No Fault at Fault in Debate About Auto Insurance

On a warm Florida Friday night, a car full of teenagers fighting over what radio station to listen to breezes through a red light and accidentally smashes broadside into a car carrying a husband and wife headed home from an emergency-room visit with their infant.

Under Florida’s no-fault auto insurance laws, no one is to blame in this accident. Instead, each driver’s insurance company covers his or her losses. The fact that one car ran a red light does not affect the settlement of losses; it only unleashes the trial lawyers who work the system for their own gain.

Compared with personal responsibility insurance, the norm in most states, Florida’s no-fault system is deeply flawed. Under a personal responsibility system, the driver not at fault in an accident can sue both the driver at fault and that driver’s insurance company to recover any losses.

Florida introduced its no-fault policy in 1972 to trim the number of frivolous lawsuits, speed up the payout process and keep insurance premiums to a minimum. But the experiment has been a failure.

Florida’s no-fault system does speed along the payout process, but it has not reduced lawsuits and has led to increased insurance fraud. Worse, Florida’s safest drivers feel the sting of higher premiums as insurance companies’ cost of doing business continues to rise under Florida’s no-fault system.

Under no-fault systems, insurers must pay damages for all accidents up to a monetary threshold. In Florida, that is $10,000.

The problem with this is that some unscrupulous doctors and trial lawyers see this $10,000 as a kind of “slush fund” because insurance companies’ payment on those damages is compulsory.

Doctors and lawyers are able to inflate their expenses up to the $10,000 threshold and receive payouts from insurers. This, of course, increases the operating costs of insurance companies and raises insurance premiums. Consumers are paying to beef up the coffers of these doctors and trial lawyers.

Once the $10,000 threshold is passed, Florida’s no-fault system reverts to a traditional tort system, under which an accident victim can then sue the other driver and the other driver’s insurance company for compensation. This, of course, brings in more money for trial lawyers by way of increased litigation and legal fees, creating a strong incentive to push as many cases as possible past the threshold in pursuit of even larger settlements.

The state’s no-fault system has left Floridians with some of the highest insurance premiums in the nation. The very nature of no-fault auto insurance contributes to this.

According to a study issued by the National Association of Insurance Commissioners, seven out of the 10 highest premiums are in no-fault auto insurance states, including Florida. This is partly due to doctors’ and lawyers’ ability to raise and collect fees from insurers up to that $10,000 threshold.

Florida lawmakers gave hope to drivers when they wisely included a provision in a 2003 legislative package that took the no-fault system off the books in 2007. Unfortunately, legislators in Tallahassee recently voted to extend the program until 2009.

It is now up to Gov. Jeb Bush to veto the extension and the law will simply go away. This would be great news for Florida drivers, who have the chance of seeing their premiums drop if today’s broken system is abandoned.

Other states dropping no-fault insurance have seen a resounding success. For example, Colorado abandoned its no-fault system in 2003 in favor of a traditional system — for largely the same reasons that currently plague Florida.

By 2005 the reformed system had brought the average cost of auto insurance in Colorado down by 19.5 percent to 27.1 percent, according to the NAIC. But trial lawyers and the health-care industry that sop up the resources dished out by Florida’s no-fault system are waging a war to save their golden goose.

Common-sense reform gave Colorado drivers relief from an unfair and costly insurance system. Floridians are in the same boat.

Gov. Bush has an opportunity to reject the no-fault legislation and make Florida’s car insurance headaches a thing of the past.

John Hallman is the Florida state director for FreedomWorks, a grassroots activist organization with 800,000 members across the country and 56,000 members in Florida fighting for lower taxes, less government and more freedom.