Decreasing Car Insurance With Tort Reform

Tort reform may help prevent increasing car insurance rates by creating equitable settlements in court for car insurance companies. Tort reform limits the amount of financial rewards to accident victims.

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Zaneta Wood, Ed.S. has over 15 years of experience in research and technical writing bringing a keen understanding of data analysis and information synthesis to reach a wide variety of audiences. She studied adult education and instructional technology at Appalachian State University as well as technical and professional communication at East Carolina University. Zaneta has prepared technical p...

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: May 28, 2020

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Here's what you need to know...

  • Tort reform is the idea of bringing changes to the legal system to bring lawsuits more in line with fairness and financial practicality
  • The problem with the current tort system is the fact that juries are by default sympathetic to accident victims rather than insurance companies
  • By reforming the tort system and requiring accident victims to provide some measure of evidence to justify their lawsuit, we are leveling the playing field between plaintiff and defendant

It’s probably obvious to most of us who have been driving for 20 years or more that car insurance rates are going up disproportionately to the rest of the things we pay for.

One of the solutions being proposed to slow down rising insurance rates is tort reform. But tort reform comes with a whole host of questions, not the least of which is, will it work to decrease auto insurance rates?

Tort reform has been on the table as a solution to increasing insurance rates not only for car insurance, but also for health, homeowners, and umbrella insurance.

Unfortunately, despite all the talk from politicians, it’s never really dealt with outside of sound bites and political speeches. That’s unfortunate when you consider that reforming the tort system will provide at least some relief – if not completely solving the problem altogether.

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What is tort reform?

To begin with, tort is a part of the legal system falling under the jurisdiction of civil courts rather than criminal courts. The word itself is a reference to a wrong that one party does to another, outside of breach of contract or a criminal offense.

When one of these wrongs is brought to a civil court, the court settles the issue by assigning blame and rewarding compensation accordingly.

For all intents and purposes, we can simplify tort by associating it with the word “lawsuit.”

Therefore, tort reform is the idea of bringing changes to the legal system to bring lawsuits more in line with fairness and financial practicality.

For example, in some states if an accident victim sues for pain and suffering, there is no limit to the financial award a jury can give. That’s why so many insurance companies settle out of court and pay several million dollars to an accident victim.

If that insurance company went to court instead, the award could be several times that amount.

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How would tort reform decrease car insurance rates?

At this point in the game, tort reform is unlikely to reduce the amount we currently pay for insurance. But it would probably help a great deal in preventing further increases.

With proper tort reform, insurance companies would stand a better chance in civil litigation at receiving a fair outcome. As it stands now, it is very rare for insurance companies to win a case in court. It’s also very rare for them to be assessed with an award that is justifiably fair.

The problem with the current tort system is the fact that juries are by default sympathetic to accident victims rather than insurance companies.

This disconnect causes many juries to believe an insurance company is an unlimited pool of cash just waiting to be taken. The only way insurance companies can keep up at times is to raise rates.

The more punitive awards are given by juries, the more we all pay in higher insurance premiums.

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Won’t tort reform take away consumer rights?

If done properly, tort reform would not strip consumers of any of their individual rights. It’s simply a means of putting a limit on certain types of jury awards.

Using the previous example of pain and suffering, there is no way to accurately measure this in financial terms. Not only that, but with no other alternative, juries tend to measure it based solely on an emotional plea of the plaintiff.

Therefore, it’s not wise to allow a jury to decide on a financial award without limits.

Good tort reform will also take into consideration a burden of proof by plaintiffs. Just like in a criminal court where defendants are considered innocent until proven guilty, civil courts need to be transformed to follow the same line of thinking.

Currently, insurance companies are always perceived as the bad guys while accident victims are always good guys. But we know insurance fraud is common because of this unjust perception.

By reforming the tort system and requiring accident victims to provide some measure of evidence to justify their lawsuit, we are leveling the playing field between plaintiff and defendant.

The burden of proof should always be on the plaintiff, never on the defendant. That means an accident victim who is suing for pain and suffering must provide proof that the pain and suffering actually exists. If he’s suing because he claims he can no longer work, that also must be proved.

There are other things that can be done to help lower rates across the board. But tort reform is a step in the right direction.

Let’s hope our government leaders at both the federal and state level will eventually have the courage to tackle this issue in a real and meaningful way.

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