The Influence of Tort Reform on Auto Liability Losses and Premiums

In response to the growing frequency and severity of court awards, and increasing legal expenses, most states in the U.S. have enacted some set of tort reforms—including limits on attorney contingency fees, modifications of joint and several liability rules, modifications of collateral source rules, limits on liability, and limits on noneconomic and/or punitive damages. While the main target of states’ tort reform activities was medical malpractice insurance, the measures have important implications for the resolution of automobile liability claims as well. If the main objective of enacting these reforms is/was to stabilize the medical malpractice industry, as is often suggested, one would expect auto insurers to experience the same beneficial effects, although perhaps on a smaller scale. The results here suggest that caps on punitive damages may have lowered insurer losses, but most reform measures have had little, if any, discernible beneficial influence on insurers writing auto liability insurance.