In that case, actual cost would not have increased, but decreased, in terms of benefits purchased. This subject is considered in more detail in the next chapter. 
There was no mention of other variables that might have affected the Florida results. Changes in other laws affecting automobile accidents-Le., comparative negligence, guest statutes-or in driving habits were not discussed. The question thus remains: were the changes in claim frequency and severity detailed by the study attributed solely to the no-fault law or were other factors important? 
Finally, the findings were derived from a sample representing only 60 percent of the total market. Further­more, experience was gathered after the no-fault plan was in effect only 15 months. The diversity of forms, rates, statistical plans, and reporting agencies made the collection of a body of reliable data very difficult, prompting the authors to conclude that ''while the findings reported in the following exhibits are probably quite credible so far as the direction of change is concerned, the extent of indicated change is subject to the caveats implied by the lack of definitive, fully developed data."I 5 
A common deficiency which has become evident during the conduct of this study-lack of satisfactory data in the area of automobile insurance-is further pointed out by the authors in their final conclusions. "Perhaps the experience in both states (Massachusetts and Florida) will ultimately illustrate that the quasi-science of no-fault cost prediction 

43 
requires a much larger and broader data input than that which currently can be provided by the statistical resources of insurers and state motor vehicle departments." 16 
New York 
The New York no-fault law has not been in effect long enough to yield any conclusive results; however , there have been some interesting events associated with its implemen­tation. To insure that the move to no-fault brought about substantial savings in the prices paid by New Yorkers for personal injury insurance , the no-fault legislation contained a requirement that certain rate reductions be made at the inception of the new no-fault system. For basic no-fault plus $10,000/$20,000 (10/20) bodily injury liability, the legislature mandated at least a 15 percent reduction from the rates paid for 10/20 bodily injury plus $1,000 medical payments under the tort liability system. The statute also required an additional 5 percent reduction in the case of a person who opts for the $200 no-fault family deductible. The average rates approved by the Insurance Board and implemented February 1, 1974, provided an average re­duction in rates for basic no-fault plus 10/20 bodily injury of 19.2 percent. For private passenger cars, the average rate reduction was 18.2 percent. For commercial vehicles, the 
reduction was somewhat larger. In the case of those persons electing the $200 deductible, average reduction came to 24 percent. 
Recently, however, Policy Research Project participants were informed that the New York Insurance Board had approved a rate hike. It is not yet clear whether that hike provided for an increase in total premium rates or on the rates paid for no-fault coverage. In the final analysis, of course, actual claims experience will determine the rates and not the desires of the legislature or insurance depart­ment. 
Summary 
The record of actual experience with no-fault auto­mobile insurance is slow in coming and complicated and often incomplete when available. The limited experience of three states has been reviewed. That in other states has not yet been recorded or researched. 
One problem in researching the actual experience in other states is that, while figures and statistics are fre­quently used by both proponents and opponents of no-fault, both sides generally neglect to present the entire statistical story. Instead, each quotes only those statistics which favor its point of view. Also, it is interesting to note that, although no-fault proponents suggest four or five benefits which will be derived from no-fault laws-with the emphasis on compensation for all victims-the over­whelming concern in most discussions appears to be the possible cost savings. State Insurance Commissioner Ryan of Massachusetts wrote in 1971 that "for the most part legislative support (of no-fault) depended on a single factor-the hope, since established as a fact, that the plan would cut automobile insurance costs."1 7 

FOOTNOTES 

I Calvin H. Brainard, "Florida; Land of Rising Costs in No-Fault", Trial , published by the American Trial Lawyers Association, 10:31 ff, January-February, 1974. 

2Kentucky Legislative Research Commission, Legislative . Hearing, No-Fault Insurance, Informational Bulletin No . i 103, Frankfort, Kentucky, August, 1973, p. 79. 
3state Farm Insurance Co., "A Watershed Year for No-Fault", State Farm Year, 1972, p. 28. 
4American Mutual Insurance Alliance, "Focus on No­Fault in 1973" , Journal of American Insurance, Winter, 1972, p.31. 
5Paul Gillespie and Miriam Klipper,No-Fault; What You Save, Gain, and Lose with the New Auto Insurance, New York: Praeger, 1972, p. 101. 
6"How No-Fault Works in Two States'', U.S. News and World Report, volume 74, number 11, March 12, 1973, p. 
40. 
7Gillespie and Klipper, p. 95. 
8Texas Association of ~urance Agents, National No­Fault Conference, July 22~23, 1971 , remarks by William Donahue, p. 46. 
9Kentucky Legislative Research Commission, p. 79. 
lOJoseph W. Little, "How No-Fault is Working In Florida"; American Bar Association Journal, volume 59, September, 1973, pp. 1020-1024. 
11 Little, p. 1023. 

44 

12Calvin H. Brainard, and John F. Fitzgerald, "First Year Cost Results Under No-Fault Automobile Insurance; a Comparison of the Florida and Massachusetts Experience," Journal ofRisk and Insurance, 41: March, 1974, p. 37. This ten percent increase occurred while a 15 percent mandated rate decrease was in effect, causing an extraordinary jump in loss ratios and thus a disasterous year for many insurers. See Bests Executive Data Service 1974 and Bernard L. Webb, "The Consumer's Interest in National No-Fault Automobile Insurance", a statement submitted for the Congressional subcommittee hearings on S.354, July 25, 
1974, for comment. 
Experiences of Other States 

13Brainard, March, 1974, pp., 36-37. 
l4Jbid, p. 37. 
l5fbid, p. 31. 
l6Jbid, p. 38. 

17American Bar Association Journal, volume 57, p. 431. 
45 
CHAPTER. v 

PROSPECfS FOR TEXAS 

In previous chapters we have examined the theory of no-fault automobile insurance, several of the problem areas surrounding its implementation, and the limited experience of a few states which have enacted such laws. This leads us to several important questions concerning the applicability of no-fault automobile insurance to Texas drivers: 
How did Texas accident victims fare in recovering 
their losses under the system existing prior to 
September, 1973? 
What are the likely effects of recent changes in the 
law with respect to the ability of injured parties to 
collect and the cost of automobile insurance? 
What are the likely costs and benefits of a no-fault 
law for Texans? · 
CHARACTERISTICS OF THE TEXAS 
SYSTEM 

Before analyzing the possible impact of a no-fault law on Texas drivers, the similarities and differences between the Texas situation and that in other states should be exam­ined. Is Texas experiencing the same problems in the same degree as other states? Can the actual experience of states with no-fault laws be readily projected to the Texas situation? To find answers to these and similar questions, a survey was made from a randomly selected group of individuals who had suffered injuries in accidents. Next, primary data concerning Texas drivers and their insurance were collected from various state agencies. Finally, those parts of previous studies which dealt specifically with Texas were examined. It should be mentioned that the system examined here is the one in existence before the fall of 1973, when several changes in the law became effective. 
Texas Accident Survey 
For the survey, approximately 1,100 names were drawn at random from the microfilmed accident files of the Department of Public Safety in Austin. Only those persons who reported injuries in the calendar year 1971 were selected, because these cases would probably have had sufficient time to complete delayed claims settlements of litigation. 
Of the 1,100 questionnaires sent, 146 were returned with no forwarding address, and so were not deliwred. Another eight questionnaires were returned reporting the person addressed had sustained no injwies. Only 153 persons who had been injured responded and many of these responses were incomplete, with several questions left unanswered in most instances. Therefore, we cannot draw conclusive, statewide generalizations from the data pre­sented here, primarily because of the small sample necessi­tated by available research resources and because of the limited answers on many of the questionnaires which were returned. However, some interesting insights are afforded by the responses. 
The survey questionnaire was basically modeled after that designed for the Department of Transportation's 1969 nationwide study of automobile insurance. Some variations should be noted. For example, in the final question, which seeks a statement of preference between two types of insurance systems, no mention was made of the term ''no-fault" because of the emotional connotation, both pro and con, derived from ·it. Instead, two different systems were descnbed without labeling either of ~-The questionnaire is reproduced in Appendix B. 
While no attempt is made to apply universal validity to the resulting data, some of the calculations nonetheless indicate a reasonably close approximation to figures derived from the larger more comprehensive study conducted by the OOT. For instance, 843 percent of sample respondents carried liability insurance at the time of their accidents. OOT and Texas Department of Public Safety figures 

' 	indicate approximately 79 percent of Texas drivers are covered by liability insurance. 
Promptneu ofClaim Settlement 
It has been argued that insurance systems under tort liability are inefficient because settlement of claims by insurance companies takes much longer than necessary. From the survey, which compared the total amount of claims with time needed for settlement, larger claims are shown to take longer for settlement than smaller claims. Since only 45 of the 153 responses could be cross­tabulated, these figures are hardly conclusive, but 14 of 23 

46 
or 60.9 percent of the claims for more than $1 ,000 took more than 30 days to settle. Eighty percent of the claims for less than $500 were settled in less than 30 days. 
Adequacy ofClaim Settlement 
Another criticism of the current system is that large 
Prospects for Texas 

claims are undercompensated and smaller claims are over­compensated. To test the applicability of this statement to Texas drivers, responses giving the amounts of total loss experienced were cross-tabulated with responses specifying the amounts received in settlement from insurance com­panies. Here is a summation of the survey results describing levels of compensation: 
j 

TABLE V-1 
AMOUNT RECENED FROM AT FAULT PARIT 
Amount of 
Total Loss O 1-100 101-500 
0 2 0 0 
1-100 2 1 
101-500 4 2 7 
501-1000 6 0 2 
Over 1000 1 1 1
' 
14 5 11 

Since the questionnaire treated all amounts over $1,000 in one category, it is not possible to estimate the degree of undercompensation of large losses. However, it can be seen from this table that smaner claims were quite often overcompensated. Seven of 15 (46.7 percent) with losses amounting to $501-1,000 received more than $1,000 in settlement. Five of 18 (27.8 percent) of those with losses between $101-500 receive.d more than $500. Six more received less than $100, however. Noteworthy is the fact that of the 37 respondents who experienced losses between $1-1,000, only 9 received settlements in the same range as their economic losses. This suggests that the tort system tends to subsidize the payment of excess benefits to some victims at the expense of other policyholders. 
Court Congestion and Costs 
Court congestion and high legal costs are another 
Over 
501-1000 1000 

2 1 5 
0 0 4 
2 3 18 
0 7 15 
0 15 18 
4 26 60 

criticism of the tort system of automobile liability insur­ance. The bodily injury accident victim survey showed, however, that only about 22 percent hired an attorney. Lawsuits were filed by only 12.1 percent of the respon­dents. 
These figures represent percentages of a sample of individuals who received bodily injuries in accidents, regardless of fault. In fact, about two-thirds of these individuals said the other driver was at fault, and about one-third actually received payment from the other driver or his insurance company. By comparison, the U.S. Department of Transportation study of paid bodily injury claimants in Texas in 1969 showed that 28.9 percent were represented by an attorney and 8.9 percent filed suit.1 
In those cases where attorneys were hired, however, claimants nationwide received an average of 72.7 percent of the gross payment wit!t their attorneys receiving the . 
47 

remammg 27.3 percent.·i (The Texas figures were 81.8 percent and 18.2 percent respectively , but the authors believe these figures to be incorrect due to some incorrect assumptions applied to the calculations.)3 
There is little available information on the amount of court congestion in Texas, let alone the contribution of automobile liability cases toward that congestion. In February, 1973, the Texas Civil Judicial Council conducted .a poll of district and county judges and clerks to determine the impact of several matters of legislative importance, one of which was personal injury cases involving automobile accidents. Over 86 percent of all district courts and 80 percent of the 310 county courts responded to the poll. The findings showed that for the year 1972, 4.5 percent of district court cases and 6.7 percent of county court cases involved automobile accidents.4 
It would be helpful to have such statistics as the length 

of waiting times until trial in various locations, the average 
size of judgement, and others. The DOT studies and our 
own survey do substantiate the opinion that smaller claims 
tend to be settled more quickly than larger claims. 
Consequently, it is probably the larger claims which are 

going to court. 
It appears then that if there is any serious degree of 
court congestion in Texas, the amount which could be 
eliminated by a no-fault automobile insurance system 
would be relatively small for two reasons: first, a relatively 
low percentage of court cases involve automobile accidents, 
and second, those that do are probably the large cases 
which would still be in the courts under most forms of 
modified no-fault laws. 

