Corrections or additions?
New Car Insurance — What’s Up?
This article by David R. Cohen, Esq. was published in U.S. 1 Newspaper
on
November 25, 1998.
As nearly all New Jersey drivers are likely aware,
the 1997 elections brought to light many problems with auto insurance
coverage and rates in the State of New Jersey. Unfortunately, the
1998 legislation that arose as a result contains many opportunities
for unsuspecting consumers to be greatly harmed by the choices they
make when purchasing insurance under the new law.
To understand the impact of the new laws, it is necessary to take
a step back into the history of New Jersey’s complex and ever evolving
automobile insurance law. The type of coverage commonly known as
“no
fault” came into being in New Jersey in 1971 as a result of
research
conducted by a number of professors in Wisconsin. Unlike prior
insurance,
the new no-fault law allowed drivers in an accident to obtain benefits
from their own insurance company without regard to negligence issues.
In other words, certain benefits could be obtained by the driver even
if he or she caused the accident. The original intent behind this
legislation was to allow drivers access to quality medical care before
potentially complicated liability issues were resolved. This system
of no-fault benefits also included lost wage benefits, funeral
benefits,
essential service benefits, and a host of other coverages, which
ultimately
led to the most comprehensive and complete automobile insurance
coverage
in the nation.
As might be expected, the gold standard of coverage
in New Jersey also came with a price. Since New Jersey drivers were
provided with the best form of no-fault coverage in the nation, it
was determined in 1985 that New Jersey residents were only permitted
to make claims for pain and suffering against other drivers if they
had incurred a certain amount of medical expense. This floor began
at $200 and eventually was adjusted to $2,000 in the later years of
what was called the monetary threshold. The intended concept was to
reduce the smaller claims, while still allowing more significantly
injured individuals to make claims against negligent drivers.
Put simply, that system did not work. People who were coming close
to reaching that monetary threshold were motivated to seek more
medical
treatment to simply attain the right to make a claim. In 1989, the
legislature again attempted to refine the system. In that year,
Governor
Thomas Kean enacted what was commonly known as the verbal threshold
(a.k.a. lawsuit threshold). That system replaced the old monetary
threshold system with a series of words which, in effect, were
intended
to describe various injuries that would satisfy the threshold.
At the time of its enactment, various critics of the new law predicted
that courts would become clogged with judges, attorneys and litigants
attempting to understand the nearly indecipherable language contained
within that law.
It was also predicted that injured parties who were required to prove
various forms of injury would seek out various diagnostic tests
necessary
to preserve their rights — thus actually increasing medical costs
on auto accident cases.
Finally, critics predicted that the verbal threshold would do nothing
but increase the cost of automobile insurance in New Jersey.
Unfortunately,
in 1998 we all know that each of these dire predictions came to
fruition.
Nine years after the much touted lawsuit/verbal threshold was enacted,
New Jersey’s automobile insurance rates are the highest in the nation.
One factor which didn’t seem to gain much attention in political
debates
during the 1997 Gubernatorial campaign or elsewhere was the simple
fact that New Jersey is the most densely populated state in the
nation.
The New Jersey Turnpike is literally the most highly traveled toll
road in the world. New Jersey is also a fairly affluent state, with
many people operating expensive automobiles on its roads. All of these
factors put together lead to an inevitably high incidence of motor
vehicle accidents involving very significant property damage. Much
of the debate ignored the fact that often 40-50% of the premium paid
by Now Jersey motorists covers damage to property and to vehicles,
rather than injuries to people. Instead, the insurance lobby and the
governor focused on the time tested tactic of attacking
consumer-attorneys.
At present, there is little in the new legislation to address the
problem of property damage premiums.
Nonetheless, in response to the rising political importance of
automobile
insurance and the skyrocketing rates, the legislature has again
attempted
to remedy the situation.
As was the case in 1989, it has been predicted by many that the new
legislation will not reduce insurance rates, and more importantly,
will severely diminish the rights of motorists in New Jersey. It is
disappointing that the new legislation attacks middle class and lower
class citizens of New Jersey, while preserving the rights of the
wealthy.
What is also disappointing is that the new legislation has been
drafted
without altering the required insurance law of New Jersey, which
indicates
that anyone caught driving without insurance is subject to a one year
loss of license and various other penalties. Thus, New Jersey
consumers
are compelled to spend their hard earned money on insurance which
arguably provides little or nothing in return for their premium
dollars.
The 1998 law essentially provides for two types of automobile
insurance
policies. These are labeled as the “basic policy” and the
“standard policy.” While the standard policy has many
similarities
to the insurance that New Jersey motorists have maintained in the
past, the basic policy robs the motorist of even the most basic of
coverages and is one which should be greatly scrutinized before it
is purchased.
