KPMG Motor Vehicle Insurance in BC Flashcards
What are the New terms to be used?
- Liability insurance instead of: Total tort or fault based
- Injury insurance instead of: No-fault
- Combined liab and injury insurance(CLII) instead of: Threshold
Contrast liability insurance and injury insurance
- Liability insurance: Protects the party held responsible for causing a crash from personally having to pay for the resulting losses and thereby indirectly compensates the innocent injured party
- Injury insurance: Directly protects the injured party by covering that person’s losses regardless of who was responsible for causing the injury
In KPMG et al, the author asserts that “fault” and “no-fault” portray a simplistic version of reality
Why is “no-fault” misleading?
In NF systems:
• Fault is used in setting premiums
• Fault is used as a criterion for criminal penalties
• Compensation may be reduced for certain at-fault behaviours, e.g. driving while intoxicated
In KPMG et al, the author asserts that “fault” and “no-fault” portray a simplistic version of reality
Why is “Fault Insurance” misleading?
In fault systems:
• Insurance eliminates most of the consequences of causing an accident
• Ineligibility of at-fault drivers for compensation of their own injuries applies regardless of the extent of their fault
What is the basic philosophy of liability insurance?
Based on the belief people should compensate those they have wronged
• Tort law requires the wrongdoer, tortfeasor, to pay for damages caused so as to restore the injured person to their pre-injury condition
What are the drawbacks of liability insurance?
Tort process does not distinguish between different wrongdoers according to the degree of willfulness in their wrongful actions, but only according to the level of the damages they caused. Weakens the direct link between wrongdoing and punishment, except:
• If a wrongdoer was in breach of contract, the insurer may subrogate against the PH to get back the losses
• Because all at-fault drivers pay significantly higher future insurance premiums, thus creating a link between responsibility for behavior and consequences
Briefly discuss Adversarial nature of liability insurance
- Insurer must defend claims made against its PH
- Process is inherently adversarial and uncertain in outcome until fault and the amount of damages are assessed
- Significantly delayed compensation for past damages
- In contrast, compensation for future damages is paid up-front. No assurance that the money will prove adequate, inadequate, or overly generous
- Because of its adversarial nature, liability insurance attracts significant process or transaction cost
Briefly discuss Compensation of liability insurance
- Overcompensate people with minor injuries
- Undercompensate people with more severe injuries
- Resulted from rapidly inflating and precedent-setting court awards for non-economic losses in cases of temporary soft-tissue injury
- Compensation in cases of more severe injury is capped both by the policy limit in effect and by an upper limit on general damages set by the Supreme Court of Canada
Briefly discuss Criticisms of Injury insurance
- Does away with the principle of retribution
- Higher-income victims receive more benefits (even if at-fault)
- Overcompensate people with minor injuries
- Undercompensate people with more severe injuries if aggregate limits are in place
- Potential for becoming impersonal and oppressive (administering, not justice and equity)
- Requires a credible indep dispute resolution process
Briefly discuss Arguments in favor of Injury insurance
- Wrongdoers can be punished with higher premiums
- Preferable to liab system that denies compensation to one who has committed only a minor error
- Less adversarial and provide a more certain outcome, since fault is not usually an issue and the amount of losses covered are determined by a structured admin and adjudication process
- Compensation for future economic losses is not paid until the need to replace those losses actually occurs
- Generally attracts lower process and transaction costs
- Potential to shift the operating mission of insurance from focusing on money to focusing on wellness
- Provides less highly individualized compensation
What is the rationale for a combined system?
- Compromise between injury/liability insurance
- More affordable as transaction costs are reduced
- Produces savings as non-economic damages are limited/eliminated for minor injuries: More money is available for more severe injuries
What are the types of combined systems?
• “Choice” Plans:
o PH choose primarily liability or injury based policies
o Non-PH injured did not have to make choice!
o Handling an accident between a tort and a NF vehicle
• Most states/prov have a system where the bulk of compensation is provided based on liab, with limited add-on injury benefits
• Threshold System (ON):
o Compensate victims on an injury basis without regard to fault, allow those whose losses exceed a specified threshold to file claims and take legal action
o Reserves the liability process for more serious injuries
Discuss the Purpose and Types of applications of deductible in a threshold system
Applied on non-economic damages to discourage exaggeration in order to exceed the threshold
- Flat ded: Applied uniformly to all claims
- Franchise ded: No longer applies when claims reach a 2nd larger amount
- Diminishing ded: Decreases as claims size increases
Provide Types of threshold systems
- Descriptive basis: Describing what types of injuries exceed the threshold
- Monetary basis: Permitting liability claims when economic loss portion exceeds a specified dollar amount
- Combination of both
***Strong descriptive thresholds work better than monetary, which tend to encourage inflation in awards over time so that liability action can be pursued
Contrast Economic Losses and Non-Economic Losses, as covered by Bodily Injury (fault) and Accident Benefits (no-fault)
Economic losses
• Income support: Wage loss, fatality compensation
• Care costs: Medical expenses( current and estimated future cost)
• Expenses: Replacement services, funeral cost
Non economic damage
• Include intangibles such as pain and suffering, and lost opportunity (Tort: Supreme Court of Canada set an upper limit on general damages in 1977)