Public Opinion on No-Fault 
An atttempt was made to elicit preferences as to the most desired automobile insurance reparations system. In this regard , it must be emphasized that there are limitations in survey questions regarding reparations systems. First, the respondent may not understand clearly the way alternative systems work. It is impossible to give J1lOre than a cursory description in a questionnaire. Second, questionnaires themselves can be biased through the manner in which the questions are asked. Leading words can elicit desired responses. Third, the sample population can be insufficient or biased. The researcher has always to wonder how the non-respondents would have answered. Fourth, what people say they will do and what they actually do are not always the same. For example, they may respond that, given first-party benefits after an accident, they would not hire an attorney nor file a lawsuit .. However, when an accident occurs, they may actually do just that. 
Our survey, although carefully designed, is no less 

subject to these limitations than most others. The survey 
population consisted only of those individuals who had sustained bodily injuries in automobile accidents in 1971. While the number of respondents was too small for the results to be statistically indicative of statewide experience, the results are presented as an indication of one group's opinion. It is recognized also that there have been many public opinion surveys taken in the past several years regarding no-fault automobile insurance. 5 The latest was conducted for Sentry Insurance by Louis Harris and Associates and the Wharton School. 6 The interesting point is that results have varied from anti-no-fault to pro-no-fault with no clear indication of public desire. If the actions of state legislatures are any indication, the feelings appear to range from pro-no-fault if sizable premium savings are involved to apathy or anti-no-fault if no such savings are forecast. 
In our survey, an attempt was made to remove any bias either for or against the term "no-fault" by not using it. Instead, two systems were very briefly described, one an essentially pure no-fault system, the other a tort liability system. Since most no-fault laws are modified, retaining the tort liability concept, it would probably have been useful to broaden the question. But it probably would have been so complex and confusing as to nullify the results unless the questionnaire were made much longer and people per­sonally interviewed. 
Given a choice, then, between an essentially pure no-fault system or the tort liability system, slightly more than half of our sample of 148 said they preferred the "fault" system. About one~fourth said they preferred the "pure no-fault" system. Another one-fifth were not sure. There was no tendency for those who were at fault to prefer the "fault" system. However, the greater the loss, the greater was the instance of preference for the tort system. 
The Sentry Insurance National Opinion Study con­ducted 90-minute interviews with 2,462 individuals nation­wide concerning consumer attitudes toward automobile and homeowner's insurance. Their results showed that more than half wanted a no-fault insurance law.7 One-fourth opposed it. Interestingly, when the phrase "no-fault" was not used, even more favored an essentially first-party system.8 
From these results, it is easy to understand why little credence should be put in opinion polls. (To further elaborate, the State Farm poll showed anti-no-fault senti­ment while the DOT poll showed pro-no-fault sentiment.) Rather, it is more important to judge a system by its merits and limitations and act accordingly. 
RECENT CHANGES IN THE TEXAS SYSTEM: 
IMPLICATIONS 

In August, 1973, several new laws became effective in Texas .which caused some significant changes in the 

48 
automobile tort liability and insurance systems. The common law doctrine of contributory negligence was abolished in favor of comparative negligence; the restrictive guest statute enacted years ago by the legislature was modified; and a first~party benefits package, labeled per­sonal injury protection (PIP) was made a mandatory coverage subject to rejection under private passenger automobile insurance policies.9 These laws were all pro­moted and supported by the State Bar of Texas as a response to criticism that the existing tort system prevented many injured victims of automobile accidents from re­covery of their losses even when the preponderance of fault lay with the other party. 
Comparative Negligence and the Modified Guest Statute 
The effect of the comparative negligence law is to permit recovery by an injured party against another as long as the fault of the other party is as great or greater than. his.10 Under contributory negligence, neither party to an accident could recover against the other unless. he were completely free of negligent actions. Under the comparative negligence statute both can collect if their negligence is equal. Otherwise, the least negligent party may recover from the more negligent party. However, in any case the damages allowed are diminished in proportion to the amount of nelgigence attributed to the party recovering. Thus, if two individuals each suffered $10,000 losses and one accounted for 40 percent of the total negligence, he could recover $10,000 less 40 percent, or $6,000. The other party would recover nothing. If both parties were equally at fault in the above situation, each would collect half of his losses. 
Under the new modified guest statute, a non-fare-paying passenger other than a member of the family may recover his losses from the negligent driver of the car. 11 Under the previous law, the passenger would have had to show gross negligence or reckless action to collect. 
There is no way to predict with accuracy the cost implications of comparative negligence and a modified guest statute. Two of the greatest harriers to effective research in the social sciences stand particularly large here. First, past data under one system must he used to predict future performance under another system. Even though other states' experiences sometimes cari be used, seldom are the situations comparable. Second, there is no way to hold all other variables constant while one ·is changed, as is possible in scientific laboratories. Thus, at best, we can only predict what would have been in 1972 if we had had a comparative negligence law. If we project into 1975, then somehow we would have to negate the effects of variables such as the petroleum shortage, improved highway and automobile safety systems, and even the guest statute and PIP. 
Prospects for Texas 

The most notable and thorough study to date was made by Cornelius J. Peck, Professor of Law at the University of Washington, in 1959 and published in the Michigan Law Review. 1 2 Professor Peck compared both claim frequencies and total insurance costs in states with comparative negligence with those in states with contributory negli­gence. First he examined the claims experience of insurance carriers in four states with comparative negligence rules­Arkansas, Georgia, Mississippi, and Wisconsin-and their neighboring states. The frequency of claims per thousand automobiles insured for both personal injury and property damage was examined. Professor Peck then concluded that "Analysis of these statistics leads to no conclusion, unless i; 
is that an effect of comparative negligence is not observ . able."13 
In a similar comparative study of insurance rates, Peck concluded that, "It is possible to say once again that if comparative negligence does affect insurance rates, its effect is not great enough to be observable in the complex of forces acting on the rate level. Indeed, it would not have as much effect as rapid growth of population, increased urbanization, or change to a traffic program with the effective safety record of a neighboring state. Its effect if any, would probably go undetected in the rates and statistics of the insurance industry."14 
The major limitation of Professor Peck's study was that he had to rely on a time-constant comparison of insurance rates or claims frequency and severity data for different states. The fact is that there are too many uncontrollable variables to accurately attribute higher rates in one state to one variable such as a comparative negligence law. The passage of comparative negligence laws in a few states in recent years has facilitated new studies taking into account variables such as the existence or non-existence of guest statutes, the actual judicial interpretations and thus prac­tices relating to contributory negligence, and variance in the costs and styles of living, among others, which were denied to Professor Peck when he did his studies. 
One recent study concluded that "the likelihood of any significant change in automobile liability insurance rates which can be attributed to a change to comparative negligence is slight," particularly, "where courts, attorneys, and insurers have previously settled automobile litigation cases on the basis of comparative negligence, even where contributory negligence is the law."1 5 These conclusions followed an investigatio~ of the comparative changes in claim frequency and severity following enactment of comparative negligence laws in two other states. Needless to say, there may very well have been variables at work in those states which make such results inapplicable to Texas. That same study also predicted an increase in rates of approximately 5 percent due to the modification of the guest statute. 
49 

Another unpredicted factor was the adoption, along with the comparative negligence and guest statute law, of a new rule of civil procedure16 that simplified the process of submitting special issues to a jury. The result of this change could tend to cause a higher frequency of awards. At present, there has been insufficient time to ascertain the results of any of these laws on automobile insurance rates in Texas, if indeed it can ever be done. 
Penonal Injury Protection 
In August of 1973, an act (House Bill 143) relating to mandatory coverage for personal injury protection and certain disability and death benefits under a policy of automobile liability insurance, was added to Texas' Insur­ance Code. 
The personal injury protection (PIP) coverage provides optional additional coverage on automobile insurance policies for medical expenses and wage losses up to $2,500 per person per occurrence due to personal injury. Both driver and passengers of insured automobiles are covered. The coverage provides payments from the insured's own insurance company for those medical expenses and loss of income resulting from automobile accidents. However, insurers must include the coverage in all automobile liability insurance policies issued unless it is rejected in writing by the insured. Thus, all policies will automatically include such coverage unle~ the insured informs the insurer that he does not want it. · 
PIP n. Tl'flditional Mftlical Payments Co~. The major differences between PIP and traditional medical payments coverage are: 
• 	
The new coverage extends the period of covered . incurred personal injury protection benefits to three years from the date of the accident. Under most medical payments coverage, the period is only one year. 

• 	
The coverage adds benefits for l<m of income and the cost of replacement of essential services performed by an injured non-wage-earner. These are benefits not available under regular medical payments coverage. 


The PIP Act does not affect the offering of medical payments coverage, disability benefits and accidental death benefits as presently written by Texas insurers. 
/s Texas' PIP a Form of No-Flllllt ITISllTtllltt'! One supporter of PIP called it no-fault automobile insurance when it was passing through the Texas Legislature. How­ever, this law is quite different from the no-fault laws now in effect in sOch states as Massachusetts, Florida, New Jersey, Connecticut, Colorado, and Kansas. 'Each of the latter substitutes at least to some degree the right to collect directly from a motorist's insurance company for the right to sue the other driver involved in an accident. For 
example, the key features of the Penonal Injury Protection 
Plan in Massachusetts are: {l) like medical payments 
coverage, it is added to the compulsory bodily injury 
liability coverage; (2) the coverage is the primary source of 
recovery; and (3) the potential for recovery in a liabilitY 
action of more than actual economic loss (i.e., out-0f­
pocket costs and loss ofwages) has been restricted. 
In contrast to the Massachusetts plan, Texas' PIP does 
not restrict or limit law suits. It simply provides for add-<>n 
coverages for medical expenses and loss of income. The PIP 
law provides that PIP benefits are payable without regard to 
the fault or non-fault of the insured, and must be paid 
without regard to collateral sources of medical, hospital or 
wage continuation benefits. The only deduction or offset 
allowed is in the case of a guest who makes a claim against 
his host. If the guest recovers PIP benefits, which will have 
been provided because of the coverage furnished on the 
host vehicle, the host driver is permitted an offset in any 
liability suit to the extent of PIP benefits received by the 
guest. An insurer paying PIP benefits is not entitled to any 
rights of subrogation. 
Texas' PIP closely parallels the Maryland Automobile Insurance Reform Act passed in 1972, which became effective January 1, 1973. The Maryland Insurance Commissioner testified to the Texas Senate committee considering the PIP bill that such legislation, in his opinion, would reduce claims because it would deliver prompt payment of up to $2,500 of first-party benefits. U.S. Department of Transportation studies show that in 1969 96 . percent of all bodily injury claims could be completely disposed of for $2,500 or less_1 7 The implication is that motorists are less likely to involve themselves in litigation of third-party liability claims if they are promptly paid 
their wage loss and economic bills. 
"Pure" no-fault has been descn"bed as an insurance 
system with total tort exemption. Programs with varying 
degrees of tort exemption are, then, modified forms of 
no-fault insurance. PIP coverage provides protection with­
out regard to fault, but cannot be classified as a no-fault 
insurance system any more than the existence of medical 
payments coverage, comprehensive physical damage and 
collision coverage (all of which are paid regardless of fault) 
in a policy would qualify that policy ·as no-fault insurance. 
PIP Effect on 11Ulll'tllU% Costs. It is unknown at this time 
what effect PIP will have on insurance costs in Texas. 
Before the PIP law became effective, Texas' Insurance 
Board Chairman indicated that it would not be used in 
calculating Texas' insurance rates immediately because 
from a year to several years experience would be needed to 
set rates. The Chairman did express a belief that the plan 
will help reduce insurance costs in the long-run. The current 
rate for $2,500 of PIP is $22 for the IA classification 
except in Harris and El Paso counties, where it is $23. This 

