Insurers Warn of Higher N.J. Auto Premiums If Ruling on Lawsuits Stands

November 20, 2005

An insurance industry group is warning that New Jersey’s auto insurance rates could increase due to a state Supreme Court ruling that makes it easier for accident victims to sue.

A study commissioned by Safe Choices for NJ Drivers found the average premium could rise by as much as $182, or an increase of between 9 and 14 percent.

The June 14 Supreme Court ruling allows people who suffer permanent injuries in auto accidents to sue over pain and suffering, even if their injuries don’t meet a so-called “serious life impact” test.

The high court shocked the industry in June when it held that state lawmakers did not carry over the “serious life impact” test that limits lawsuits when they reformed the car insurance system in 1998.

The insurance industry has urged lawmakers to amend the law to make it clear that the “serious life impact” test is still in effect.

But Assemblyman Neil Cohen, chairman of the Assembly Financial Institutions and Insurance Committee, dismissed the industry study as a scare tactic.

“This is, ‘The sky’s falling,’ and it isn’t falling,” Cohen, D-Union, told The Star-Ledger of Newark, adding there is “no chance of passing anything at all” in the Legislature to reverse the court ruling.

Jaimee Gilmartin, a spokeswoman for the Department of Banking and Insurance, said the department has seen no evidence that the decision is causing financial problems for insurers.

“To this point, there hasn’t been any indication of a drastic impact, or any impact on the market and on insurance rates,” she said. “It’s way too soon to tell.”

Bernard Flynn, general counsel and senior vice president for New Jersey Manufacturers Insurance Co., said higher premiums are inevitable unless the ruling is undone.

“It’s not going to happen overnight, but it will happen in time,” he said. “The door has been opened to minor injury lawsuits. More lawsuits mean higher costs for New Jersey drivers.”

In DiProspero v. Penn, the high court’s justices on June 14 unanimously ruled that the so-called “serious life impact” test that was applied under the previous verbal threshold to limit when injured claimants could sue for non-economic damages does not apply under the current law, the Automobile Insurance Cost Reduction Act (AICRA) passed in 1998.

In reviewing the history, intent and language of the current statute, the court determined that state lawmakers did not intend to carry forward the life impact test when they enacted AICRA. New legislation would be required to do this, the justices held.

The life impact test, first applied in Oswin v. Shaw in 1992, made it more difficult for motorists to sue. The Oswin court concluded that in addition to proving that an injury fit into one of nine statutory injury categories of the verbal threshold, the accident victim also had to prove the injury resulted in a “serious life impact.”

“The Supreme Court has effectively gutted the verbal threshold and potentially opened up the flood gates for litigation in non-serious injury cases,” stated David Snyder, American Insurance Association vice president and assistant general counsel, last June after the ruling was issued. “This ruling wipes out many of the possible savings realized by the nine-out-of-ten drivers who chose to receive discounted premiums in return for limiting their ability to sue for pain and suffering in minor injury cases.”

Last week, a state appeals panel cited the June decision in ruling that a lower court must reconsider the case of a woman who sued after an accident in which she suffered bone fractures. The appeals panel said, even though the fractures were not of the most serious nature, the bone breaks still may have resulted in permanent injury.

According to the National Association of Insurance Commissioners, New Jersey drivers paid a premium of $1,188 on average in 2003. That was the highest in the nation.

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