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Blame Insurance Industry for Problem

March 15, 1987

I read with great interest John F. Lawrence's column on the liability system. Lawrence's column betrays some misconceptions about personal injury lawsuits.

He writes that "the courts established the concept that producers of products and dispensers of services will bear the cost of accidents related to the use of these products and services." This is not the law in any of the 50 states. To recover a judgment against a product producer, the accident victim must prove that the product is defective. In lawsuits against service dispensers, the victim must prove negligence on the part of the dispenser.

Lawrence also writes that the cost of administering the liability lawsuit system (40% of premiums paid) exceeds the cost of administering group health insurance (10%). I agree that the administrative cost of the liability system is too high. However, comparing these two insurance systems is misleading.

Group health insurance is a no-fault insurance policy that pays the insured without regard to the cause of the claim. In a liability lawsuit, the accident victim must convince the insurer, or a court, that there is both a legal and factual basis to pay the claim. The necessity to determine fault accounts, in part, for the increased administrative cost of the liability system.

The liability system developed over hundreds of years as part of common law. Common law saw liability lawsuits as accomplishing two objectives: compensating victims and deterring injurious conduct. Lawrence's column focuses on the inefficiency of the system in compensating victims but omits any discussion of the role that liability lawsuits play in improving product safety and upgrading the safety of services dispensed.

It was the liability system that exposed the dangers of asbestos, the Ford Pinto gas tank and the Dalkon Shield. Most commentators agree that the liability lawsuit system spurs corporations to invest in product safety engineering. I look at the system as a free-market alternative to government regulation. Everyone except the libertarians agrees that manufacturers, doctors and lawyers can't regulate themselves. The liability system is more democratic and less elitist than government regulation. Juries of randomly chosen men and women decide safety standards for their community in accordance with the law and the evidence, rather than a bureaucrat accountable to no one.

There are many ways to reduce the administrative cost of the present system--arbitration, regulation of attorneys' fees and insurance reform. Perhaps we should think about no-fault insurance insuch areas as automobile accidents and premises liability.

RANDY KRAMER

Norwalk

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