50 
Prospects for Texas 

compares to corresponding rates of $15 and $16 for $2,500 of medical payments insurance. These rates are based on actuarial estimates, however, rather than experience. It will be several years, at the minimum, before costs based on actual experience will be ascertainable. 
Lower premiums for bodily injury liability insurance are possible from the institution of PIP in Texas, but only if certain conditions are met. First, a large percentage of the driving population would have to buy PIP coverage on a voluntary basis. Second, those injured in accidents would have to refrain from bringing a claim or suit against the other party, since there is no legal restriction on suits against the other party whether or not a person collected from your insurance company. No information is presently available whether these two conditions are being met. At the same time, of course, other factors are at work on the bodily injury premium-changes in frequency of accidents because of reduced speed limits, less driving, or related developments; changes in claim size because of the use of safety belts and other safety equipment, or increased 
hospitalization costs; the new comparative negligence law with the modified guest statute; and new trial procedures. Because of these other factors,. it will be difficult indeed to isolate the effect of the new PIP law even when the experience statistics are collected. · 
PROBABLE EFFECTS OF NO-FAULT 
AUTOMOBILE INSURANCE FOR TEXAS 


Two recent predictive cost studies have been made r regarding no-fault automobile insurance: the Milliman and 
Robertson study for the National Association of Insurance 1 1 Commissioners (NAIC) at the request of the U.S. Senate Commerce Committee, and the Institute for the Future study, conducted under a grant from the National Science Foundation. 
The Institute for the Future dealt with various potential long-range impacts of different no-fault plans. The model, which included some costs factors, projected results to 1984, based on various assumptions about changes in driving habits, safety devices, social income guarantee schemes, and similar social factors. 
The NAIC study was an effort to overcome a major obstacle to legislative progress on no-fault insurance in various states-the controversy over the cost implications of particular bills. In August, 1972, the NAIC decided to sponsor an independent and objective costing program and the actuarial firm of Milliman and Robertson, Inc. was retained to develop a computerized model capable of evaluating the cost implications of a wide variety of different no-fault proposals. The model was also to be designed to deal with state-by-state variations in automobile accident injury patterns and in the existing tort liability automobile insurance system. 
Early in 1973, the U.S. Senate Commerce Committee, which was evaluating Senate Bill 354, the proposed National No-Fault Motor Vehicle Insurance Act, requested the NAIC to "cost" the bill based on the experience in five states, including Texas. The contract between the NAIC and Milliman and Robertson, Inc. contemplated the costing of this bill. 
The Cost-Estimate Study 
The primary goal of Milliman and Robertson's computer model was to generate a single figure: the percentage increase or decrease in the average personal injury automo­bile insurance premium expected to result from enactment of any given no-fault bill.18 The main goal of the overall costing system was broader-to convey an understanding of the study and its conclusions as the probable cost implica­tions of the bill. Another goal was to generate useful information to facilitate analysis of the study arid of the 
bill.19 Basically the cost-estimate study postulates a distribu­tion of persons injured in automobile accidents. The cost of these injuries is evaluated for the two reparations systems­tort and no-fault-and total costs are then compared. Using 
a base of 100,000 hypothetical injuries, the study seeks to determine the average insured cost per vehicle of these irijuries under both the present and proposed insurance 
systems. It systematically determines which of the 100,000 injuries will be compensated and how much compensation they would receive under each reparations system. Six variations of S. 354 were costed (see Table V-2 at the end of this chapter). Injuries were classified according to various characteristics such as: (a) type of accident, (b) type of vehicle, (c) role of the injured person, (d) seriousness of the injury, (e) fault status, and (f) insured status. Compensable amounts were made to vary according to similar injury characteristics. Thus, by accounting for the important sources of variation in compensable injury frequency and average cost between present and proposed systems, it is possible to obtain an indication of the cost change associated with a particular no-fault reparations system proposal. 
Injuries are distributed by types aJl.d numbers of vehicles involved and by severity. The model then· determines to what extent these injuries would be compensated under the first-party benefit provisions in the proposed no-fault legislation and te> what extent under residual tort rights. The costing system also takes into account such factors as eligibility for first-party benefits according to vehicle type, percentage of vehicles insured, provisions of the proposed assigned claims plan, percentage of injuries in the state involving out-of-state vehicles, and percentage of injuries occurring outside the state. 
In addition to bodily injury liability coverage, the model 

51 
also recognizes the presence of uninsured motorist and medical payments coverages under the current system, and makes assumptions about the extent to which they will be continued under the proposed system (see Appendix V-1 at the end of this chapter). Changes , in loss adjustment expense levels are also taken into account. 
Sources of Data. The primary data source from which variations in injury costs and distributions were obtained was the 1969 closed claims study conducted by the U.S. Department of Transportation. Other injury frequency data were gathered from sources such as the Federal Highway Administrations' Fatal and Injury Accident Rates on Federal Aid and Other Highway Systems 1970, the National Highway Traffic Safety Administration's National Accident Summary File, the National ·Safety Council, and the National Center for Health StatistiCs. 
Results of the Cost Study for Texas_ The cost estimate study yielded the results illustrated in' Table V-2 for Texas. The figures represent predicted percentage changes in the average total automobile premiums, i:he average personal injury premium, and total personal injury premiums for different no-fault plans when compared with the tort liability insurance system in effect prior to August, 1973.20 The Milliman and Robertson firm cautions observers that the results reflect actuarial judgement and statistics applied to a computerized model. It recommends that the study results not be used except in conjunction with certain caveats expressly stated in the study (see Appendix V-2). For example, it should be noted that the costing estimates do not project costs by class of insureds or territory, but rather represent only a statewide average. The actual effect of a change to no-fault may vary considerably by class and territory, depending on benefit levels, tort limitations, and amount of subrogation or loss shifting retained. 
Analysis of the Milliman and Robertson Study 
Milliman and Robertson make every effort to warn against the use of its predictive cost results in the absence of the caveats listed. There are, however, some questions and criticisms of the study that have been raised by experts in the field of automobile insurance even in light of these caveats. The seminar had access to three analyses of the Milliman and Robertson study. Two of the analyses were contained in statements made to the Senate Judiciary Committee by two professors of insurance, Calvin H. Brainard of the University of Rhode Island, and Bernard L. Webb of Georgia State University. The third analysis was done by the Inter-Association Actuarial Group (IAAG) representing the American Insurance Association, American Mutual Insurance Alliance, and the National Association of Independent Insurers. Professors Webb and Brainard, and the Inter-Association Group emphasize that their criticisms are in no way intended to question the competence of the Milliman and Robertson actuaries; rather they serve simply to point out the potential weaknesses in the study. 
Data Base. Webb said that one of the greatest weaknesses of the Milliman and Robertson study is its use of statistics generated under the tort system as its data base.21 (See Sources ofData ) 
Webb asserted that the data sources lack crucial informa­tion concerning the real levels of economic loss and collateral source recovery under the tort system. This information gap, he feels , leads to an understatement of economic losses which would be incurred under no-fault. Webb also believes the DOT data overstates general damage payments under the tort system. The result of the use of these questionable data items is an overestimate of the cost savings under no-fault.2 2 
In his statement before the Senate Judiciary Committee Calvin Brainard also expressed concern over the data base used by Milliman and Robertson. Statistics gathered by Brainard from two Massachusetts state authorities for the year 1969 show 33 percent more tort claims per 100,000 injuries than are reflected in the Milliman and Robertson data. Since the total estimated costs for both systems were derived by multiplying the number of assumed claims per 100,000 injuries by an assumed cost per claim, it is possible for even a small error to significantly affect the predicted results.2 3 
The Inter-Association Actuarial Group in its review of the Milliman and Robertson study expressed concern about the death statistics used in the study. The death ratios which serve as a starting point for statistical inputs into the model are taken from data showing the split between rural-urban deaths for one year of accident experience. The Inter-Association Group suggests that more than one year's experience might offset chance variations which may have occurred during the one particular year chosen.24 
Our own analysis has shown that the death ratios used for Texas are subject to question . Milliman and Robertson used a death ratio (fatalities as a percent of total injuries in all automobile accidents) of 2.1 percent for Texas while Department of Public Safety statistics show that ratio to be approximately 3 percent. Use of the Department of Public Safety statistics would significantly reduce the predicted cost savings of no-fault insurance for Texas. 
Actuarial Assumptions. The lack of a complete body of 
data forced a great reliance on actuarial assumptions. The 
Milliman and Robertson report states that "an important 
part of the cost estimating system is the process of making 
assumptions...to the maximum extent feasible, these 
assumptions are based on relevant data or other objective 
information, but actuarial judgment is also an important 
factor in some cases. "2 5 
The Inter-Association Actuarial Group states that: 
The necessity of actuarial assumptions is not symptomatic 

52 
of indolence. Rather assumptions are necessary because, in 
many cases, no one has had prior occasion to make objective 
measurements, and because costing involves forecasts of how 
people and institutions will change their behavior in response 
to a new reparations system and a changing legal environ­
ment. It is important to remember that the way in which 
actuarial judgment is exercised in making assumptions can 
have a very important influence on final comparative 
results.26 


The IAAG does point out, however, that an assumption which proves to be inaccurate can have a significant effect on the cost results. One such assumption could be the insured ratio. For example, Milliman and Robertson assume that the compulsory aspects of S.354 would have increased the insured ratio in Kentucky from 68.2 percent to 84.6 percent. This assumed change produced a 1 percent indicated savings while little or no change would have produced a 9 percent indicated increase in system costs. Variance in other assumptions which could have a great effect on the cost estimates are those concerning the distribution of fault in accidents, the psychological thresh­old factor (i.e., the willingness of those who have recovered their out-of-pocket losses to forego tort claims), and the tort propensity factor (the aggressiveness with which injury victims pursue rights of action in tort).27 
Webb has questioned a nwnber of the Milliman and Robertson assumptions for Texas. He points out that in the actual calculation of the model, Milliman and Robertson asswned that first-party medical payments coverage in Texas totaled 24.1 percent of the payments under bodily , injury liability coverage for private passenger cars. Statistics published later by the State Board of Insurance indicated 1 that such medical payments losses are only 18.7 percent of 1 private passenger bodily injury losses. He further questions i the actual amount of medical payments shown in the model I and asserts that this amount "would only be correct if I private passenger bodily injury payments constituted 93.7 , percent of all bodily injury payments, including commercial 
1 

vehicles. The Texas publication (Board of Insurance Statis-i tics) indicates that private passenger bodily injury payments ! constitute only about 68 percent of the total."28 Correc-l tion of the Milliman and Robertson Texas calculations for i these two errors, according to Webb would drop the projected savings from 17 percent to 9 percent. Webb also questions the 15 percent average deduction for income taxes iii wage loss payments. He says that since S. 354 provided that 15 percent is the maximum deduction for income taxes, the average should be lower and therefore, the costs of no-fault higher. 29 ' 
Interpretive Differences. A major problem with no-fault_ . cost predictions is that they can be interpreted in varying .\ ways. Brainard refers to the use of statistics by no-fault proponents which show great increases in the number of persons paid and decreases in cost resulting from no-fault implementation as "statistical hypnosis."30 He states that 
Prospects for Texas 

total costs are actually greater but are spread over a vastly increased insured driving population. The costs saving, then, would result from the compulSory requirement in S. 354 and not from the no-fault concept itself. 
Brainard does not actively contest the projection that the number of persons compensated from no-fault could increase by as much as 100 percent. He does, however, protest the use of that statistic without the accompanying revelation that the average benefit paid to victims would 
31
drop by as much as 40 percent.
There are other instances of questionable interpretation which have aroused protests not only from critics but from the Milliman and Robertson firm itself. The Washington Star News of June 22, 1973, contained an article which many persons interpreted as showing a potential for 25 percent to 40 percent savings in total automobile insurance premiums from passage of no-fault law. A letter from Mr. Frederick W. Kilbourne, a Milliman and Robertson official involved in the study, to the Editor of the Star News claimed that the article was indeed misleading and that their projections referred only to the personal injury portion of the automobile premium and not the total premium.32 The State Bar of Texas also labeled the Milliman and Robertson predictions as misleading in a full-page advertisement published in the February, 1974, issue of Texas Monthly. 33 The Milliman and Robertson firm, however, should not be held responsible for such apparent misinterpretation, as it continually states that the findings are not to be used in the absence of the stated caveats. In addition, it readily admits that the lack of a complete data base makes their predictions "subject to a high degree of uncertainty as well as being very susceptible to misinterpretation."34 
Relative Savings Among Driver Classifications. The 
IAAG points to a shortcoming in the way the cost estimates 
are stated. The Milliman and Robertson estimates represent 
an average for all vehicles on the highway-trucks, commer­
cial cars, taxicabs, motorcycles-and does not express the 
costs savings which will be associated specifically with 
private passenger cars. The general driving population, 
composed primarily of private drivers, would not realize the 
full savings estimated by the model and might, in some 
cases, experience a cost increase according to this actuarial 
group.35 
Webb also points to the absence of a breakdown in 
estimates per vehicle class as a weakness of the study. In 
addition, he suggests that to project average savings 
statewide without consideration for rural-urban differences 
is misleading. Though savings may be possible on a 
statewide average basis, the rural driver may very well 
experience an increase in costs while the urban driver 
experiences a savings.36 Milliman and Robertson do, 
however, list the failure to incorporate territorial relativities 
into the model as one of the caveats. 

