For two years in a row, Louisiana has had the ignoble distinction of finishing dead last, with a grade of “F,” in the R Street Institute’s annual report card of the insurance regulatory environment in each of the 50 states.
But legislation the state Senate voted May 31 to move to Gov. John Bel Edwards’s desk could put Louisiana on a path out of the basement, mostly just by making the state’s uniquely terrible tort environment a lot more average. A “C,” after all, is a passing grade.
There are various reasons Louisiana has scored so poorly in our annual rankings, but high among them is the sad state of its auto insurance market. Over the past five years, only Colorado and Michigan have had higher loss ratios for personal auto insurance than Louisiana. Moreover, only Alaska and New York have more concentrated markets.
This combination of high claims and lack of competition can be directly traced to a tort system that makes Louisiana a very unattractive place to do business. The state has the nation’s highest claims-to-litigation ratio and its drivers reported 1.75 bodily injury claims per 100 insured vehicles in 2017, compared to a national average of less than 1. S.B. 418 could change much of that by finally tackling some aspects of Louisiana’s system that are uniquely favorable to the trial bar.
The Seventh Amendment may grant the right to jury trial in civil cases where the “value in controversy” exceeds $20, but Louisiana is one of 14 states that impose significantly higher monetary thresholds for civil trials to be held before a jury. In fact, at $50,000, Louisiana’s threshold is by far the highest in the nation. Maryland, with the second-highest threshold, provides jury trials in any tort case that exceeds $15,000, by contrast.
For plaintiffs’ attorneys, the value of Louisiana’s extraordinarily high threshold is that many cases will instead go before elected judges. Indeed, 53 percent of auto claims in the state are under the $50,000 jury threshold. This makes it much easier to shop around for venues and judges most likely to be friendly. S.B. 418 would lower the jury threshold from $50,000 to $5,000, which should help reduce the volume of frivolous cases.
Another way the bill would make Louisiana more like other states is by repealing its “direct action” statute, which dates to 1918. Common law does not extend standing to third parties to enforce contractual obligations to which those parties are not “in privity.” In other words, you cannot usually sue somebody else’s insurer to enforce their insurance contract. Louisiana has been one of nine states with a statute explicitly permitting a plaintiff to bring suit directly against a third party’s liability insurer. S.B. 418 would end that.
The bill also would extend Louisiana’s “liberative prescription” for “delictual actions”—that is to say, the statute of limitations to bring personal injury lawsuits—from the current one year to two years. Most states require suits be brought within two to five years of the injury. The effect of Louisiana’s unusually short statute of limitations is to force many more claims into the courts that likely could have been resolved without the need for litigation.
Another change called for in the bill would move Louisiana out of the list of 13 states that currently apply the traditional common law “collateral source” rule, which holds that evidence about actual amounts paid for medical services rendered are generally inadmissible at trial. The specific change is somewhat more unusual, although not unheard of. Louisiana would join Idaho, North Carolina, Oklahoma, Pennsylvania and Texas as states that limit recoveries of medical damages already paid to the amount actually paid by a health insurer, Medicaid or Medicare, rather than the amount billed by a medical provider.
And finally, in one of the few ways in which the law would move Louisiana away from the majority of states, the bill would see the state join 15 others that allow juries to reduce bodily injury awards in cases where the driver was not wearing a seat belt.
It remains to be seen whether Edward will sign the legislation. It should be noted that, were they to maintain the 34-0 and 72-28 margins by which the Senate and House, respectively, passed the measure, the Legislature would be able to override any possible veto by the governor.
The bill certainly would not fix all that ails Louisiana’s insurance regulatory environment. It remains a state that politicizes regulation with an elected insurance commissioner; that collects two and half times as much in regulatory fees as it spends on regulation; has the second-highest premium tax burden in the country; maintains a large residual property insurance market; and imposes price controls on homeowners, auto, workers’ comp and medical malpractice insurance. But it would be a big step in the right direction.
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