Masonry Magazine October 1986 Page. 15
Now that the crisis has penetrated the nation's consciousness, a Federal product liability law might be enacted. But don't count on it. You need to tell your Congressman how you feel to help resolve...
THE LIABILITY INSURANCE CRUNCH
by the Hon. Henry J. Hyde
The dual problem of availability and affordability of liability insurance is now receiving nationwide media attention. It would appear that virtually every facet of the American economy and American life has been adversely affected by this serious and pervasive problem. Like most members of Congress, I have received an avalanche of mail from individuals and organizations in my Congressional district. These complaints have come from small businessmen, local government officials, truckers, owners of day-care centers, doctors, architects, and other licensed professionals. The stories they relate all serve to document the pressure of increased liability insurance premium costs. In some cases, these persons have been the "beneficiaries" of outright policy cancellations.
We have all heard or read about the list of horror stories associated with this problem. Allow me to cite a few egregious examples:
* A small town in Upstate New York (population 7,090) recently lost its liability coverage when its insuror withdrew from the municipal liability field. This township had never been sued in its entire history and, yet, was only able to procure a replacement policy at a premium increase of 400% for only one-third of its previous coverage.
* Two years ago, the W. H. Brine Company of Milford, Massachusetts, a manufacturer of lacrosse and soccer equipment, paid $8,000 for $25 million in liability insurance coverage. This year, the best quote they could get was $200,000 for $1 million of insurance. Under the circumstances, the company decided to drop its coverage entirely and is currently "taking its chances."
* Eight out of ten members of the Armada Corporation board of directors resigned earlier this year, after receiving notice that the company's directors' and officials' liability insurance was being cancelled. Increasingly, insurance companies are simply refusing to underwrite such policies.
* Reuben & Proctor, an 80-member law firm in Chicago, completely lost its insurance coverage in 1985 and was forced to "go bare." The reason the tremendous increase in legal malpractice suits.
* Last summer, the proprietor of a day-care center learned that her liability insurance premium was being increased 1000%. Here again, the center had never filed a claim of any kind under its insurance. Her insurance agent simply advised the proprietor to close the center.
Unfortunately, these are not isolated cases. The United States Chamber of Commerce recently reported that over 20% of its membership had been unable to renew its liability insurance in 1985. Over 40% of their members had faced increases of 100% to 500% in premium costs.
Similarly, in late 1985, the U.S. Conference of Mayors released a survey that they conducted in 40 cities throughout the nation. Only five of the 40 cities surveyed responded by saying that their rates had not increased in the past two years. One-half (20) of the cities responded that rate increases in excess of 100% had occurred in that time frame and 16 of those 20 received rate increase quotations above 200%.
As a Member of the Judiciary Committee in the House of Representatives and its Antitrust Subcommittee, I am currently participating in an investigation as to whether or not there is a relationship between the McCarran-Ferguson Act and the current liability insurance crisis. The committee's chairman, Peter Rodino, believes the antitrust immunity granted to the insurance industry by the McCarran-Ferguson Act and the corresponding lack of Federal regulation is the principal cause of the current liability insurance crisis.
The insurance industry and certain business groups dispute that assertion. Instead, they cite the American legal system as the culprit, and stress the need for broad-based civil justice reform (affecting tort liability suits).
Whether or not the antitrust exemption for insurance is a contributing factor in this situation is a legitimate avenue for Congressional inquiry. But, at the same time, Congress must not make the mistake of thinking that this complex situation has but one cause at its source.
Liability insurance costs have risen for a number of reasons. These include, for example, the insurance industry practice of cash-flow underwriting which, earlier in this decade, resulted in their underwriting questionable risks. They ignored the warnings of their actuaries in order to procure precious premium dollars to be reinvested during a period of high interest rates.
Another reason for the crisis is the declining ability of American insurors to obtain the necessary reinsurance. "Reinsurance" is the insurance companies' own insurance coverage. Most typically, insurance companies seek this protection for their largest potential claims.