Liability Insurance Crisis

Kerby Anderson

By now most of us are familiar with the horror stories. They include anecdotes of doctors leaving their practices because of skyrocketing costs of malpractice insurance. Stories of city parks closing due to the costs of liability insurance. And stories of cities and companies risking services and business without insurance at all.

Part of the problem is certainly insurance company hype, which is aimed at selling liability insurance policies. Although much has been said about a litigation explosion, a ten-year analysis of cases revealed that the average award was less than ten thousand dollars, and the number of cases filed increased no greater than the increase in population.

But in the midst of the hype are some major concerns with what is happening in our courts. Liberal judges have been doing to tort law and civil law what they have been doing to constitutional law and criminal law for decades. They have been overturning established legal doctrines in order to suit their goal of what they believe is a progressive and socially just society.

Consider a few of these well-publicized cases. In Hayward, California, a motorcyclist operating without a license, without a helmet, and over the speed limit was involved in a collision with another motorist. The jury found the motorcyclist was 80 percent at fault, the other driver was 19 percent at fault, and the city was 1 percent at fault. But guess who paid the bill? The city settled the case out of court for approximately two million.

A second case involved a doctor in Pennsylvania who tried to start his riding lawnmower. He pulled the cord a few times, was unsuccessful, went inside, and had a mild heart attack from which he recovered. He sued Sears, claiming that the lawnmower was defective, and won over a million dollars.

And finally in New Jersey a man was seriously injured while operating a die-casting machine. The machine was originally designed to work in two cycles that were manually started by the operator. The first cycle was supposed to start when an electrical button was pressed. This would close the two halves of the mold so the hot metal could be injected. The second cycle was started by pushing another button, causing the metal to cool and then drop from the mold.

The accident occurred after the machine had been modified. The employer added a trip wire that, when hit, would trigger the start of the next cycle, resulting in the continuous operation of the two cycles. The employer also added a safety gate which, when opened, shut off all the power to the machine.

The employee was injured when he left the machine's control to dislodge a finished mold. Reaching under the safety gate, he dislodged the mold, which hit the trip wire and started the machine, closing the two parts of the mold on his hand.

Even though the machine had been modified after it left the factory, the court concluded that the manufacturer could be held liable because the original design did not have a safety gate. Obviously something is wrong. We have a judicial system that is out of control and has left its judicial moorings.

Surrogate Wrongdoers

This nation faces a liability insurance crisis because of flaws in our court system. One of these flaws is the tendency to search for surrogate wrongdoers who are then held liable for others' actions. The following three cases illustrate my point.

In the case of Bigbee v. Pacific Telephone, an intoxicated driver lost control of her car, veered off the road, jumped a curb, crossed the sidewalk, went into a parking lot, and hit a man standing in a telephone booth fifteen feet from the road. It is not surprising that the man in the phone booth filed a lawsuit. What is surprising, though, is that he sued the company responsible for the design and installation of the phone booth.

Although the lower court tossed out the case, liberal California Supreme Court Justice Rose Bird ruled against the phone company. She ruled that the risk that someone might veer off the road and crash into the telephone booth was foreseeable, therefore a jury could hold the company liable. Furthermore, she found of no consequence that the harm to the plaintiff came about because the driver was intoxicated.

Another case is Peterson v. San Francisco Community College District. A college student was assaulted during the daylight by a mugger hiding in some bushes near a stairway in the school's parking lot. The student sued the school, contending the bushes were overgrown and provided protection for the criminal. The California Supreme Court unanimously ruled that the school was liable because it "failed to take protective measures including trimming the foliage."

In the case of O'Brien v. Muskin Corp., a trespasser was injured when he dove into three and a half feet of water in an above-ground swimming pool at a private residence. It was not clear if he dove into the water from a platform beside the pool or from the roof of an adjacent garage. What was clear is that the pool bore a warning on the outer wall that clearly read, "DO NOT DIVE."

