June / July 2003
EXTRA

 The Latest and Most Devastating Tort Reform Attack

Tort Reform Attack

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Imagine living in a country where the insurance industry can dictate self serving changes in our laws to suit their interests.

The April 14, 2003 edition of BestWeek contained an article on page seventeen by Brendon Noonan entitled “AIG Will Pressure States to Adopt Tort Reform”.

On April 7, 2003, the 41st annual conference of the Risk and Insurance Management Society, Inc. took place in Chicago. Maurice “Hank” Greenberg, the Chairman and CEO of AIG (the largest liability carrier in the U.S.) delivered the keynote address.

The article states “The battle for tort reform must be fought state-by-state, the head of American International Group Inc. said, suggesting that his company would wield its influence in the bond market to pressure states to overhaul their civil justice systems. …

“Why would you want to invest in a state that takes you to the cleaners after you invest in it?” Greenberg asked. “Why should we buy their municipal bonds?” He noted that many states are facing budget deficits, and governors would be wise to heed the concerns on potential investors.”

Obviously, AIG is now considering using the tactic of economic sanctions in their quest to force state governments to pass tort reform legislation! They specifically threatened to boycott the municipal bonds of issuing entities of states where they felt that tort reform was needed!

A significant number of insurance industry executives were in the audience. The far reaching effect of this tactic is that it changes future tort reform battles. While ATLA members on both the national and local levels are supporting anti-tort reform legislators this new tactic, if left unanswered, may have such devastating results that once launched there may no longer be anything that can be done!

Although it was not stated in the article, logic dictates that if AIG or other companies were to refuse to buy the municipal bonds of issuers in a particular state then they would be likely to sell off all of their present holdings from the same issuers. This would be sound investment practice at the moment due to the fact that interest rates are at the lowest point since the Eisenhower administration and bond prices are soaring.

If the insurance industry wishes to make their tort reform point in the biggest possible way, why not take the huge profits from the increase in bond prices now and concomitantly destroy the municipalities of any state that does not surrender to the insurance industry’s dictates concerning our civil justice system?

If huge numbers of the bonds from a municipal issuer in any given state were to be dumped on the market at any one time, coupled with the promise that the insurance industry will refuse to buy any more of their bonds in the future, the issuer(s) in question would likely suffer a severe drop in their credit ratings leading to the need to pay much higher interest rates on any new issues. The municipality may not be able to sell the new issues because of there being so much “inventory” of their prior issues available in the secondary market at “fire sale” prices.

These municipal governments must be able to sell new issues in order to fund needed municipal projects and to meet budgetary obligations. If AIG is successful in this plan, how are the municipalities going to do this? If they can’t, then they are bankrupt!

How do you protect our civil justice system when every elected official sees his/her communities going broke? It will be too late!

Further, if this draconian strategy succeeds, what is to stop them from then doing the same thing with the bonds and for that matter the stocks of corporations domiciled in any state that does not let the insurance industry dictate public law and policy to suit there own needs?

Will we remain a Democratic Republic or will we ultimately sacrifice the rule of law for the dictates of the insurance industry in America?

Obviously, corporations would then have no option but to relocate to a state that already has yielded to the economic pressure and demands of this financial “Goliath” of an industry.

Somehow the public must be informed that the insurance industry is now reverting to “Gestapo Tactics” in order to exert their will. This is the worst form of economic blackmail. The insurance industry is giving our citizens the following choice: “Give up your rights or we will financially destroy your communities”!

What can be done?

There is no federal regulation of the insurance industry other than certain anti-trust violations. If it can’t be proven that the insurance carriers planned or acted in concert, this may not constitute an anti-trust violation. Greenberg did not call for an industry-wide effort but merely stated what his company was doing.

The insurance industry is regulated on a state-by-state basis. It is imperative that all ATLA members see to it that their state insurance commissioners threaten to stop any carrier using this tactic from selling insurance in their states.

It is critical that the public be told that the insurance industry has threatened the financial stability of their communities in order to force the limitation of their rights. The only option available to these communities would be to repay their debt by implementing huge tax increases which would: drive businesses out of the communities; create the further erosion of jobs; limit spending on other needs such as education and vital services and eliminate any disposable income that would otherwise be spent and thus would stimulate the economy.

It is critical that we all let our legislators know that we do not live in a country “of the insurance industry, by the insurance industry and for the insurance industry.” They must be told that their choice is to either be publicly shown to spinelessly yield to the dictates of the insurance industry at the expense of their constituents’ rights, or to stand up for the people that elected them and to fight back when our very own communities are threatened with financial failure.

It is equally critical that this tactic be linked to the tort reform proposals of the administration. Said linking could clearly show that the administration is in bed with the insurance industry and thus are willing to destroy the economic future of our communities!

We should all start using the same power of economic boycott to protect the Tort System. There are areas where we can use their own tactic to fight back! Our ancestors have been using this form of protest since “The Boston Tea Party”! Isn’t this merely another form of “taxation without representation”?

Don’t use subsidiaries or affiliated companies of the insurance industry as providers for financial services or products (mutual funds, stock brokers, financial planning, etc.) that are available from other firms that are not “profit centers” for the insurance industry.

Don’t accept their annuities in settlement (this alone will take approximately $6,000,000,000 per year out of their cash flow and possibly up to $120,000,000 per year in illegal kickbacks out of their supposed “tort reform war chest.)

Your client has many alternatives including, but not limited to setting up a trust at a major bank. That way, you do not add to the insurance industry’s “war chest” and you better serve your client by not locking in today’s historically low interest rates and blocking access to their recoveries in case of emergencies. Consider that the total return on investment grade tax exempt bond funds for the last year has been in the range of 9% to 10%!

And, absolutely do not allow them to make their annuity structures a condition of the settlement! If they attempt to do this, ask them how this requirement is in the best interests of their insured. Remember, the liability carrier has an affirmative responsibility to place the interests of their insured ahead of their own financial interests. If they are willing to pay the cost of settlement, then they do not have the right to expose their insured to a trial even if there is an abundance of coverage. AIG is known to be one of the industry leaders using this unethical practice. If you or your colleagues are faced with this approach, you should report it to your insurance commissioner immediately.

While we all recognize that buying numerous insurance industry products such as liability insurance, property insurance, medical insurance, life insurance and disability insurance, etc. is a necessary evil, we don’t have to continue to add to their profit base in areas where non-insurance industry alternatives are readily available.

Remember: They are trying to limit our citizen’s rights and dictate significant reductions in your income for the sake of their own profitability! The time has come to stop inadvertently supporting tort reform by continuing to add to their profits (both legal and illegal)! It is illogical to be contributing to state and national ATLA and related organizations to stop tort reform while simultaneously continuing to pump unnecessary cash flow into the coffers of the very same companies that you are trying to fight.

You must do everything that you can to deprive them of cash flow. You must do everything that you can to barrage your local regulators to take action against them at every turn. You must do everything that you can to influence every one of your colleagues to join you in this fight.

We cannot raise sufficient capital to match their assets in this battle but we can still hurt them financially to the point that they may see that stopping this battle may be financially wiser than achieving their objectives.