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Reagan Enters Liability Debate Under Pressure : Groups Stung by Costs Reported Behind Move

April 07, 1986|JACK NELSON | Times Washington Bureau Chief

WASHINGTON — For President Reagan, the thorny issue of skyrocketing liability insurance rates pitted his long-cherished principle of states' rights against the political demands of doctors, businesses, state and local governments and insurance companies that are buckling under the present system.

Politics won.

According to well-placed Administration officials, Reagan reached his recent decision to intervene only after receiving an avalanche of complaints from groups hit hard by soaring costs. Massive awards for medical malpractice claims and other damage suits have forced the cost of liability insurance ever upward, and some groups needing insurance have found it impossible to buy at any price.

Unaccustomed Position

Reagan, whose decision has placed him in the unaccustomed position of supporting federal intervention in a highly complex area that has been the domain of the states for decades, concluded that the states are moving too slowly.

Although legislatures in more than 40 states have grappled with the issue this year, only a handful have managed to revise existing tort, or damage, laws in ways designed to ease the burden of liability insurance.

The President has not yet formulated the details of a plan. But later this month, according to White House officials, he is expected to endorse legislation based on a report by an interagency Tort Policy Working Group, which has recommended a combination of federal and state actions, including limiting lawyers' contingency fees in damage cases and placing a $100,000 cap on awards for "pain and suffering" and other non-economic losses.

A knowledgeable Administration official, who asked not to be identified, said the Justice Department is circulating preliminary drafts of legislation based on those principles. It was said to include provisions imposing ceilings on settlements from suits against the federal government for liability for deaths or personal injuries, and to shield government contractors from liability suits for defective product design unless information to overcome the defect was available to the contractor when the product was made.

Dole Would Defer to States

If the legislation incorporates changes in tort law, Reagan's opponents will include no less a figure than Senate Majority Leader Bob Dole (R-Kan.). Noting that he recently met with an insurance group that is working in 22 states to change tort laws, Dole said in an interview: "There's where it ought to be done--on a state level."

But both sides can agree on this much: The soaring cost of liability insurance has become a burning political issue. On one side is a coalition of special interests led by the insurance industry, which bears the burden when juries make exorbitant awards in liability cases. On the other are consumer groups seeking to force manufacturers to accept responsibility for damages incurred during the use of their products, and trial lawyers trying to prevent any erosion of the hefty fees they usually collect in such cases.

Dole, who has indicated he will seek the Republican presidential nomination in 1988, said that whenever he attends meetings in Kansas, he is confronted by "three or four people there who can't buy insurance or had their insurance canceled--and there's real frustration."

Similarly, Sen. Paul Simon (D-Ill.) has complained that his constituents are bombarding him with complaints of "skyrocketing insurance rates." And Sen. John D. (Jay) Rockefeller IV (D-W.Va.) said the situation is "like a dam burst--all of a sudden you couldn't get insurance."

Explains Reagan's Rationale

It is this kind of pressure, said one White House official who declined to be identified, that has made the liability insurance issue ripe for intervention despite Reagan's well-known aversion to treading on states' prerogatives.

"If you're looking at anything that tends to quench the spirit of adventure," this official said, "that's something that Ronald Reagan likes to get involved in. And that's exactly what's happening. If we make it so people are afraid to take chances, we limit what society can accomplish."

For years, the insurance industry has complained of major financial setbacks, and it reported losses against premium income last year totaling $25.2 billion. Although it also earned $32.8 billion on its investments and scored a net profit of $7.6 billion, a federal report said the industry's earnings fell below the historical average and were "well below the profitability of most other major industries."

Beyond the insurance industry, much of the pressure for federal intervention has come from small businesses and local governments that have been devastated by the high rates and the unavailability of insurance, according to Mitchell Daniels Jr., Reagan's assistant for political affairs.

Cities Adopt Self-Insurance

"Hundreds of mayors and local officials would agree that it is a problem in which federal action is proper," Daniels said.

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