Nevertheless, the trespasser sued the manufacturer of the pool, alleging that his injuries resulted when his outstretched hands hit the vinyl-lined pool bottom, slid apart, and allowed his head to strike the bottom. Although the lower court dismissed the suit, the New Jersey Supreme Court reversed the ruling and argued that the plaintiff's claim could prevail if the "risk imposed by the pool outweighed its utility."

Although these three cases involved different kinds of actions and accidents, they are similar in a number of ways. In each case, the real wrongdoer, whether he or she be the driver, the mugger, or the trespasser, was not held liable for his or her actions. Instead, surrogate wrongdoers were located by the plaintiffs, and the courts assessed the blame to the surrogates because they did not foresee all the possible consequences of their actions.

These cases do not bode well for the future. Each of the cases assessed fault to the surrogate wrongdoer on the basis of foreseeability. This is certainly a prescription for unlimited liability. With the benefit of 20/20 hindsight, any accident or crime could be foreseeable. And this is one reason why we have a liability insurance crisis. Courts are unwilling to fix blame on the true wrongdoers.

Civil Justice System Reform

Some of the best recommendations for resolving the crisis that have been made so far were articulated at a White House Conference on Small Business.(2) The following eleven recommendations are their suggestions for reforming the civil justice system in this country. Their first recommendation is to return to fault as a basis for liability. Second, causation findings should be based on credible scientific and medical evidence and opinions. In one case, a psychic went into Temple University Hospital for a CAT scan and had an adverse reaction to the dye. She claimed that it caused her to lose her psychic power. We need to base jury findings on credible scientific evidence.

A third recommendation is to eliminate joint and several liability in cases where defendants have not acted in concert. Under this current rule, a defendant, even if only 1 percent at fault, can be held liable for 100 percent of a judgment, thus forcing many defendants to pay for injuries for which they are only peripherally responsible.

Fourth, courts should limit non-economic damages (such as pain and suffering, mental anguish, or punitive damages) to a fair and reasonable maximum dollar amount, not to exceed $250,000 in any case.

A fifth recommendation is to restrict punitive damage awards to cases of willful and malicious conduct. The amount awarded should go to a governmental trust fund, not the plaintiff.

A sixth recommendation is to limit attorneys' contingency fees to reasonable amounts on a sliding scale. A study done by the Rand Corporation of asbestos litigation showed that, of all the money paid by the companies and their insurers, one-third went to the plaintiffs' lawyers, one-third went to the defense lawyers, and one-third went to the victims. This amounts to a two-thirds lawyer rake-off and shows why contingency fees must be limited to a reasonable amount.

A seventh recommendation is to reduce awards in cases where a plaintiff can be compensated by certain collateral sources to prevent windfall double recovery. An eighth recommendation is for the prevailing party in a legal action to have a statutory right to recover its costs from the non-prevailing party.

A ninth recommendation is to impose a uniform, reasonable statute of limitations and repose in all tort actions. Moreover, courts should hold defendants to the state-of-the-art technology that was in existence at the time the product was manufactured or the service was performed. Common sense should dictate that if improvements and research developments come after a product is manufactured, the manufacturer cannot be held liable for technology that wasn't invented yet.

A tenth recommendation is to provide for periodic instead of lump sum payments for future medical care or lost income. And a final recommendation is to encourage the use of alternative dispute resolution mechanisms to resolve cases out of court.

Insurance Reform

In addition to reforming the civil justice system, we must also bring insurance industry reform. The following are some recommendations presented at the White House Conference on Small Business(3) concerning products and the regulation of liability insurance.

One major recommendation in the area of product liability was to establish a uniform standard of fault for product, commercial, and professional liability. This standard would be based upon many of the recommendations discussed in the previous section. These uniform standards would eliminate many of the problems we have discussed about inequities in the system and outlandish damages awarded to some who could find surrogate wrongdoers with deep pockets.

Other recommendations concerned the availability and affordability of liability insurance and re-insurance. One recommendation was to review the McCarran-Ferguson Act, which applies to state regulation of insurance and the industry's exemption from anti-trust laws. Another recommendation was to promote the establishment of joint underwriting associations and assigned risk pools.

