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0 Litigation Patterns in Automobile Bodily Injury Claims 1977-1997 Effects of Time and Tort Reforms Mark J. Browne University of Wisconsin-Madison Joan T. Schmit University of Wisconsin-Madison February 20, 2006 Abstract: Benefiting from the extensive claims data available from the Insurance Research Council Closed Claims Surveys from 1977 to 1997, we investigate changes in claiming patterns among automobile third party claimants. Using state tort reform variables as controls, we find results consistent with general public opinion that lawyer use and claim filings have increased over the study period. Furthermore, the reforms themselves show effects consistent with expectations. Passage of joint and several liability limitations, caps on damages, and punitive damages reforms all reduce both attorney use and claim filing. Insurability of punitive damages and no-fault legislation lead to higher attorney use and claim filing. Using state variables as controls instead of reforms, however, we find that claim filing was higher in 1977 than 1997 and lawyer use statistically unchanged between the two periods. One possible cause for the differing results is that the tort reform variables are picking up a time effect, as observed in the mean values over the three data periods studied. To identify the marginal effect of the reform, we also ran the analysis with reform/data year interaction terms. In this third analysis, we find that use of attorneys and filing of legal claims has increased over time, and that most of the reforms have been effective in dampening both of these behaviors.1Litigation Patterns in Automobile Bodily Injury Claims 1977-1997 Effects of Time and Tort Reforms I. 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 U.S. 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 in1997 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 find2generally 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 U.S. 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 back 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 section two. In section three 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 section four, with results presented in section five. In the sixth section we present implications of our findings and suggestions for future research. II. Literature on Litigation Patterns Over the past three decades, a great deal of research has been reported on various aspects of U.S. litigation patterns. Some of it has dealt with changes in numbers of legal claims filed in various courts and jurisdictions (see, for example, various reports by the3Bureau of Justice Statistics, a subsidiary of the U.S. Department of Justice, http://www.ojp.usdoj.gov/bjs/). These studies, however, have been hampered by a variety of underlying problems, such as lack of good sorting techniques. For instance, civil claims encompass all cases involving bankruptcy filings, prison discrimination suits, as well as product liability and automobile injury claims, among others, limiting an ability to quantify changes in willingness to sue for specific areas of tort law. Lack of data on the underlying safety of various activities is a further limitation. For instance, if we observe rising rates of claims in product or automobile liability, we cannot distinguish the cause between rising accident rates or rising willingness to sue. Setting aside the question about causation, commonly accepted notions of U.S. litigation patterns indicate that rates rose dramatically during the 1980s and have steadied or declined recently (see Reimann, 2003). A second branch of research on litigation patterns investigates the effects of various legislative modifications to the civil litigation system, commonly known as “tort reforms.” This latter area has benefited somewhat from availability of


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