Litigation Patterns in Automobile Bodily Injury Claims 1977-1997: Effects of Time and Tort Reforms

ABSTRACT This study uses data from the Insurance Research Council to investigate changes in the use of attorneys and in the filing of legal claims to resolve automobile third-party bodily injury claims between 1977 and 1997. We find results consistent with the general public perception that the use of attorneys and the filing of legal claims have increased over the study period. In addition, we find evidence that tort reforms enacted by the states have slowed the rates of increase in the use of attorneys and in the filing of legal claims to resolve automobile insurance claim disputes. INTRODUCTION Indisputably, U.S. society is viewed throughout the world as excessively litigious. This reputation goes back at least to the 1960s and early 1970s, when rapidly rising automobile and medical professional (malpractice) insurance premiums in the United States provided initial concern about litigation patterns. Concern was high enough that legislators in numerous states passed a variety of "tort reforms," including automobile no-fault laws as well as limitations on medical malpractice litigation. In the intervening years, new liability "crises" have encouraged policymakers to limit other areas of litigation, including through general placement of caps on damages, restrictions on joint and several liability, and a narrowing of situations when punitive damages are available. Despite these policy efforts, insurance affordability, and availability, difficulties have continued, as have debates about the actual influence of litigation patterns on those difficulties (see Baker, 2005, who argues that insurance "crises" are caused by insurer underwriting decisions rather than by changes in underlying claiming patterns). With a rich data set of automobile liability claims from 1977 to 1997, we can offer input to the debate by observing actual liability claiming patterns, as well as influences of tort reforms on those patterns, over time. Specifically, we test whether or not automobile liability claimants were more or less likely to employ attorneys and to file legal claims in 1997 than they were in 1977. We also test the effects of various tort reforms on those patterns. Our findings indicate that reforms are significant in reducing both the use of attorneys and the filing of legal claims. When using state identifiers instead, we find generally opposite results. One possibility is that the high correlation between passage of reforms and time has muddled the effect of either. To disentangle these two issues, we ran a third analysis, including both state identifiers and interaction effects between reforms and data years. In this third analysis, we find the reforms generally effective in dampening the use of attorneys and filing legal claims, both of which increased over time. One might argue that automobile liability is not the venue where most of the debate about litigiousness occurs. Yet, automobile liability accounts for more than half of all property-liability insurance premiums sold in the United States. Furthermore, the topic is of sufficient concern that state legislators continue to pass laws modifying rules for compensating individuals injured in automobile accidents. Colorado, for instance, reverted to a tort liability system in 2003 after many years as a no-fault state. Minnesota is considering a similar change. To place this research in context, we provide a brief discussion of existing literature on litigation patterns in the second section. In the section on "General Economic Models of Litigation Behavior" we present general models of litigation behavior, which lead to our empirical investigation. The data used to test our hypotheses and the empirical methodology employed are presented in the following section, with results presented in the next section. In the final section we present implications of our findings and suggestions for future research. LITERATURE ON LITIGATION PATTERNS Over the past three decades, a great deal of research has been reported on various aspects of U. …