Wednesday, September 16, 2009


Swine flu and insurance.

In January some army recruits at Fort Dix, N.J., reported to the infirmary with what appeared to be bad colds. By February 13 further investigation, in cooperation with the federal Center for Disease Control in Atlanta, indicated that the recruits had so-called swine influenza, a relative of the Spanish flu that had broken out in the closing days of World War I and killed 500,000 persons in the United States and 20 million around the world in 1918 and 1919. This March 24, President Gerald Ford announced a program to inoculate everyone in the United States against the swine flu virus. The four largest U.S. drug firms began work to prepare the vaccine. In June, however, the Warner-Lambert Company, which was expected to supply half the vaccine, notified the federal government that it was losing its liability insurance on the vaccine program July 1. The other companies reported they too were having difficulty with their insurance programs. It was feared by the insurers that they would face not just the usual quality control and related problems involved in such a large crash program, but that the controversial nature of the mass inoculation drive would lead to the filing of a great number of lawsuits. The insurers estimated that it would cost them $25 billion in legal expenses just to defend the suits, in addition to any monetary settlements awarded by the courts. The pharmaceutical companies asked for governmental intervention.

In August, after long debate, Congress passed legislation under which people claiming injury as a result of the vaccination program would sue the federal government rather than the drug firms. The government in turn would be able to sue the drug firms and medical personnel involved to recover money paid out in cases where negligence was proved. But the firms were freed of the responsibility—and the cost—of defending unwarranted suits. Nobody could predict at the time what the cost of this risk assumption will be to the government. In the past there have been few negligence claims in connection with flu shots. Public health officials think the cost may be only a few million dollars. However, based on their medical malpractice experience, some insurance executives believe the cost might run into the billions.

Product liability.

The swine flu insurance problem is, essentially, one of product liability. Increasingly, consumers have turned to courts to obtain reparations for injury resulting from purchased goods or services. A recent study estimated that about 1 million product liability cases were filed this year. As in the swine flu situation, just the cost of appearing in court to answer the suits can be a staggering sum for the insurers.

Several proposals have been made to deal with this cost problem, including the substitution of arbitration for jury determination of awards; the establishment of a relatively short period during which claims could be made; and the elimination or restriction of the contingent fee basis for paying lawyers. It has been charged that this fee system, under which lawyers receive payment only if they win a case, leads some lawyers to encourage suits.

Property and liability companies.

There was an overall improvement this year in the financial position of property and liability insurance firms, which in 1975 experienced their worst year ever in terms of losses from claims. The firms' earnings on investments rose this year, in part because of the recovery of the stock market. Increases in insurance rates and a slowing of inflation (which had helped drive up such costs as automobile repair) also benefited insurers. Reflecting the industry's improved position, indexes of insurance stocks went up even faster this year than general stock market indexes. The increasing prosperity of the insurance companies will do much to solve one problem that appeared in recent years. Property and liability companies had been unable to meet the need for new policies because losses on claims and poor investments left them with insufficient funds to satisfy state requirements for capital necessary to write insurance. Thus, even some well-qualified applicants were being refused coverage.


Microsoft ® Encarta ® 2007.

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