By NORA NEWMAN JURGENS

Liability insurance

Scorecard for the final inning

THE so-called crisis in liability insurance, the biggest game in town this legislative season, has reached the point where you need a program to keep track of the players.

The main players will of course be the legislators. But there is no shortage of coaches, basically representing two teams — those businesses and local governments who believe only a major overhaul of the state's civil justice system will solve the problem, and the consumer advocates and trial lawyers who blame the insurance industry for manufacturing its own crisis.

On the surface, the opposing sides appear to be the insurance industry v. the civil justice system. But, as in any legislative game, there are always more than two players. Questions of affordability and availability are tied up with questions of fairness and equity. Faced with skyrocketing premiums and shrinking coverage, businesses and local governments say they do not want to deny anyone access to the courts — they just want to set limits on what the injured party will receive.

On the opposite side are the trial lawyers and consumer rights groups who say they represent those who have suffered because of carelessness on the part of businesses and local governments. Any changes in the civil justice system, they believe, will impede access to the courts, prevent full recovery and make it virtually impossible to prove that a business, or a local unit of government, or a nonprofit entity, was negligent.

The debate is not unique to Illinois. Every state in the union is faced with the same problems. Responding to pressures for some uniformity in civil law, the federal government has also been looking at the issue — adding yet another player and another dimension to the game.

In Illinois, there are two teams going to bat for tort reform, representing businesses and local governments. The Illinois Coalition on the Insurance Crisis (ICIC) is being managed by the Illinois Manufacturers' Association and represents 115 trade associations and local units of government. The other team is the Illinois State Chamber of Commerce (ISCC), which represents about 300 local chambers of commerce across the state. The chamber has a similar game plan for solving the crisis, but has kept a separate camp. Lester W. Brann Jr., ISCC president, said the chamber has not joined with the ICIC because the coalition excludes insurance companies, many of which belong to the ISCC. Lawyers also belong to the state chamber, Brann, who is a lawyer, pointed out.

Both organizations have developed comprehensive packages aimed at reforming the state's civil justice system. In addition, the ICIC is pushing for immunity from civil suits for local units of government and their employees. Both the ICIC and the ISCC call for the creation of a Comparative Fault Act, abolishing the concept of joint and several liability, under which a defendant can sometimes be forced to pay an entire judgment, even when that defendant was not entirely at fault (the "deep pockets" problem). The act would also reestablish modified comparative negligence, barring a plaintiff who is more than 50 percent at fault from recovery. If the plaintiff were less than 50 percent at fault, any award would be reduced according to his fault. In addition, the ISCC/ICIC packages would prohibit an injured worker who has received benefits under the Workers' Compensation or Occupational Diseases acts from suing the employer.

While both groups believe that only "meaningful" tort reform will make insurance more affordable, and available, they do see the need for some kind of regulation of insurance companies. Illinois has what is called an "open rating" system under which the state Department of Insurance does not set rates but does keep an eye on the state's 800 insurance companies, making sure they are financially able to do business.

The business-backed groups do not see rate regulation as a solution to the crisis. Rather, the measures proposed by both the ICIC and the ISCC would eliminate some of the uncertainty their members face because of current industry practices. Under bills proposed by the ICIC and the ISCC, an expansion of the time period for notification of cancellation of insurance from the current 30 days to 60 days would give a company enough time to "shop around" for a new policy. The same advance notice would be required if an insurance company intends to increase a premium by more than 25 (ICIC) or 50 (ISCC) percent. The ISCC proposal extends that provision to include any changes in the deductible or reductions in limits of coverage. Under the ISCC proposal, if the insurer fails to provide the notice, coverage remains in effect until notice is given or replacement coverage is found.

Other proposals of the ISCC and the ICIC include limiting punitive damages to the amount awarded for economic loss. In addition, a plaintiff would have to prove that the defendant acted or failed to act out of malice or with intent to harm. Also, any punitive awards would go automatically to the Department of Rehabilitation Services.

A recurring theme running through the two groups' proposals is that playing the civil justice system is a surer bet than playing the lottery. While they do not intend to prevent someone from having their day in court, the ICIC/ ISCC-backed organizations want to keep the system from providing windfalls for a plaintiff. With that intent, both proposals call for limits on non-economic losses (otherwise known as "pain and suffering," $250,000 ICIC, $300,000 ISCC) and for making known to juries information that a plaintiff will receive payments from other sources for the injury.

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The ICIC/ISCC-proposed establishment of an Illinois Product Liability Act is part of a push for a national law. A perennial issue with businesses and manufacturers, the act would reverse the judicial trend of holding them liable for product malfunctions, even in cases where the plaintiff may have acted irresponsibly. The Illinois act would force a plaintiff to prove that there was an alternative design available at the time of manufacture of a defective product. That alternative design would have to be "feasible" in that it would have prevented or lessened the likelihood of an injury, had been known by the manufacturer to exist, was technologically possible and was practical. In addition, a plaintiff would have to prove that the manufacturer failed to provide adequate warnings. Also, a plaintiff who misused a product or knew the product was dangerous beforehand would be barred from recovery.

