Last week the Chicago Park District began removing all merry-go-rounds from the city`s 516 parks and playgrounds, along with some slides and climbing bars. The reason: fear of lawsuits.
The fear is well-founded. Last year the park district, along with two other defendants, agreed to pay at least $9.5 million in damages to the family of Frank Nelson, a 9-year-old boy who suffered brain damage in a 1978 fall from a slide. If he lives to age 75, the settlement could amount to an astonishing $29.8 million. Staggering sums? Well, consider this: The defendants agreed to pay them because they feared a jury might award even larger damages.
This is no isolated incident. Businesses, professionals and units of municipal government are increasingly being held liable by courts for events that cause injury, even in cases where their culpability is highly doubtful.
The examples pop up almost weekly. G.D. Searle recently ended sales of its intrauterine birth control devices–described by Planned Parenthood as
”the safest of the IUDs on the market”–from fear of lawsuits. California`s Supreme Court has ruled that a psychiatrist can be held liable for a crime committed by his patient. An insurer agreed to pay $260,000, plus $1,500 a month, to a teenager who was paralyzed when he fell through a roof skylight during an attempted burglary of a high school.
The results go well beyond those immediately affected. Their most direct impact is on property and casualty insurers, who traditionally provide coverage against the risks of such lawsuits. Last year, they lost an estimated $5.5 billion on basic operations, despite a 21 percent increase in rates.
For many types of insurance, premiums are climbing and the limits of coverage are plummeting. And some would-be purchasers, like hazardous waste disposers and day-care centers, have found insurance impossible to find at any price. Some cities and counties, faced with unaffordable premiums, have elected to take their chances without liability insurance.
One factor, as the industry`s critics note, is that insurers are suffering from the rate wars of the late 1970s and early 1980s, when they were willing to charge unrealistically low premiums simply to get funds to invest at record interest rates. Most insurers bet on continued inflation and lost.
But a deeper problem is also to blame–the wild unpredictability of the courts in assessing liability, and the huge potential costs faced by the companies who insure such risks. Between 1974 and 1983, the average jury award in product-liability cases more than tripled. In medical malpractice cases, awards rose more than fivefold. From 1979 to 1985, the number of verdicts totalling $1 million or more climbed from 80 to 400.
The direct expense of such verdicts is probably the least of their cost. They have two other important consequences. The first is to encourage the filing of lawsuits by anyone with the most remotely plausible claim. The number of civil lawsuits filed in federal court has risen 50 percent in the last five years. The second is to pressure the targets of such suits to settle out of court, to minimize their legal expenses and to eliminate the risk of a truly crippling damage award.
The trend in the courts` treatment of liability is drastic. Unfortunately, it is the job of insurance to shield policyholders not against these present costs, but against future ones. If current trends persist, the financial burden they will impose on property and casualty insurers will be enormous.
That might be tolerable, except that its impact will be felt by nearly everyone–local taxpayers saddled with the cost of uninsured liability judgments, medical patients paying for expensive tests whose chief value is to protect the doctor against a malpractice suit, parents unable to find day care.
Congress and numerous state legislatures are pondering ways to repair this malfunctioning system. The problem can be solved. A second column will explain how.
Wednesday: Three steps to a solution.
