New York is in the midst of a litigation explosion that's blasting state insurance premiums through the roof. New York motorists, for example, will soon be paying an average of $1,100 a year for auto insurance, the highest rate in the nation, 40 percent above the U.S. average. The chief culprit: the state's crazy accident-insurance law, which lets drivers involved in a crash wait up to six months to file medical claims. The law invites the unscrupulous to try to pull off premium-spiking insurance scams, since the more time that elapses between a purported accident and a medical claim, the harder it is for an insurer to investigate fraud. As neighboring states have cracked down on such fraud, while New York's reform efforts have failed, the state has become a magnet for scammers: since 1995, proven fraudulent claims have nearly tripled, to more than 12,000 last year.
New York's building contractors suffered woes too. The state's labor law, unlike any other state in the U.S., lets a worker injured on a construction job collect workers' compensation while at the same time suing the owner or general contractor of the building site where he got hurt—a chance for double indemnity, so to speak. Also unique in the nation, New York law places an absolute liability on builders for on-site accidents, even if a worker hurt himself doing something stupid, like getting drunk and then operating heavy machinery on the job. Not surprisingly, premiums have spun out of control: contractors who once paid yearly premiums of $100,000 are seeing new rates as high as $350,000. Many fed-up insurers are dropping coverage for Empire State builders entirely.
New York's medical doctors face their own insurance ills. Malpractice awards, unrestrained by caps like those that many other states have enacted, have soared to an average of $4.5 million, compared with $1.7 million nationally. For almost two decades, the doctors insulated themselves from these big awards by dipping into a special state fund, created in response to a previous malpractice crisis, that let them buy extra insurance coverage at publicly subsidized low rates. But Governor Pataki let the law authorizing the fund expire, so doctors soon will have to pay full price—twice what California doctors pay—if they want the added protection.
The reason New York's tort laws haven't been reformed is the power of the state's trial bar, which has used its political influence in the State Legislature to block award caps and other reforms, like cutting down on the maximum time allowed for making auto insurance claims. But the growing fallout from rising insurance costs may be shaking things up enough in Albany for real tort reform to happen. Last year, Pataki announced that he'd allow no changes in the state's litigation laws without comprehensive tort reform, and he vetoed trial-lawyer-supported legislation that sought to lift caps on lawyers' fees in medical malpractice cases. These two moves, together with some grumbling from normally pliant state legislators, brought the trial lawyers running to the negotiation table, waving a tort-reform package.
Predictably, the proposal favors the trial lawyers' interests: it rejects the idea of limiting awards and would instead extend a liability fund like the one that protected doctors to other constituencies facing spiraling insurance premiums, sticking citizens with the cost. But as one business lobbyist says, "They must be running scared, or they would never even be willing to sit down and talk." Now would be an ideal time to push hard for true reform.