53 

Predictive Ability. The final criticism to be discussed here is the difference between the model's predicted results and actual results in the states of Florida and Massa­chusetts. The Report of the Senate Commerce Committee on S.354 (page 37) included a comparison of predicted and actual results : 
Massachusetts Florida 
Predicted Savings 15% 24% Actual Savings 26% 40% 

Brainard, however, discounts these dramatic savings levels. In Massachusetts, he says, the savings "was due almost entirely to the totally unexpected and, as yet, unanalyzed drop in total claims from 117 ,813 to 70,900, or by a 40 percent decrease. Paradoxically, far fewer persons collected under no-fault than under the preceding tort system. On the contrary, the predictive model shows for Massachusetts an increase of 39 percent in total claims. There would therefore appear to be some kind of serious aberration in the model's claim propensity factor." 37 
In the case of Florida, Brainard asserts that the 26 percent savings is in the price paid by insured motorists and not the cost incurred by insurers. He suspects that the 26 percent savings is entirely attributable to legislative man­date and in no way reflects insurer's costs.38 Consequently it is only a short run illusory savings. 
Summary. The criticisms discussed here suggest that the Milliman and Robertson model is not a precise predictor of costs under no-fault. Because of questioned assumptions as well as caveats expressed by the authors themselves, the model must be used with great caution and with full awareness of its limitations in any attempts to predict costs under any proposed no-fault law. 
The value of the model should not be overlooked, however, simply because it has limitations. Perhaps the Inter-Association Actuarial Group expresses best the value of the Milliman and Robertson study: 
The model has been constructed in a professionally competent manner. The data sources used are probably the best available. We have noted several technical criticisms, and have called attention to the absence of separate cost estimates for commercial versus private' passenger cars as a potential source of misinterpretation. 
Without question, actuarial assumptions play a vital role in determining final cost outcomes. In some cases alternatives and equally supportable assumptions will produce signifi­cantly different answers. For this reason, the Group cannot categorically support all results obtained from the Milliman and Robertson model. 
Notwithstanding the limitations described and the tech­nical criticisms and comments offered in this review, Milliman and Robertson, Inc. has made a valuable contribu­tion to understanding the cost implications of no-fault automobile insurance. Not only does the Model provide a systematic first approximation of costs, but it also provides explanations in a way that promotes specific criticisms rather than vague expressions of general dissatisfaction. In short, the Milliman and Robertson Model provides useful if not always conclusive cost information.39 
Proposals for Improved Predictive Systems 
The preceding section has detailed a number of criti­cisms of the Milliman and Robertson Cost Estimating Study. There are several suggestions offered · by Webb, Brainard and the Inter-Association Actuarial Group for improYing the Milliman and Robertson efforts. In addition, suggestions are made here for improving no-fault cost predictive efforts for Texas. 
Inter-Association Actuarial Group. The most extensive suggestions for improvement have come from the IAAG. lri their review of the Milliman and Robertson Model, the IAAG offers these suggestions: 40 
1. 	
In spite of an expressed caveat of Milliman and Robert­son, there is danger that the study results will be misinterpreted because of a shortcoming in the way the cost estimates are stated. All of Milliman and Robertson's cost estimates represent an average for the total mix of vehicles on the highways, including trucks, commercial cars, taxicabs and motorcycles. No separate expression of costs associated with private passenger as distinguished from commercial cars and other vehicles is made. Per­centage changes in average ·premiums may be quite different among these vehicle groups, particularly when loss transfers between companies are restricted. There is some reason to believe there would be a shift in insurance costs from commercial vehicles to private passenger cars under some no-fault bills. Moreover, the primacy of 

Workmen's Compensation benefits would reduce no-fault costs unevenly across these vehicle groups. 

2. 	
Beginning with the actual number of urban and rural deaths in a given state, death ratios are applied to allocate deaths by vehicle type and injury/death ratios are applied to allocate injuries by type of vehicle based upon the allocation of deaths. This is the basic process by which injury and death is distributed over the 100,000 injuries in the Model and the basic way in which state variations in injuries and death can be reflected. Splits between urban and rural deaths by state are taken from one year of accident experience. It is suggested that more than one year of experience be used because chance variation could affect the year-by-year splits, particularly in low popula­tion density states. 

3. 	
Milliman and Robertson's estimates of the number of death claims as a percentage of all claims under the present tort system do not track well with actual experience. The DOT closed claims study data showed that approximately one percent of all bodily injury claims involved death cases. However, in applying their costing model to the federal standards no-fault motor vehicle insurance act, Milliman and Robertson's projected death percentages for the present tort system were much higher, ranging from 1.6 in California to 2.8 in Kentucky . 


The discrepancy in the estimate of death cases can result in a serious cost error, particularly under legislation that provides substantial survivorship benefits. Calibration 

54 
of the model so that projected death cases better approximate actual experience seems indicated. 

4. The 	ratio of general damages to total bodily mJury liability payments has an important influence on no-fault costs. The higher the percentage of general damages, the greater will be the relative cost savings from their restriction. Milliman and Robertson used the consolidated 
19 state data from the DOT claims survey in spite of the fact that there are substantial differences in the ratio of general damages among the 19 states. They expressed the belief that differences among states were probably caused by chance since general damages can be quite volatile. 
The Group's analysis of the DOT data has produced evidence to suggest that there are real. differences in the ratios of general damages to total damages among states. To reduce the possibility of chance . variation, general damages associated with serious cases were parceled out; then the non-serious residual were compared with non­serious total damages by state. 
DOT DATA-GENERAL DAMAGES BY STATE 

Ratio Non-Serious General Damages to State Non-Serious Total Damages 
Michigan .47 Minnesota .52 California 53 Texas .54 Wisconsin .57 Illinois .60 North Carolina .60 Missouri .63 Ohio .63 Pennsylvania .63 Indiana .65 Massachusetts . 65 Georgia .66 Florida .67 New Jersey .67 New York .67 Connecticut .69 Colorado . 70 Washington .79 
These data show that there are differences among the 19 states surveyed. Because these differences will have an effect on cost estimates in some cases the Group believes the Milliman and Robertson Model should give them some credibility. 
5. 
Loss of Services-Subject to variation dependU. upon the no-fault plan being costed, the Milliman and Robertson Model shows roughly that 20-25 percent of those who are eligtl>le for no-fault benefits will receive loss of service benefits. Preliminary no-fault experience of several com­panies represented in the Inter-Association Actuarial Group shows that less than 5 percent receive loss of service benefits. The reason for the disparity may be because Milliman and Roberuc>n significantly increased the loss of service frequency actually observed from tort data, in anticipation of greater use as a specified benefit under no-fault. 

6. 
Erosion of Medical Thresholds-There exists the potential to deliberately incur medical expenses sufficient to 


Prospects for Texas 
penetrate medical thresholds and acquire a right of action in tort. There is evidence that this activity is already under way in Florida. Perhaps an assumption similar to the Psychological Threshold Factor, although opposite in effect, should be included in the model to account for possible erosion of medical thresholds. 

Brainard and Webb. In their statements before the Senate Judiciary Committee, Brainard and Webb offer limited suggestions for nnprovement. Brainard suggests that the predictive efforts of a number of actuarial bodies might be pooled to provide for much more success than the efforts of a single actuarial firm.41 Webb recommends the incorporation into future predictive efforts of factors which will account for variations in insurance costs and driving conditions among rural and urban areas. In addition, he speaks to the need for variation between private passenger 
and commercial vehicles discussed earlier under the IAAG 
suggestions. 4 2 
Additional Propo!lllb. Several suggestions for improving future predictive efforts for Texas arose during the course of this project. It was our objective to incorporate these suggestions into the Milliman and Robertson model and actually perform the computer runs to determine changes in the results; however, a number of factors prevented this. Discussions with Milliman and Robertson actuaries con­firmed our belief that these suggestions could, given adequate time and computer capability, be incorporated into the model for Texas and would provide improved predictive results: 
1. 	Test effects of changes in data base by substituting actual data on the frequency distnl>ution of injuries in Texas . 
Module 8 of the Milliman and Robertson model creates 

a frequency table for injuries occurring within the state 
being considered. A table of 54 cells classified by vehicle 
type, severity of injury, occupant status, number of 
vehicles, and a fault status is created . 
The basis for individualizing a distribution by state is the 

number of urban and rural deaths reported in the Federal 
Highway Administration's Fatal and Injury Accident Rates 
on Federal and Other Highway Systems 1970 for the state 
under consideration. Injuries and deaths are distributed 
over 100,000 injuries by applying de~th ratios to allocate 
deaths categorically. These death ratios are developed 
mathematically using the number of urban and rural deaths 
reported for a particular state. For Texas those figures for 
1970were: 
Urban Deaths -1,332 
Rural Deaths -2,228 
Milliman and Robertson justified using the split between 

urban and rural deaths as the basis for developing the 
frequency tables by stating that this is one accident statistic 
that is available for all states on a substantially unbiased 
basis. They stated also that rural versus urban seems to 
55 

explain the relative frequency of injuries better than any other available variable. 
While actual death statistics were used by Milliman and Robertson, however, its calculated death ratio-i.e., fatal­ities as a percent of total injuries-was not the same as that indicated in actual data provided by the Department of Public Safety. A copy of the input for Model B, supplied by Milliman and Robertson, rather indicated that a signifi­cantly lower death ratio was used as model input. This discrepancy reduced our confidence in the results. We also developed the capability of producing a more reliable table by using data provided by the State Insurance Board of Texas and the Department of Public Safety. It was our intent to use Milliman and Robertson's Modules A, C, and D, and replace Module B with its own program. 
2. 	
Test effects of changes in Texas Law-the original Milliman and Robertson system was devised when Texas had a contributory negligence law and a strong guest statute. As the Milliman and Robertson system's results began to surface, Texas had gone to a comparative negligence law with a modified guest statute and PIP. 

3. 	
Test effects of different No-Fault Laws-S.354 was broad and set minimum requirements leaving much latitude in terms of what may ultimately result. Differing threshold 


limits and benefit packages could be tested. (It is within the capability of the model to test these.) 
4. Test the sensitivity 	of selective input parameters used by Milliman and Robertson and ourselves-137 values are input into the model. We planned to selectively test several to determine if a percentage change in any one parameter would significantly change the results. 

Module C accepts Modules A and B's output for calculation. Module C calculates the number of injuries generated in Module B for each frequency cell which will be compensated under each insurance system, tort and no-. fault, and combines them with the appropriate costs as generated in Module A to determine the costs for each cell. 
It was in Module C that the seminar planned to test the sensitivity of some of the most important input factors to the model, particularly those factors which further de­scribed the injury population, including insurance status (guest statute, insured ratios, etc.) and those which defined the extent of no-fault coverage (eligibility, subrogation, etc.). Unfortunately, despite extensive efforts and com~ munications with the Department of Transportation and the Milliman and Robertson firm over a period of several months, time and resource limitations prevented access to the computer model for the performance of the tests. 
TABLE V-2 
S.354 COSTS UNDER BENEFIT AND THRESHOLD VARIATIONS* 
CHANGE IN AVERAGE TOTAL 
AUTOMOBILE PREMIUM** 

HT HL HN LT LL LN 
-5 -1 +4 -8 -4 0 
* 	Variation codes are defined in Appendix V-1. 
** 	Entries are estimates of percentage changes in the average automobile insurance total premium (personal injury plus automobile damage) payable per insured vehicle under the proposed no-fault system relative to the previous tort liability system. For Texas, the personal injury premium is approximately 35 percent of the total premium according to the Milliman and Robertson, Inc. study. 
CHANGE IN AVERAGE PERSONAL 
INJURY PREMIUM*** 

HT HL HN LT LL LN 
-14 -3 +10 -23 -12 +1 
CHANGE IN TOTAL PERSONAL 
INJURY PREMIUMS IN STATE**** 

HT HL HN LT LL LN 
+4 +17 +33 -7 +6 +22 
*** 	Entries are estimates of percentage changes in the twerage automobile insurance personal injury premium payable per insured vehicle under the proposed no-fault system relative to the previous tort liability system. The personal injury premium includes bodily injury liability, medical payments, and uninsured motorist coverage. 
**** 	Entries are estimates of percentage changes in total auto­mobile insurance personal injury premiums payable in the state under the proposed no-fault system relative to the previous tort liability system. 