The ISCC also calls for the creation of an Assumption of Risk Act, which would require a defendant to prove that a plaintiff knew about a potentially dangerous situation and "voluntarily exposed himself to the danger." If the plaintiff's assumption of risk is greater than the defendant's fault, the plaintiff would be barred from recovery.

In any case, the plaintiff's damages would be reduced in proportion to his level of assumption of risk. This measure would afford some relief to local units of governments, such as park districts, that provide opportunities for what may be considered "dangerous" activities, such as playgrounds, swimming pools, etc.

The ICIC goes further than the ISCC with its package. It would like to see a limit on fees paid to lawyers based on a percentage of the plaintiff's compensatory damages. The percentage would range on a sliding scale from 33⅓ percent to 20 percent, depending on the amount of the recovery. Jim Dudley, executive director of the Illinois Trial Lawyers Association (ITLA), points to the irony of this position. While businesses shy away from regulating the insurance industry, he said, they have no problem with the idea of regulating lawyers.

In an attempt to curb "frivolous" suits, the ICIC would like to see all pleadings and motions in a case signed by an attorney involved in the case. If any were found to be untrue, the plaintiff as well as the attorney could be ordered to pay for any expenses which resulted.

The business-backed groups, including local governments, insist that tort reform is necessary in order to ease the crisis. Dudley, however, points to the state of Kansas, which has established modified comparative negligence (a plaintiff who is 51 percent negligent is barred from recovery), has set an absolute cap on liability, and has abolished joint and several liability, which Dudley says is "desperately wanted by the [Illinois] Municipal League." In spite of these changes, Kansas municipalities continue to experience the same problems getting insurance, as well as increases in cost, according to Dudley.

Brann feels confident that ISCC-backed measures will have a better chance of gaining legislative favor because they have bipartisan sponsorship. ICIC bills were introduced by Republicans and received the support of Republican leaders, including the governor.

On the federal level, a group formed by U.S. Attorney Edmund Meese has made many of the same recommendations as the ICIC and the ISCC regarding changes in the civil justice system. Legislation has been drafted by the Reagan administration establishing a nationwide product liability law, preempting any state laws. The proposal would make it more difficult for a plaintiff to prove that a manufacturer was negligent; set a $100,000 cap on noneconomic damages; reduce any awards by the amount a plaintiff may have received from another source; and limit attorneys' fees.

Organizations representing state government officials have taken exception to the Reagan administration's proposals. Both the National Governors' Association and the National Conference of State Legislatures have come out in opposition, accusing the administration of treading on state's rights. Gov. James R. Thompson, however, has come out in favor of a uniform liability law.

Meanwhile, smaller groups have been keeping up the pressure on state legislators and Congress on behalf of plaintiffs. In Illinois the Coalition for Consumer Rights was formed after a report issued by the Illinois Public Action Council, a citizen advocate group, accused the insurance industry of "manufacturing" the crisis. Quoting studies done by the National Insurance Consumer Organization, as well as its own survey of local units of government in Illinois, the Public Action Council contended that the facts are not there to support the idea of a "litigation explosion."

Recent information released by the Cook County Jury Verdict Reporter's 1985 index summaries "tend to disprove the outcry from insurers and their clients that the present tort litigation system is going down the sink, or ought to," according to the council. The April 12 issue of the Reporter notes that a 1985 calendar year summary of malpractice trials shows physicians winning 77 percent of 90 trials in Chicago area counties; hospitals won 74 percent. The average verdict per case for the doctors was $423,005 in 23 guilty cases, compared to $469,142 per case over the 15 years since 1970 that records have been kept.

The 1985 Product Liability Verdict Summary shows that 34.6 percent of 57 trials were won by plaintiffs compared to 37.4 percent since 1970. The average award, not including a blockbuster for $27 million, which was reduced by the trial judge to $8 million, was $322,540 in 1985, compared to $305,142 average for 336 guilty verdicts since 1970.

According to the Reporter's 1985 Product Liability Suit Index, 1,121 suits were filed in Cook County, 57 less than 1984, with an unusually large portion of them concerning products used in medicine.

Dudley points out that the first $1 million award was in 1962; he noted that a $1 million award today equals $336,000 in 1962 dollars. According to Dudley, many multimillion dollar awards can be linked with the increased cost of medical care — up over 60 percent since 1962. Juries don't give "big blockbuster" awards unless there are major medical expenses, Dudley said. He believes that mandatory arbitration, required by the state's new medical malpractice law for cases under $15,000, should make a major difference in the number of cases that go to trial, particularly in the Chicago area.