The best way to understand the basic policy is to
understand
what it does not cover. Most importantly, unless optional coverage
is separately purchased, the basic policy literally provides no
liability
coverage. This means that the driver of a motor vehicle covered by
a basic policy will have absolutely no coverage if that person is
named as a defendant in a lawsuit for bodily injury or economic
losses.
Further, the insurance company has no obligation to defend such an
individual if he or she is named as a defendant. This could result
in significant judgments against these drivers and can permanently
damage one’s credit. A driver with no liability coverage can
experience
financial devastation. Also important to understand is that the basic
policy provides only minimal medical coverage in the amount of
$15,000,
absent catastrophic injury. Unfortunately, this means that there will
be no coverage for the vast majority of those soft tissue injuries
which often require well in excess of $15,000 in medical expenses.
These policies also carry only $5,000 in property damage.
Thus, the driver of a car covered by the basic policy who causes any
other vehicle to sustain in excess of $5,000 in property damage would
be personally liable for the balance. Also important is the fact that
the basic policy does not provide uninsured or underinsured motorist
coverage. Thus, the basic policy does not protect the owner of the
vehicle or the owner’s family from the negligent actions of other
drivers — who may have little or no insurance. This can leave
families penniless after a catastrophic injury.
Particularly onerous with the basic policies is the fact that they
do not even allow the driver access to his or her own health insurance
company to obtain quality medical care in the case of an automobile
accident, but instead limit that person to very restrictive medical
protocols which were actually devised by an accounting firm, rather
than a medical association. No longer does New Jersey carry the gold
standard of no-fault coverage in the United States.
In the alternative, the standard policy affords New Jersey motorists
many (but not all) of the rights that they enjoyed prior to the 1998
legislation. This type of policy allows individuals to opt out of
having any type of threshold on their policy and further affords them
the opportunity to potentially obtain quality medical care-with a
policy maximum of $250,000 in coverage. Most importantly, it allows
drivers the opportunity to purchase uninsured and underinsured
motorist
protection in order to protect themselves and their families from
the predicted legions of drivers who will either be uninsured or who
will purchase the basic policy-which provides absolutely no liability
coverage in most instances.
At the time of this writing, much of the regulatory schemes
surrounding
this new law is still being debated at the State House. However, it
is certainly clear at present that drivers should carefully examine
their options before making decisions under the new law. It is very
important for drivers to recognize the rights that they will give
up if they purchase the basic policy.
David R. Cohen, a shareholder in the law firm of Starkand Stark, is a member of the Personal Injury Group. A member of theNew Jersey bar, he practices in the U.S. District Court, Districtof New Jersey, and the U.S. Court of Appeals, Third Circuit. He amember of the Mercer County Bar Association, the New Jersey StateBar Association, the Association of Trial Lawyers of America, theAssociation of Trial Lawyers of America — New Jersey, and is amember of the Minority Concerns Committee of Mercer County Vicinage.Additionally, he is alternate outside counsel for Princeton UniversityCohen is a co-host and moderator of the show “In the PublicInterest,”which airs on radio station WINIG AM1300 and on television stationWZBN, Channel 25.After attending the University of Delaware, Cohen received a B.A.in Economics and Philosophy from George Washington University in 1986.He earned his J.D. from the Rutgers University School of Law-Camdenin 1989. Cohen lives with his wife in Princeton.Stark & Stark provides free legal consultation to all consumersregardingautomobile insurance law and the difficult choices surrounding thepurchase of automobile insurance. Call 609-896-9060.Top Of PageFast Car Loans?Try 15 SecondsCould it be faster? Probably not. Get a car loan throughAAA Financial Services in “as little as 15 seconds,” saysRichard Sherman, vice president of finance at AAA Central-WestJersey. At the auto club’s national website(https://www.financial.aaa.com)users can apply for an auto loan and get credit approval on theirhome PCs through a software program provided by PNC Bank.”This is one of the first sites on the Internet that givescustomersfast approval online,” says Sherman. Most on-line applicationsare E-mailed to a financial institution and then re-keyed into theircomputer system. Instead, this service feeds user information directlyinto a decision model.If the loan is approved, users are notified on their computer screens.A follow-up E-mail with the loan reference number usually followswithin the hour. Then the AAA members can elect to receive the loandocuments and check by overnight mail, or that very day they can goto the AAA branch office in Hamilton and get a print-out of the loandocuments and a check. (An identity check accompanies the handingover of the money.)PNC’s system is protected by 128-bit encryption. Because so many AAAmembers have sophisticated home computer systems, this system willenable 90 percent of them to access and complete the applicationwithoutgoing through a browser upgrade.About 15 or 20 percent of the submitted applications are approvedwithin 15 seconds now. Sherman believes online approvals could beas high as 70 percent by next year. Next up: AAA will team with PNCto provide online ways to apply for credit cards and consumer loans.Call 609-890-2816 for information.– Barbara FoxCorrections or additions?This page is published by PrincetonInfo.com— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