Source: Cost Estimate Study of No-Fault Automobile Insurance, prepared for the U.S. Department of Transportation, Milliman and Robertson, Inc., Pasadena, California, November 7, 1973, pp. 9, 10, 11. 
56 
Prospects for Texas 

TABLE V-3 
BILL PROVISIONS AND VARIATIONS 
VARIATION PARAMETERS AND DEFINITIONS 
BENEFIT LIMITATION HIGH 	LOW 
Wage Loss Maximum Amount $25,000 variable $15 ,000 fixed 
Services Maximum Period 3 years 	l year 
Survivors Maximum Amount $15,000 	$5,000 
THRESHOLD PROVISION TIGHT 	LOOSE 
Disability Qualifying Period 6 months 2months General Damages De~uctible $2,500 none 
CODE VARIATION DEFINITION HT High benefit level, tight threshold provision HL High benefit level, loose threshold provision HN High benefit level, no threshold prQvision LT Low benefit level, tight threshold provision 
LL 	Low benefit level, loose threshold. provision 
LN 	Low benefit level, no threshold provision 
Source: 	Cost Estimate Study ofNo-Fault Automobile Insurance, Prepared for the U.S. Department of Transpor­tation, Milliman and Robert~on, Inc., Pasadena, California, November 7, 1973, p. 14. 
APPENDIX V-1 
MODEL INPUT ASSUMPTIONS 
1) Rehabilitation provisions will add 7% to medical costs 4) The income tax offset provision will reduce gross wage included in the data base. Sections i03(16) and 109(c). loss costs by 15%. Section 208(b ). 2) Medical costs beyond $10,000 per claim will add 6% to 
5) Medical expense and wage loss costs will be reduced 5% 
medical costs limited to $10,000 per claim. 
each by the offset for workmen's compensation. 

3) Wage loss costs beyond $10,000 per claim will add 6% Section 208(a). 
to wage loss costs limited to $10,000 per claim, 6) Medical costs will be reduced 5% by social security and 

distributed as follows: other federal government program offsets. Section 
a) $10,000 to $15,000 3% 

208(a). 7) Wage loss costs beyond five months of disability will be b) $15,000 to $20,000 1% reduced 15% by the offset for social security. Section 
c) $20,000 to $25,000 1% 

208(a). 
d) Over $25,000 1% 

8) State temporllfY. disability programs will reduce wage 
57 

loss costs for the first 26 weeks of disability as follows: 

a)  California  50%  
b)  Hawaii  50%  
c)  New Jersey  40%  
d)  New York  50%  
e)  Rhode Island  40%  
9)  Replacement  service  benefits  will  be  payable  on  a  
seven-day-week basis.  

I 0) No-fault survivor benefits are based on population mortality, are discounted at 5% interest per annum, and continue if needed until the decedent would have reached age 65. Section 103(32). 
11) Residual liability death claims will be equal in amount to tort system death claims when payable. Section 206(a)(5)(A). 
12) Inflation has caused costs contained in the data base to increase by 25%. Section 20l(b). 
13) State financial responsibility laws will not be changed and the average liability insurance limits actually purchased will relate to the minimum limits as follows: 
a) $ 5,000 minimum -$10,000 average 
b) 	10,000 minimum -20,000 average 
c) 	15,000 minimum -25,000 average 
d) 	20,000 minimum -28,000 average 
e) 	25,000 minimum -30,000 average 
14) Persons with nonserious injuries yet eligible to take tort action will do so 75% of the time with no threshold, 85% with a loose threshold, and 95% with a tight threshold. Section 206(a). · 
15) Persons with nonserious injuries and technically in­eligible to take tort action will qualify subjectively to do so 5% of the time with a tight threshold and 10% with a loose threshold. Section 206(a). 
I 6) A six-month disability threshold is equivalent to an average $2,000 medical cost threshold, and a two­month to an average $600 medical cost threshold, in each case varying by medical cost levels in the state. 
Section 206(a)(5)(B). 

I 7) The $2 ,500 general damages deductible will be 50% effective and will operate as a $1 ,250 deductible per claim. Section 206(a)(5). 
18) A tort propensity will cause not-at-fault bodily injury claims to be increased beyond data base indications as follows : a) Connecticut 15% b) Illinois 10% c) Massachusetts 25% d) New Jersey 10% e) New York 15% 
19) 	Mild guest statutes will permit tort action by a passenger 30% of the time, and strong ones 7*% of the time. 
20) Out-of-state accidents and accidents involving out-of. state cars will occur with frequencies shown in Exhibit E-7. 21) Motorcyles will be included among compulsory cover­age vehicles under the law. Section 103(17). 22) The compulsory nature of the law will cause owners of half of the currently uninsured vehicles to purchase insurance, except in states where tort liability coverage is already compulsory. Section 104(d). 23) Loss adjustment expenses will change from 19% under the current system to 25% for general damage claims, 10% for death claims, and amounts varying by thresh· old provision as follows for no-fault and excess liability claims: 
a) Tight 	11% 
b) Loose 13% 
c) None 	15% 

24) Administrative and marketing expenses will remain constant as a proportion of total premiums. 
25) 	Bill provisions tending to increase insurance company operating expenses or claim payments will not be administered so liberally as to cause appreciable pre­mium increases. 
APPENDIX V-2 
CAYEATS PERTAINING TO NUMERICAL RESULTS (Milliman and Robertson Cost-Estimate Study) 
Although the conclusions presented in this report are probably the best estimates available , it should nonetheless be recognized that they are subject to a high degree of uncertainty as well as being v~ry susceptible to misinterpre­tation. It thus becomes eSsential to specify that those conclusions neither be used nor released except in conjunc­tion with a thorough understanding of the following caveats: 
58 
(1) 	
Average premium change indications will not apply uniformly, but rather will vary considerably by type of vehicle insured. Inclusion of motorcyclists under the no-fault law, for example, may be expected to increase premiums greatly for this group of motorists. 

(2) 	
The study did not deal with changes in rating classifica­tion and territorial relativities, which may be substan­tial. Generally speaking, urban areas of a state may be expected to experience results that are more favorable than shown, and rural areas results that are less favorable. 

(3) 	
The cost implications of the input assumptions and supporting data base to the model should not be overlooked nor underestimated. This is particularly true where there is a combination. of uncertainty and cost impact, such as of psychological factors affecting tort action rates and of large first-party _loss projections based on sparse data of limited applicability to no-fault auto insurance~ 

(4) 	
The study deals exclusively with the relativity between the proposed system and the tort liability system currently or most recently effective in the given state 


Prospects for Texas 
with costs for both systems projected to 1974 levels. No attep.tion has been given to possible inadequacy or redundancy of existing premium rate levels. 

(5) 	
The study addresses the automobile insurance system only, and not the effects of changes in that system on other lines of insurance or public institutions or personal risk assumption. 

(6) 	
The findings presented in this report reflect no more than an attempt to predict the relative cost implica­tions of passage of a particular bill, and not the effects of various other influences on automobile insurance premiums. Such influences are many, and include changes in automobile safety features, enforcement of driver ·standards, marketing and · administrative practices, public attitudes toward seat belts and drunk drivers, and general economic conditions, among others. 


Source: Cost Estimate Study of No-Fault Automobile Insurance, prepared for the U.S. Department of Transporta­tion, Milliman and Robertson, Inc., Pasadena, California, November 7, 1973, pp. 12 and 13. 




FOOTNOTES 

1
u.s. Department of Transportation, Automobile Per­
sonal Injury Claims, volume 1, July, 1970, pp. 78, 123. 2Ibid. . 31n every state 8.5 percent of automobile bodily injury 

losses incurred was deducted as an estimate of medical payments benefits. In fact, in 1968, medical payments claims paid were 41 percent of total automobile bodily injury losses incurred (partially explitining why medical payments insurance is more expensive for Texans than for citizens of most other states). When this factor is accounted for in the DOT formula, then Texas . attorneys collected 
28.6 percent-higher than the U.S. average-of gross pay­ments to bodily injury claimants, rather than 18.2 percent as indicated in the DOT study. 
4"Survey of District Courts", Texas Civil Judicial Council, Press Release, March 16, 1973. 
5see, for example, U.S. Department of Transportation, Public Attitudes Toward Auto Insurance and Public Atti­tudes Supplement, 1970, and Thomas C. Morrill, Vice President, State Farm Mutual Automobile Insurance Com­pany, Presentation Before the Senate Antitrust and Monopoly Subcommittee, December 9, 1969. 
6The Sentry Insurance National Opinion Survey: A Survey of Consumer Attitudes in the 'U.S. Towards Auto and Homeowners Insurance, conducted by Louis Harris and Associates, Inc., and The Department of Insurance, The 
Wharton School, University of Pennsylvania, January, 
1974. ' 7Ibid.,p. 67. 8Jbid., p. 66. 9Vernon's Annotated Revised Civil Statutes of the State 
of Texas, art. 2212a, secs. 1,2; VACS, art. 6701 b, sec. 1; VACS, Insurance Code, art. 5.06-3. 
1oyACS, art. 2212a, sec. 1. 
11VACS, art. 670lb, sec. l(a). · 

12cornelius J. Peck, "Comparative Negligence and Auto­mobile Liability Insurance," Michigan Law Review (Volume 58: 1959-1960), pp. 90-129. 
13/bid., p. 110. 
14/bid., pp. 123, 129. . 

15Jerry D. Todd, "The Prospect for Automobile Insur­ance Rate Changes Under Comparative Negligence." Texas BarJoumal, December, 1973,p.1154.16Rule 277, Texas Rules of Civil Procedure. 
17

u.s. Department of Transportation, Automobile Per­sonal/njury Claims,ivolume 1, 1970, p. 3b. 
18Final Report Concerning the Cost Estimating System for No-Fault Automobile Insurance, developed for the National Association of Insurance Commissioners, by Milliman and Robertson, Inc., Consulting Actuaries. August, 1973, p. 7. 
19Jbid. 
59 

20Effects of the new Comparative Negligence and Guest Statute Modification Law, and of the Personal Injury Protection Law which became effective for Texas residents in August, 1973, are not reflected in study results. 
21 Bernard L. Webb, "Cost Considerations Under the National No-Fault Motor Vehicle Insurance Act (S. 354)." Statement before the Committee on the Judiciary of the 
U.S. Senate. January 30, 1974. 22Webb, pp. 4-6. 23calvin H. Brainard, "Statement of Calvin H. Brainard, 
Professor of Finance and Insurance, The University of 
Rhode Island in Opposition to Senate Bill 354, The Federal 
No-Fault Automobile Insurance Act" before the Com­
mittee on Judiciary of the U.S. Senate. February 5, 1974. 
24Inter-Assoc~ation Actuarial Group (IAAG), "A Re­

view of the Milliman and Robertson, Inc., Cost Estimating 
System for No-Fault Automobile Insurance." November 
28, 1973. 
25 Mi!liman and Robertson, Inc., The Final Report Concerning the Cost Estimating System for No-Fault Automobile Insurance, presented to the N.A.I.C. Executive Committee, August 31, 1973, p. 12. 
26IAAG, pp. 3-5. 
27 IAAG, pp. 3-5 . 
'18
"" Webb,p. 8. 
29Webb,p. 9. 
30Brainard, p. 4. 
31 Brainard, p. 4. 
32 Frederick W. Kilbourne, Letter to the Editor of the 


Washington Star News, August 1, 1973. 
33

state Bar of Texas, "The State Bar of Texas lays it on the line about federal m>-fault," advertisement, February, 1974, Texas Monthly, p. 69. · 
34Milliman and Robertson, Inc. A Cost Estimate. Study of No-Fault Insurance, prepared for the U.S. DOT, November 7, 1973. p. 12. 
35 IAAG, p. 6. 
36
Webb, pp. 13-15. 37Brainard, pp. 7-8. 38Brainard, p. 8. 39IAAG,p.10. 401nter-Association Actuarial Group, "A Review of the 

Milliman and Robertson, Inc., Cost Estimating System for No-Fault Automobile Insurance," a report prepared for the American Insurance Association, National Association of Independent Insurers and the American Mutual Insurance Alliance, November, 28, 1973. 
41 calvin Brainard, "A Statement of Calvin H. Brainard, Professor of Finance and Insurance, The University of Rhode Island, In Opposition to Senate Bill 354, The Federal No-Fault Insurance Act," before the Committee of the Judiciary of the United States Senate (Washington, D.c.February 4, 1974). 
42Bernard Webb, "Cost Considerations Under the 

National No-Fault Motor Vehicle Insurance Act (S. 354)," i a statement before the Committee on the Judiciary of the ; United States Senate (Washington, D.C., January 30, 1974). 
60 
CHAPTER VI 

ALTERNATIVES AND CONCLUSIONS 

This study of the feasibility of a no-fault automobile insurance system in Texas, had two pnmary objectives: 
to determine what effect the implementation of a 
no-fault system would have on premiums paid by 
Texas drivers; 
to investigate what benefits would be gained or lost 
under a no-fault system. 