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A letter from ITLA president David Decker to Sen. Aldo DeAngelis (R-40, Olympia Fields) takes the senator to task for his comment to an ICIC-sponsored rally on the state Capitol grounds that changes in tort law would not "take away from someone who is truly injured." Decker lists 13 points detailing what the Republican-backed ICIC changes would mean for plaintiffs. The restrictions and limitations imposed by the changes would make it extremely difficult, if not impossible, for a plaintiff to recover damages for an injury, Decker says.

Dudley believes legislatures have been unable to pass product liability statutes to protect the public because of business pressures. Pure comparative negligence was adopted by the Illinois Supreme Court in 1981, he said, because under the old contributory negligence standard, if a plaintiff were 20 percent at fault, he could recover nothing. Under comparative negligence, that plaintiff could at least recover 80 percent of his award for damages, Dudley said.

Dudley pointed out that a "not guilty" verdict is returned in approximately 43 percent of all civil law suits that go to trial in Cook and the five collar counties. Plaintiffs win 56 or 57 percent of the time — a percentage that has remained the same for many years, according to Dudley.

Dudley believes the insurance crisis is "self-inflicted." Illinois is the only state in the nation with open rating, a system in which the market controls insurance rates, not the state Department of Insurance. At all the hearings conducted by both legislators and the department, representatives of the insurance industry have not been able to give assurances that tort reform will lead to reduced rates and more availability, Dudley said. "We need a true rating law, a good one. Insurance people want to do what they want. They are not in favor of full disclosure," Dudley said. He believes that legislators should know that changes in the tort laws will not effect rates.

Accusing the industry of exploiting its cyclical nature to increase profits, the Coalition for Consumer Rights has called for stricter regulation of the insurance industry, requiring insurers to justify to the Department of Insurance the need for any rate increase of 15 percent or more. The idea of prior approval has been scoffed at by both the insurance industry and the business coalitions. Prior approval, according to Brad Kading of the American Alliance of Insurers, would result in a form of "price fixing," killing the competitive nature of the business. The trend in other states, he said, has been away from rate regulation since regulation has resulted in insurance companies fleeing from those states.

The consumer rights group also calls for the establishment of a joint underwriting authority (JUA), which would provide insurance for businesses that cannot currently obtain coverage. All property/casualty insurers in Illinois would be required to participate. The proposal would set up a governing committee with the authority to develop rates, classes and rating plans, with rates based on past claims experience. In addition, the JUA would be able to require a business to engage in risk management before providing insurance coverage.

Seeking to provide some relief for local governments, the consumer group proposes that local units of government be allowed to form an "excess insurance company." Under this concept of pooling, participating governments would have to waive their right to immunity under the state's tort immunity statute before purchasing the additional coverage.

The Illinois Trial Lawyers support the efforts of the consumer coalition, but would like to expand the coalition proposals to include hearings on rate increases, the authority for professionals to form self-insurance groups and the creation of a state reinsurance program.

As the legislative session enters its last inning June 1, the players have been maneuvering for position. All of the proposals outlined above have been introduced in a series of legislative packages. What happens to the actual bills themselves is not as important as how each team's strategies will affect the outcome of the game.

The Senate team decided that the bills should at least get a hearing in committee. The Senate Committee on Insurance heard from all the players involved as it considered some 80 bills before the May 2 deadline for committee action.

Les Brann's prediction about ISCC bills faring better than ICIC bills proved true. On May 1, the committee, on a bipartisan basis, agreed to three of the chamber's seven bills. Two of the bills would require information about collateral source payments to be given to a jury in a tort case and extend to to 60 days notices for insurance premium increases or cancellations. The chamber's effort to create a Comparative Fault Act was watered down by the bill's sponsor, Sen. Richard Luft(D-46, Pekin), to a modified form of joint and several liability which would protect a defendant who was less liable than the plaintiff from paying damages. The only 1CIC bill which escaped was one dealing with premium notice requirements. The committee also voted out bills to give local government some additional protection against law suits. As long as there is any bill still alive on a specific subject, it can be used as a vehicle for passing laws on that same subject. No proposal is doomed until the last conference report.

House bills were held in Rules until the House Task Force on Liability Insurance issued its report April 29 compiled from testimony taken at 11 hearings. Although the task force was made up of 10 Democrats and 10 Republicans, only two Republicans signed the report. Cochairman Rep. Mike Tate (R-102, Decatur) called the report, which contained no recommendations, a "whitewash" and said he and the other Republican members would be issuing a minority report.

House Speaker Michael J. Madigan (D-30, Chicago) created five insurance "steering committees" April 28 to serve as advisers in an attempt to come up with compromise solutions. Using the information in the task force report, the committees were to form the basis for a "summit."

Team leaders in both houses will have to play a careful game, responding to the pressures of their constituents who are clamoring for relief on both sides of the issue. Legislators may be reluctant to make changes in the civil justice system without assurances from the insurance industry that such changes will result in available and affordable coverage. And as the economy continues to improve, there are signs that this year's biggest legislative game may prove to be only an exhibition.

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