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Legal Facts and Fiction

THE TRUTH BEHIND THE HYPE — VOLUNTEERS, NON-PROFITS AND INSURANCE RATES

In the mid-1980s and beyond, a number of states enacted laws to immunize from liability volunteers and/or non-profit organizations. Proponents of these laws said they were needed to remedy the so-called "insurance crisis" at that time — skyrocketing insurance premiums, reduced coverage and arbitrary cancellations of insurance policies that had hit small businesses and non-profit organizations.

There is now remarkable agreement that the cause of this "crisis" had nothing to do with litigation, but rather with mismanagement by the insurance industry (see below). In the early 1980s, when interest rates were high, the industry lowered prices and insured poor risks in order to obtain premium dollars for investment. When interest rates dropped, and investment income decreased, the industry responded by sharply increasing insurance premiums and reducing the availability of coverage.  

Not only is there no such "insurance crisis" today. But most importantly, insurance companies will not stop price-gouging their customers unless states enact effective insurance industry reforms.

FACT: Business Week concluded in a January 12, 1987, editorial, "Even while the industry was blaming its troubles on the tort system, many experts pointed out that its problems were largely self-made. In previous years, the industry had slashed prices competitively to the point that it incurred enormous losses. That, rather than excessive jury awards, explained most of the industry’s financial difficulties."

FACT: Maurice R. Greenberg, President and CEO of American International Group, Inc., one of the country’s leading property/casualty companies, told an insurance audience in Boston that the industry’s problems were due to price cuts "to the point of absurdity" in the early 1980s. Had it not been for these cuts, Greenberg said, there would not be "all this hullabaloo" about the tort system. Greenwald, Insurers Must Share Blame: AIG Head, Business Insurance, March 31, 1986.  

FACT: J. Robert Hunter, former Texas Insurance Commissioner and Federal Insurance Administrator under Presidents Ford and Carter, testified before Congress in 1986, that "in the early 1980s, [insurance companies] were writing the MGM Grand Hotel fire after the fire, [which was, in effect], retroactive liability insurance. They lusted after the cash-flow [of] liability policies. When interest rates dropped, they lost their lust," Hearings before the Subcommittee on Oversight of the House Ways and Means Comm., 1986. 

FACT: The Ad Hoc Insurance Committee of the National Association of Attorneys General concluded in its May, 1986 report on the insurance industry, "The available data indicate that the causes of, and therefore the solutions to, the current crisis lie with the insurance industry itself."

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