The first problem encountered was that of defining the term no-fault. There is no single system of no-fault insurance; rather there is a wide variety of existing and proposed no-fault plans. In order to ac~omplish the study's objectives, it was therefore necessary to consider these various plans both as they operate elsewhere and as they might potentially operate in Texas. 
The second problem encountered was a lack of reliable data upon which to base solid, unquestionable conclusions. The relative newness of the no-fault plans currently operating in other states, the demographic differences between those states and Texas, and most frustratingly, the manipulation of statistics by both opponents and propo­nents of no-fault, all combined to make much of the available data either non-transferable or meaningless. Ex­treme caution, therefore, was exercised in the use of data throughout the report, and every effort has been made to warn the reader of the inherent weakness of our statistical analyses. 
Since cost is a major concern of those legislating no-fault plans, much time and effort went into the gathering of appropriate data for cost estimations. It should be realized from the start, however, that even should the enactment of a no-fault law produce significant cost savings, they would apply only to one segment of the total automobile insurance premium. Typically, that part of the total premium paid for property damage coverages (i.e., property damage liability, collision, and comprehensive) remains unaffected by no-fault laws. These coverages typically account for about two-thirds of the total premium. Consequently, "bottom line" premium reductions for individuals would depend on the percentage of their total premiums attributable to bodily injury liability and first­party coverages such as medical payments, personal injury protection, and uninsured motorists. 
In order to make cost estimates for no-fault insurance in Texas, the project relied on the Milliman and Robertson Cost Estimating Model for S.354, the proposed National No-Fault Automobile Insurance Act. In our opinion, this is the best model currently available for testing the potential costs of no-fault automobile insurance. Its reliability, however, is limited not only by the caveats that Milliman and Robertson cite but, further, by the vast array of actuarial judgments and data assumptions that are included in the m.odel. For example, Milliman and Robertson data estimated the fatality ratio (the ratio of deaths per 100 
injuries) in Texas for all drivers to be 2.1 percent. 
Department of Public Safety data, however, showed the 
actual 197~ fatality ratio to be approximatley 3 percent 
while that for 1970 was even higher. The difference in these 
two ratios alone, when included in the model, would 
significantly increase the personal injury perrnium pro­
jection over that produced by the Milliman and Robertson 
calculations. Many other estimates and assumptions affect 
Milliman and Robertson's cost estimations significantly. 
For these reasons, we conclude that we cannot justify 
recommending a switch to no-fault on the basis of premium 
reduction alone. 
The more important question, then, becomes that of 

benefits gained · or lost as a result of a no-fault plan. In 
Chapter I the desirable characteristics of a good automobile 
insurance. system are listed. They include: (1) It should 
compensate a maximum number of injury victims; (2) it 
should provide adequate and just compensation; (3) it 
should pay benefits promptly; (4) it should be economi­
cally efficient-Le., return a high percentage of total 
premiums to victims; (5) it should provide for correlation 
with other insurance; (6) it should guarantee availability of 
reliable coverage; (7) it should encourage prevention and 
rehabilitation; and (8) it should be easily understood by 
insurance consumers and providers alike. The benefits lost 
and gained under reform proposals will be discussed in 
terms of these characteristics and how these characteristics 
are or are not a part of the current tort liability system. 
Following much study and discussion, we have limited 

our reform alternatives to two plans; one, a modified 
no-fault system, and the other a modified tort liability 
61 

system. The features of the two plans are: 
PROPOSED MODIFIED NO-FAULT PLAN 

I. Compulsory first-party no-fault (PIP) with $2,500 eco­nomic loss protection minimum. 
2. 	
Compulsory liability coverage for bodily injury (I 0/20,000) enforceable by fines. 

3. 
Automobile insurance primary. 

4. 	
First-party no-fault benefits are to be mandatory and are to be the initial source of loss recovery. 

5. 	
Subrogation of first-party benefits is to be allowed. 


6_ 	Lawsuits are permitted for economic loss recovery over $2,500. 
7. 	
General damage lawsuits are permitted for loss exceeding medical cost threshold, or cases of dismemberment, permanent disfiguration, or death. 

8. 
Duplicate payments from within the automobile insur­ance system are not allowed. 

9. 	
A penalty for delinquent payment of first-party benefits assessed against the insurer (1.5 percent per month after 30 days). 


PROPOSED MODIFIED TORT LIABILITY PLAN 

1. 
Compulsory PIP with $2,500 minimum. 

2. 
Compulsory liability coverage for bodily injury (10/20) enforceable by fines. 

3. 
Automobile insurance primary. 

4. 	
First-party (PIP) benefits are to be compulsory and are to be the initial source of loss recovery . 

5. 	
Subrogation of first-party benefits is to be allowed. 

6. 	
Lawsuits for economic losses are permitted only for amounts in excess of $2,500. 

7. 	
Lawsuits for general damages are unrestricted. However, in such suits the "Delaware evidentiary rule" will apply. Under this rule damages for which compensation is available under required first party coverages is inadmis­sible evidence. 

8. 
Duplicate payments from within the automobile insur­ance system are not allowed. 

9. 
A penalty for delinquent payment of first-party benefits assessed against the insurer (1 .5 percent per month after 30 days). 


Compensation to Victims 
Weaknesses in present financial responsibility laws in many cases allow innocent victims in automobile accidents to go totally without compensation for their losses. Furthermore , unless the at-fault drivers have purchased first-party automobile coverage, they receive no compensa­tion for their losses. If they have not purchased such first-party automobile coverage, they must rely on other forms of insurance or personal resources to cover their losses. Ultimately, we believe that a good automobile insurance system should seek to assure that all automobile accident victims receive compensation for their losses. For this reason, first-party coverage should be made compulsory regardless of whether the reform plan chosen is an improvement of the tort liability system or a modified no-fault plan. 
Under the proposed modified no-fault plan described here, beyond compulsory first-party coverage of $2,500, residual liability coverage should be required up to at least the present 10/20 bodily injury limits. Serious considera­tions should be given to raising these limits to bring them more in line with current costs and inflationary trends. 
The improved tort liability system would also feature both compulsory first-party (PIP) and tort liability cover­age. The requirement that PIP be the initial source of recovery for economic losses under PIP limits would, in many cases, make tort liability coverage residual (i.e., applicable only when losses are above $2,500) as in the case of modified no-fault. The difference between this system and the modified no-fault plan is that in those instances where suits are filed for pain and suffering, tort liability coverage becomes the primary provider of benefits. 
In summary, our belief that an insurance system should ideally seek to compensate as many accident victims as possible prompts the conclusion that both first-party and residual tort liability benefits should be made compulsory. Such a requirement should provide adequate coverage in most automobile injury cases. Since a compulsory insurance requirement will not likely result in 100 percent of Texas' drivers purchasing (PIP) and liability coverage, however, there will still be some innocent victims of uninsured motorists who will go uncompensated for their losses. However, uninsured motorist coverage is available for such cases. To the extent that compulsory liability is successful in increasing the percentage of insured motorists, the already minimal uninsured motorist premium should de­crease even further. 
Adequate and Just Compensation 
In 	Chapter I it was stated that an insurance system 
should seek not only to compensate as many victims as 
possible, but also to compensate them adequately and 
justly. The U.S. Department of Transportation closed 
claims study as well as our own survey showed that small 
losses are often overcompensated. Both the modified 
no-fault and the modified tort plans would provide more 
adequate and just compensation. 
Overcompensation of accident victims is said to be 
caused by the threat of suit for pain and suffering. A 
modified no-fault plan would not allow a victim to sue for 
pain and suffering unless he first incurs a certain amount of 
medical expenses. Consequently, in those cases where the 
victim does not exceed the medical expense threshold, the 

62 
Alternatives & Conclusions 

threat is removed. For such a plan to be effective, this threshold must not be too low, however, for in that case there is an incentive for claimants to overutilize or even fake medical services to get above the threshold. The same circumstances would surround a claim filed for PIP benefits under the modified tort system. However, under that system the victim can still seek tort remedy for general damages. 
As far as undercompensation of large losses is concerned, neither modified no-fault nor modified tort liability could drastically change the present trend. Difficulties in mea­suring large on-going losses, reluctance of juries to make adequate settlement, contingency fee arrangements and inadequate insurance limits will continue to cause under­compensation. 
Quick Delivery ofBenefits 
Another area in which the tort system falls short of the desirable characteristics of an automobile insurance repara­tions system is the delay in the delivery of benefits to accident victims. Both the modified no-fault plan and the modified tort liability plan would provide speedier delivery of benefits for out-of-pocket econo.mic losses through first-party payments, penalties for delinquency in payment, and expected reduction in time-consuming tort actions. The higher the threshold, the lesser the number of tort actions allowed in the system, and, therefore, the greater the number of claims settled quickly. This does not, however, speak to the adequacy and fairness of those benefits. 
Economic Efficiency­
Retum on Premium Dollar 
One of the major criticisms of the' current automobile insurance system is the apparent waste involved in the delivery of benefits to injury victims. Natipnwide, only 42 cents out of each bodily injury premium dollar finds its way back into the hands of claimants and only 14 cents of this is for non-duplicated out-of-pocket costs, according to estimates made by the U.S. Senate Antitrust and Monopoly Committee. While data specifically for Texas was unavail­able, the total nationwide bodily injury premiums dollar 
breakdown is :1  
Return to claimants Pain and Suffering Duplicative Coverage Economic Benefits Legal Costs Plaintiff Lawyers Court Costs Adjustment Costs Company Expenses (Sales, Overhead, Taxes)  .42 .21 .07 .14 .18 .16 .02 .14 .26  
TOTAL  $1.00  

Return on premium dollars for health insurance and particularly group insurance and social security are con­siderably higher. So, when defining economic efficiency strictly from the standpoint of percentage return to victims per premium dollar paid into the system, automobile bodily injury liability insurance is not as efficient as the above forms of first-party insurance. 
No-fault proponents argue that their system of first­party payments could more closely approach the efficiency levels of other first-party coverages. Assume, for instance, that the modified no-fault plan described earlier had a threshold which would eliminate one-half the dollars presently going to legal expenses. The exact dollar amount of this threshold is not important provided it would eliminate one-half the legal expenses of the current system. The bodily injury breakdown stated above might be revised to show only 9 cents going to legal expenses while benefits returned might be expected to increase to 51 cents. Adjustment costs might also be expected to decrease somewhat with first-party settlements but such a decrease might be offset to a degree by allowance for subrogation. 
The modified tort-liability system would have somewhat similar results. The requirement that PIP be the initial source of recovery for economic losses below $2,500 would remove those claims for the tort system, thereby reducing somewhat the legal costs of the system. It would not, however, reduce the costs as much as the proposed modified no-fault plan because of the absence of any limitation on the right to sue for general damages. 
Co"elation with Other Forms ofInsurance 
Under the existing Texas PIP law, an injury victim can recover his own PIP benefits, and then recover tort benefits for the same injury claim from the wrongdoer. Such double payment is both inequitable and costly. Both proposed systems would alleviate this problem with their allqwance for subrogation by the insurance companies of not-at-fault drivers for first-party benefits paid to their insureds. Tort recovery by the injury victim for economic losses would be limited to those cases where losses exceed first-party coverage. 
There is also duplication of coverage between automo­bile insurance and other forms of insurance. Such duplica­tion works to increase the costs of both coverages and should be reduced or eliminated where possible. It is our conclusion that: 
the advantages of the current automobile insurance 
rating system should be preserved; 
that insurance which individuals are forced to buy 
should be the one which must pay benefits. 

