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No-Fault Once Seen As Solution

Oct 28, 2007

By Beatrice E. Garcia, The Miami Herald

Oct. 29--The Sunshine State wasn't always an attractive place to do auto insurance business.

In the late 1960s, the auto insurance market in Florida was a wreck.

Local courts were clogged with lawsuits from auto accidents, sometimes taking up to a year to resolve even minor claims. Accident victims had to wait months, even years for compensation. Some insurers did settle rather than go to court. But settlements also were fraught with problems.

The Miami Herald wrote in a 1971 editorial that "the trouble with auto insurance is that it was permitted to become a racket. Can anybody deny that the present liability system has brought inflated claims and inflated settlements in two-bit cases because the companies figure it would be cheaper than going to court?"

At a state Senate hearing that same year, Jeffrey O'Connell, then a University of Illinois law professor and considered one of the "fathers of no-fault," considered Florida's fault-based system "cruel, corrupt, dilatory, expensive and wasteful while it goes about the business of failure."

Back then, according to the Property Casualty Insurers Association of America, about 33 cents out of every dollar went toward attorney fees, court fees and other costs to determine who was at fault.

Today, the National Association of Insurance Commissioners reports that 11 cents out of every premium dollar goes to attorney fees.

Auto insurers' losses, when compared to earned premiums, accounted for far more than 85 cents out of every dollar in premiums they collected. In 1975, their overall loss ratio was 96 percent, according to A.M. Best, an Oldwick, N.J., company that rates insurers on their financial strength and stability.

Ironically, the same no-fault system that many insurers were so determined to eliminate in recent years was devised to remedy some of the problems in the auto market. Florida was the second state to implement a no-fault system in 1971 for private passenger auto and trucks. The law was extended to cover commercial vehicles in 1978.

Sen. Bill Posey, who has led the Senate insurance committee for the past year and helped hammer out the new no-fault law this month, recalled when the original law was put in place. The Rockledge Republican worked as a claims adjuster at the time.

"There was a public outcry that forced the legislators to try no-fault to fix the problems," Posey said. "We didn't know if it was going to work, but we had to try something."

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Copyright (c) 2007, The Miami Herald

Distributed by McClatchy-Tribune Information Services.

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