They also suggested that a minimum of 60 days' notice be required for an insurer to non-renew a policy or to increase its unit premium by more than 25 percent. Mid-term cancellations should be prohibited and premiums should be based on experience ratings. A fourth recommendation was to promote tax-deductible self-insurance through risk pooling and other group arrangements. This would include the expansion of the Risk Retention Act of 1981. A fifth recommendation was to legislate a self-insurance system that would allow small businesses to pay premiums into a fund with pre-tax dollars. These funds could be used for no other purpose than payment so that claims with the fund could be regulated in the same manner as any other insurance company.

A final recommendation was to require the insurance industry to make complete financial disclosures by lines of insurance, so that Congress, state legislatures, and state insurance commissioners may call on it at any time.

There is also a very important need for education in this area. The White House Conference on Small Business urged an on-going program of education to develop awareness in two areas.

First, people need to be aware that the litigious nature of the American public will profoundly affect our way of life as the costs of public and private facilities become unaffordable. Day care centers and playgrounds are closing down. Physicians and other professionals are abandoning their practices. Airplane manufacturers and pharmaceutical companies are discontinuing various products due to the liability insurance crisis.

Second, education should be used to remind us that there is no such thing as a riskless society. Each of us must assume some responsibility for our own safety. The practice of assigning fault to other individuals or institutions has intensified the liability insurance crisis in this country.

These are not complete solutions, but they represent steps in the right direction. We need to revamp the current civil justice system; we need to establish a more uniform standard for product liability; and we need to make liability insurance more available and affordable.

Biblical Principles

Finally, there are a number of biblical principles we can apply to this complex issue. The first principle is the principle of individual responsibility. God holds us accountable for our actions and our negligence. Unfortunately, our society is breeding people who believe they can do anything they want with impunity. But if God holds us accountable, then a society based upon God's laws should also be able to hold us personally responsible.

The second principle is related to the first. Since we are responsible, we can be held liable. The Bible clearly teaches that a person can be held liable if he is the owner of hazardous property (be it a building or a bull) that injures someone.Furthermore, the Bible sets limits on liability depending on the degree of culpability--ranging from unintentional harm to outright negligence.

Third is the principle of justice and restitution. In particular we are talking about justice which is based upon God's law. Government is ordained by God to bring justice to society. Those who harm others either intentionally or through laziness or neglect must pay for their actions and repay those who suffer from their actions. Often a missing element in both our criminal justice system and our civil justice system is restitution. The Bible clearly teaches that those who harm others must make restitution, and often this is neglected in the punishments and penalties assessed in our modern courts. Even when a liable party pays the injured party, it is often through insurance premiums. The wrongdoer does not get personally involved, and I believe this involvement is an important aspect of the biblical principle of restitution.

The United States is considered by many to be the most litigious society in the world. Lawsuits are almost written in America's creed. It's as if the right to life, liberty, and the pursuit of happiness means the right to sue anyone who makes life inconvenient or difficult.

The humanistic world view that prevails today adopts a utopian vision that rejects the doctrine of the fall. According to this view, the world is not fallen, and certainly man is not fallen. What used to be considered an "act of God" has become a context for litigation. Plaintiffs look far and wide for someone who can be found at fault and then sue them.

What has become worse is the erosion of the notion of fault. In tort law, one of the elements in a judgment is negligence. Someone must be at fault. But now the idea of no-fault liability has changed the equation. After all, if there isn't anything known as sin, then why bother to find fault? So the idea of fault has been thrown out of many cases, but not the idea of liability. In the end, individuals and institutions end up being sued even when they don't do anything wrong.

This is the current legal climate that hinders the application of biblical concepts to this important debate over liability insurance. Finding our way back to sanity won't be easy, but the appropriate first step is to apply these biblical principles of personal accountability, liability, and justice and restitution.


1. Richard Willord, "Liability and the Law," Imprimis, Sept. 1987.

2. "The White House Conference on Small Business: Final Recommendations," 17-21 Aug. 1986, 1.

3. Ibid, 1-2.

© 1991 Probe Ministries