Therefore, it is recommended that, under a system of compulsory automobile insurance, the automobile insur­ance benefits should be primary over other forms of 
63 
insurance, with limited exceptions, such as workmen's compensation and government-provided military benefits. If these existing governmental programs, which are cur­rently primary coverages, were made excess coverages, the cost of automobile insurance would rise considerably while employers' and the federal government's cost would be reduced . 
Availability ofReliable Coverage 
The ready availability of automobile insurance to all who need it has been a problem since the institution of financial responsibility laws, if not before. The problem is compounded whenever insurance is made compulsory, however, 
According to studies conducted for the U.S. Department of Transportation by one of the authors of this study, Jerry 
D. Todd, under the current system in Texas coverage is generally available even for the very high-risk driver. The Texas Automobile Insurance Plan and several county mutuals operating essentially outside the state's rate regula­tory system for automobile insurers assure accessibility to insurance markets for practically anyone seeking automo­bile insurance. The costs, however, are extremely high and tend to make such coverage unaffordable to many drivers. 
Only a very small percentage of the state's drivers are insured in either of these ways. A shift to compulsory insurance will likely bring a significant increase in numbers into the "high risk" market. Even the county mutuals are selective, and the assigned risk pool guarantees only liability insurance, not other coverages needed by motorists. Con­sequently, it is our conclusion that, at the minimum, the current assigned-risk plan should guarantee availability of liability insurance and PIP coverage to all motorists who cannot otherwise obtain necessary coverage from the voluntary market. Further study· is needed in this area to determine the best means of coping with the high-risk driver. 
Emphasis on Rehabilitation and Prevention 
Proponents of the tort system often claim that liability 
based on negligence is a deterrent to careless driving. It is 
argued that drivers will be more careless if they are not 
responsible for their actions. Furthermore, rating under a 
no-fault system, it is said, would penalize careful low-risk 
drivers while in effect rewarding the causers of accidents. 
Under either alternative proposed here-modified no­
fault or modified tort-the rating structure or classification 
system would remain essentially the same as it is now, 
based partially on driving records. Thus, those drivers who 
receive traffic citations and convictions will pay higher rates 
than those free of such violations. This solution is more 
equitable than the alternatives, and if such incentives are 
present in the driving situation, they will encourage safer driving habits. Adjustments are needed, however, because under this system, insureds paying the highest rates may not be the same as those receiving the most benefits. Likewise, insurers receiving low rates from a group of insureds may be forced to pay high benefits to them even though they are not at-fault drivers. The subrogation process permits such adjustment between insurers. 
While there has been no real evidence to show causality between the exposure to liability suit and driving behavior, if such a relationship exists the modified tort liability system would preserve it. The individual driver, in that case, is still fully liable for general damages. 
The existence of compulsory first-party benefits should increase rehabilitation efforts for two reasons. First, for both alternatives the incentive to prolong recovery is reduced. The insurer is in fact penalized if it delays payment. The insured is able to recover simply and directly the full amount of his economic losses. The need to negotiate a settlement based on probabilities of fault are reduced to those cases involving large sums. Second, by quickly disbursing funds to the insured and encouraging him to seek rehabilitation, the insurer is better able to reduce long-run payments and settlements. In some cases at present, immediate rehabilitation may actually be dis­couraged by the plaintiff's attorney on the grounds that it would reduce the amount of settlement. 
Public Understanding 
Either system, modified tort liability or modified no­fault, should prove easier to understand for the insured and provider than the present system, because of the stress of first-party coverage. When an insured is involved in an accident, the general tendency is to frrst contact his own insurer, which in fact, he is required to do in most cases under the conditions of his contract. In most cases, it should prove far simpler and more understandable for a policyholder to have his own insurer make restitution for his economic loss rather than track down the other party (which may be difficult itself in this day of widespread interstate travel), negotiate with his insurance company, wonder whether any settlement offer received from such insurer is a fair one, and whether to hire an attorney. Of course, in all cases involving serious injury, the insured will need to pursue these avenues for adequate indemnification. There may continue to be misunderstandings about what and how much is covered, in some cases determinable only by legal action against one's own insurer, but such cases are present in the current system and are likely to be present under any new plan. 
Along with public understanding, public acceptance is 
very important. If the amount of coverage required by law, 
for example, is inadequate or inequitable, increasing frustra­
tion and eventual lawsuits will result, making the system 

64 

less effective. For this reason, it is proposed that the required $2,500 PIP limits or whatever other limits are adopted be adjusted upward on an automatic basis as the cost of living increases. It is also suggested that the maximum wage remuneration be sufficiently high to allow at least two-thirds of the working population to recover at least two-thirds of their wages~ Again this maximum figure should be subject to automatic adjustment upward to overcome the problems that have plagued workmen's compensation claimants over the past decades. Optional coverages should make available increased limits. 
General Conclusions 
Having discussed all the characteristics of a desirable 

reparation system separately, it is now necessary to discuss 
them collectively by what we consider the most important 
overall standard of excellence-a high benefits/cost ratio. 
Other things equal, that system is best which produces the 
highest level of benefits in relation to its costs. ) 
Mention has already been made of the fact that no-fault 

automobile insurance cannot be justified on the basis of 
premiums reduction alone. But premiums and cost are not 
synonomous terms. If two individuals pay the same 
premium for different coverages, their costs are not the 
same. In fact, one individual could pay a higher premium 
than the other and actually have a lower cost, if his 

coverage were greater than the differential in premium. The 
concept of relative cost, then, is measured only in relation 
to benefits. If one dollar buys two units of some good or 
service while two dollars buys · five units, the second 
alternative is the more costly one in terms of absolute 
dollar outlay but is cheaper in terms of cost per unit. In 
fact, of course, both measurements are relevant to our 
analysis. However, to say that a proposed reparations 
system does not produce a premium reduction (often 
wrongly referred to as a "cost saving") is not to condemn 
it, especially where the benefits are increased while the 
premium remains fixed or where the benefits are increased 
by a greater amount than the increase in premiums. 
First-Party Payments. The principle of first-party pay­

ment of benefits has been emphasized and has many 
advantages. First-party payments provide compensation to 
more victims, delivers those benefits more promptly, and 
allows more efficiency in delivery of those benefits than 
does the present system. For these reasons, first-party 
coverage was made compulsory in both of the alternatives 
presented here. The $2,500 level of first-party coverage was 
chosen because currently the bulk of claims in Texas are for 
less than this amount and this would be paid under a 
prompt and efficient first-party system. Department of 
Public Safety data show that in 1973, 90 percent of all 
automobile injury claims were for less .than the $2,500. As 
noted earlier, this figure should be adjusted upward over 
Alternatives & Conclusions 

time to reflect changes in medical care costs and average wages. 
Compulsory Liability at 10/20 Level. While embodying the first-party principle fully, it is also felt that people should be responsible for their actions. Therefore, an attempt has been made to strengthen the concept of financial responsibility by including, under both alterna­tives, compulsory 10/20,000 bodily injury liability insur­ance, enforceable by spot-check fines greater than the cost of annual compulsory insurance premiums. Such a measure should cause only small administrative difficulties and would provide a strong incentive to obtain the minimum compulsory coverage. The required coverage, though adding some administrative worries, would strengthen financial responsibility, by reducing the likelihood of occurrence of an injury for which there exists no means of compensation, and would provide more adequate compensation of large losses. 
It has been argued that compulsory liability coverage would cause insurance premiums to increase because (a) more accidents would be insured and (b) accident victims, knowing that most drivers have liability insurance, would have greater tendencies to file suits. The requirement that economic losses under $2,500 be collected from first-party coverage should greatly curb any such increase in the propensity to sue for economic loss. As for general damages, the modified no-fault plan would eliminate general damage suits except in cases where medical losses exceed a designated threshold, dismemberment, permanent disfigurement, or death. The modified tort liability plan, while not restricting the right to sue for general damages does severely limit the ability to prove general damage losses. The evidentiary rule requirement, as practiced in Delaware, would disallow the introduction of evidence showing economic losses into a general damage proceeding unless such economic losses exceeded the specified thresh­old. Thus, the general damage plaintiff would be forced to document his pain and suffering in ways other than through evidence regarding extravagant economic losses. For these reasons, it is concluded that compulsion as recommended in both plans will not cause a great increase in the number of tort actions or a resulting increase in rates. 
It is fully realized that a compulsory insurance law will not bring about 100 percent compliance. In fact, according to New York's experiences, increases in costs and adminis­trative efforts to enforce compliance are not rewarded by proportionate increases in insured motorists, and even then 100 percent will not be reached. Consequently, there is still need for uninsured motorist coverage or optional higher­than-required PIP limits. 
At the same time, there are those who will be unable to afford the high cost of insurance. It was not considered a part of this study, however, to determine the solution to the age-old problem of what to do about those drivers of 
65 
limited means who would face considerable hardship in meeting their legal financial responsibility. 
Primacy. As stated earlier in this chapter, the insurance which people are forced to buy should be the insurance that is forced to pay benefits. In both alternative plans, it is recommended that automobile insurance be the primary source of recovery for automobile-related injury losses. In so doing, provision has been made for the elimination of duplicative benefits from different forms of insurance and allowance made for the internalization of automobile insurance industry costs. 
Mandatory Recovery. Provision is made for first-party benefits under both alternatives, and. it is also mandated that those benefits be the initial source of loss recovery. The first-party system of payment cannot function at maximum effectiveness without this requirement. 
Subrogation. The purpose of providing for subrogation in both plans is to derive two jtnportant benefits. First, subrogation of first-party payments would eliminate the double payment of benefits from both first-party and liability coverages which presently takes place under the Texas PIP law. Secondly, it will allow the present rating structure to remain relatively unchanged. Individual rates would continue to be based on the risk posed to the insurance company by the individual driver in terms of his tendencies to cause accidents. 
Restriction of Lawsuits. Both of the plans under consideration would limit the number of tort actions. The difference, of course, is in their allowance for pain-and­suffering suits. The modified no-fault plan severely limits the right to general damage action. The modified tort liability, however, does not limit this right, and under it injury victims may file suits for pain and suffering regardless of the circumstances of their losses, but their court cases are restricted by the Delaware evidentiary rule. 
Penalty for Delayed Payment. No-fault opponents argue 
that in the absence of the threat of suits for pain and 
suffering, insurance companies will not deal swiftly with 
their insureds. The provision for a 1.5 percent monthly 
penalty to be charged against the insurance company after 
30 days should provide the incentive needed to offset the 
loss of the general damage threat. 

Other Issues. In investigating the broader and more fundamental issues regarding no-fault insurance, some lesser issues have been left to other researchers. They are mentioned here so that future policymakers will give them adequate consideration in structuring any proposed no-fault legislation or related bills. 
First, it has been claimed that the inclusion of commer­cial vehicles under a no-fault law would result in higher costs for private passengers and lower costs for commercial vehicles. At least one study has recommended that commer­cial vehicle owners foot the whole bill in accidents involving their vehicles to eliminate this problem.2 
Drunken drivers, those in the act of committing felonies, and those intentionally causing accidents have not been given the same protection against liability suit that others have under some no-fault plans. It is argued that to expose them to full liability will discourage such actions. Under both of our proposals, no recommendations are made for this special class of drivers. 
Without a federal law, each out-of-state driver will likely 

have insurance which does not conform to the state law. 
This problem was not specifically addressed in the study, 

but is handled in other states typically by an endorsement 
which makes the policy conform to each state's laws when 
the driver is in that state. 
Summary and Recommendation. As we have discussed 
the features and respective benefits and costs of each of the 
two proposed plans, it is clear that in most cases the 
benefits and costs of the two systems are very similar. 
There is, however, one basic difference in their treatment of 
general damage suits. This study recognizes that real pain 
and suffering do exist and that recovery for such pain and 
suffering should be permitted. At the same time, the 
abusive overuse of this right should be discouraged. It is 
probably true that severe restriction on the right to 
recovery for pain and suffering, as provided for in the 
modified no-fault plan, would result in some cost savings, 
but it is doubtful that these modest savings justify 
surrendering the right to sue for pain and suffering where 
they legitimately exist. It is, therefore, the recommendation 
of this study that the modified tort liability plan be 
adopted for implementation in Texas. 

FOOTNOTES 

1U.S. Congressional Record, 92nd Congress, 1st Sess., New York Insurance Department, February 12, 1970, p. 1971, vol.117,no. 22. 91. 
2Automobile fnsurance ...For Whose Benefit?, State of 

66 




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-Williizmson v. Lee Optical of Okllzhoma, Inc., 348 U.S. 483 (1955). 
Testimony 
Brainard, Calvin H. "Statement in Opposition to Senate Bill States Senate. December 4, 1973. 354, The Federal No-Fault Automobile Insurance Act," Jeffers, Leroy. "Statement in Opposition to Senate Bill ­before the Committee on the Judiciary of the United 354, The Federal No-Fault Liability Insurance Act," States Senate. February 5, 1974. before the Committee on Commerce . of the United 
Griswold, Erwin N. Statement before the Committee on the States Senate. April 11, 1973. Judiciary of the United States Senate. January 30, 1974. Webb, Bernard L. "Cost Considerations Under the National 
Jeffers, Leroy. "Statement in Opposition to Senate Bill No-Fault Motor Vehicle Insurance Act (S.354)." A 354, The Federal No-Fault Automobile Insurance Act," statement before the Committee on the Judiciary of the before the Committee on the Judiciary of the United United States Senate. January 30, 1974. 
69 

Speeches 
Fournier, Frank W. Executive Director of the Automobile tive." An address before the National Conference on Accident Compensation Administration of Puerto Rico. Uniform State Laws. 1972. An Address to the National No-Fault Conference spon­Ingram, John R. Commissioner of Insurance, State of North sored by the Texas Association of Insurance Agents. Carolina. An address before the Communications Dallas, Texas, July 22, 1971. Workers of America, February 5, 1974. 
Keeton, Robert E. "No-Fault Developments in Perspec-

Telephone Interviews 
Bartley, Nell. Medical Insurance Department, Brackenridge McDonald, Steve. A legal counsel with Blue Cross/Blue Hospital, Austin, Texas. Telephone interview, April 22, Shield of Texas. Telephone intel'View, April 23, 1974. 1974. Puryear, Jack. Nieman, Hanks, and Puryear, an Austin 
Hurt, Mildred. Texas State Board of Insurance. Telephone Insurance Company. Telephone interview, April 22, interview, April 22, 1974. 1974. Jenkins, Shirley. Boon-Chapman Insurance Managers of Washkoviac, Dennis. Royal Glove Insurance of Austin. Austin. Telephone interview, April 22, 1974. Telephone interview, April 22, 1974. 
Personal Interviews 
Frost, Robert. Staff Counsel, U.S. Senate · Commerce Walsh, Richard. Director, Office of Projects and Planning, Committee, Washington, D.C. Novem.ber 14, 1973. U.S. Department of Transportation, Washington, D.C. Graves, Janet. Milliman and Robertson, Consulting Actu­November 14, 1973. aries, Seattle, Washington. March, 1974. 
Guest Speakers 
Conner, Paul. Attorney-at-law, Austin, Texas. Formerly General Counsel, State Board of Insurance. Clines, Robert P. General Counsel, State Board of Insur· ance, Austin, Texas. November 20, 1973. 
Eisenberg, Jack, Wayne Fisher, and Windle Turley. Attor­neys-at-law, Texas Trial Lawyers Association. December 4, 1973. Howell, Hilton H. Attorney-at-law, Waco, Texas. President­Elect, Texas Association of Defense Counsel. February 5, 1974. 
Jeffers, Leroy. Attorney-at-law, Houston, Texas. President, State Bar of Texas, December 18, 1973. 
Perry, James. Law Department, State Farm Insurance Companies, Bloomington, Illinois. December 11, 1973. Roerink, Garrett M. Vice-President, Ranger Insurance 
Company, Houston, Texas. January 22, 1974. Tucker, Frank. Regional Vice-President, American Insur­ance Association, Dallas, Texas. November 13, 1973. 

70 
APPENDIX A 

COMPULSION/COMPLIANCE IN 
AUTOMOBILE INSURANCE: 
Survey Questionnaire · 

Lyndon B. Johnson School of Public Affairs 
The University of Texas at Austin 
Austin, Texas 78712 

STATE: 

1. Type of program. Indicate in the spaces provided the type of compulsory automobile insurance program you have (i.e., Bodily Injury 
Liability, Personal Injury Protection, etc.), the date that program was instituted, and the minimum amount of coverage required. 
Type of Program  Date Instituted  MinimumCoverage Requirea  





2. Enforcement and Administration. a) Does the insurance department administer your compulsory program? Yes __No __. Ifnot, who does? 
b) Indicate below what change, if any, occurred in the number of personnel and in administrative costs as a result of the program. 
Type of 
Administrative ! Costs 

AdministrativeICosts 
Number of Personnel 
Number of Personnel 
Program 

the Year After 
the Year Before 
Year Before 
Year After 
( 

c) What methods are used for discovery of noncompliance? 
d) Are penalties imposed for noncompliance? Yes __No__. Ifyes, please list the penalties. 
71 
3. 
Indicate the total number of cars and drivers in your state each of the five years before the program and each of the five years (ifapplicable) after the program. 

4. 
Uninsured motorists. a) In your opinion, why do some drivers remain without coverage? 


Year  Cars  Drivers  Cars Insured  Drivers Insured  






b) Do you expect about the same number of uninsured motorists next year? Yes __No__. Why? 
c) What programs do you have to cover uninsured motorists? 

S. Describe briefly your program for guaranteeing the availability of insurance to high risk motorists. 
6. 
Out-of-state motorists. a) Describe briefly your law with respect to out-of-state motorists. 

b) Describe briefly how residents are protected from uninsured out-of-state motorists, 	if not covered in a previous answer. 

7. 	
Indicate any other problems which you have encountered in attempting to administer your compulsory insurance law. 


a) Why, in your opinion, do these problems exist? 
b) What possible solutions to these problems have you undertaken or would you suggest? 

8. Other comments or suggestions. 
72 
Survey Questionnaire 

9. YourNarne·----------------------------.,..-----------------­
Title______________________'---------------------------~ 
Department'-------------..,......------------------------------~ 
Address._______________________________________________ 
Please mail the complete questionnaire to: 
Ms. Mary Lu Barras 
Automobile Insurance Seminar 
Lyndon B. Johnson School of Public Affairs, 
The University of Texas at Austin 
Drawer Y, University Station 
Austin, Texas 78712 

73 

APPENDIX B 
ACCIDENT QUESTIONNAIRE 

Lyndon B. Johnson School of Public Affairs 
The University of Texas at Austin 
Drawer Y, University Station 
Austin, Texas 78712 

A. 	DETAILS OF THE ACCIDENT Yes No 
1. 	Were you: 

a. 	
riding in a privately owned automobile? 

b. 
riding in a commercial vehicle (taxi, etc.) 

c. 	
riding on a motorcycle 


d. 
riding 	in a publicly owned vehicle (bus, etc.) 

e. 	
a non-occupant (pedestrian or bicycle rider) 


2. 	At the time of the accident, were you: 
a. 	
the driver 

b. 	
a passenger 



3. 	How many cars were involved in the accident? 
a. 	
l car 

b. 
More than one 



4. 	Who was determined to be at fault in the 
accident? 

a. 
you 

b. 
another party 

c. 
fault unclear 



B. 	
MEDICAL COSTS Yes No 

5. 	
As a result of this accident, did you receive 
treatment by a doctor? 


6. 	
How much were your hospital costs? 
$0-$100_, $101-$500_, $501-$1000_, 




7. 	
Other than any hospital bill, how much were the total medical costs for your care, including any amount paid by ·insurance (include cost of doctors, surgeon, dentists, private nurse, ambulance, medicine, special equipment such as wheel chairs, etc.)? (Check one) 


over $1000_. 
74 

$0-$100_, $101-$500_, $501.-$1000_, 
over $1 ooo__ . 

8. 	If you were employed at the time of the accident, how long were you kept from work as a result of the accident? 
0 days_, 1day-7days_,8-14 d~ys_, 
15-30 days_, over 30 days_. 

9. 	How much money in wages did you lose as a result of the accident? 
$0-$100_, $101-$500_, $501·$1000_, 
over $1000_. 

10. 	If you were not employed at the time of the accident, how long were you kept from your usual activities because of the accident? 
0 days_, 1 day-7days_, 8-14 days_, 
15-30 days_, over 30 days_. 

11. 	
Did the accident leave yoµ with any permanent impairment which affects your ability to work or carry on other activities, such as school, housework or the 

like? __Yes __No. 


12. 
Did the accident leave you with any permanent serious disfigurement? Yes __No __. 

13. 
What amount (in dollars) of your hospital ~dmedical bills was paid by: 

a. 	
Health insurance, including Medicare----­

b. 
Workmen's compensation 


c. 	
Contributions and charity _________ 

d. 	
Automobile insurance __________ 

e. 	
Free medical expenses (military, etc.) _____ 

f. 	
Your own pocket (do not include anything for which you were reimbursed) ________ 

g. 	
Other (please specify)----'-------­



14. 	
What is the total amount of medical bills still unpaid? 


Accident Questionnaire 
15. 	What sources did you use to meet your expenses, other than money from your own pocket? .· 
a. 	
Savings __ 

b. 	
Loan__ 

c. 	
From sale of personal merchandise or property-­

d. 	
Other (please specify) __ 


16. 
Did you file a claim against someone or their insurance company for medical expenses or loss of income (not including car damage)? ___ 

17. 	
What was the amount of the claim? $ ____.____ 

18. 	
How much money did you receive (before deducting lawyer and other legal fees)? $ ________ 

19. 	
How soon after the accident was the first offer made to you to settle the claim? 

less than 10 days_, 11-30 days_, over 30 days_ 

20. 
Did the insurance company make any advance pay­ments or pay any of the bills resulting from your injury before final settlement? 


Yes__No_. lfyes,howmuch? $______ 
D. 	LAWSUITS 
21: 	Was a lawsuit for damages ever filed on your behalf as a 
result of an injury you received in this accident? __Yes__No 
22. 
Did you hire a lawyer?_· _Yes __No 

23. 	
What agreement have you made with your lawyer regarding his fee: 


a. 	Percentage of the settlement __ 
b. Retainer or saiary __ l\ c. Other (Specify) __ 
24. 	a. Was the case settled before the trial Ye!No started? .-_ 
b. 	Was the case settled before the trial was Yes No 
completed? -·-· c.was the cue Settied by the triiii verdict? Yes No 
25. What were.your total legal expenses? $_____ 
75 

26. At the time of the accident, did you have liability  pany as a result of the accident? __Ye& __No  
insurance, that is, insurance that will pay expenses of  
the other driver if you are at fault and damage his car  28. Suppose you had a choice of two kinds of auto insur­ 
or injure him? __Yes__ No  ance that would.cost about the same, which would you  
prefer?  
27. Was claim made against you or your insurance com- 
TYPEX  TYPEY  

Pays for. ... 
Requires . .. . 
Payment by .... 

All expenses of the accident (including medical costs and loss of earnings). 
Sometimes an additional amount for pain and suffering. 
Establishing proof that other driver was at fault. 
Right to sue for auto injuries. 

The driver found at fault or his insurance company. 
All expenses of the accident (including medical costs and loss of earnings). 
No amount for pain and suffering. 
No need to establish proof that other 
driver was at fault. 
No right to sue for auto injuries. 
Insurance company of injured person. 


TypeY __ Don't Know __
TypeX -­

76