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"Caps" or limitations on recovery

        Since some politicians have made tort "reform" a vote-chasing mantra, caps and other limitations on recovery have been a popular legislative "fix" for "frivolous" lawsuits.  Off the top, everyone should recognize that limitations on recovery are not really a solution to frivolous cases for several reasons.  First and foremost, caps limit the top-end recovery on meritorious cases, not on cases having no value.  Second, by definition, "frivolous" cases have NO merit and are subject to dismissal and numerous other sanctions--usually judicially imposed.  Caps reduce what people with substantial injuries can recover.

        Caps are not really a new thing.  Almost every auto or homeowner liability claim has built-in caps determined by the limits of coverage purchased by the person who was at fault.  If the at-fault purchased only $100,000.00 of liability coverage it is likely that a victim will recover no more than that:  usually the at-fault's assets are thoroughly protected by the appointment of counsel with a fiduciary duty, the cost of litigation when compared with likely supra-insurance recovery, and other limitations based on creditor and bankruptcy protections.

        The most common limitation on auto policies from good companies is in the range of $100,000.00 to $300,000.00.  Homeowner coverages in Michigan tend to fall in the $300,000.00 to $500,000.00 range.  Professional liability coverage is very unpredictable, but $200,000.00 to $400,000.00 is very common.  Some individuals and many corporations purchase some form of umbrella coverage which usually adds one million dollars of liability coverage to an underlying policy.

        Despite three decades of tort "reform", the Michigan legislature has refused to increase the mandatory minimum limits of liability coverage on automobiles.  Just as in the early 70s, a driver or owner can put a car on the road in Michigan, legally, with only $20,000.00 in liability coverage.  If that driver is also a youngster or an alcoholic unable to hold a job, it is likely that the $20,000.00 of coverage he or she bought is all the compensation that a victim will ever see (and perhaps not all of that if there are fees and costs).  $20,000.00 doesn't do much to compensate a victim for a lifetime of paralysis, for example.  For that reason, wise consumers of auto insurance also purchase Uninsured and Underinsured Motorist Coverage, to protect their own family members from an at-fault with limited or no coverage.  For a very cheap premium, protection for family members can be augmented or increased to the level of liability coverage purchased.  A few of the lower tier insurers (i.e., Allstate, State Farm, AAA) either won't sell Underinsured Coverage, or will sell only coverage with very small limits).

        Part of tort "reform" in Michigan was to institute similar caps, through legislation, on all product liability and medical malpractice judgments for non-economic damages.  While the victim is allowed to recover (to the extent of the insurance coverage available) all of his or her economic damages (that is, lost wages or medical expenses, sometimes domestic service expenses), they can recover only the capped amount to compensate for pain and suffering or for the loss of society and companionship of a decedent.  Malpractice judgments are rendered in two tiers, indexed to the cost of living, so that people with catastrophic injuries can recover more money than people with undesignated serious injuries.  The limits started at $280,000.00 and $500,000.00, depending on the nature of the injury.  These caps can be very unfair to retired persons and others who do not have a concrete wage.

        Just as victims cannot tell the jury that there is insurance coverage or what the at-fault's coverage limits are, the litigants aren't allowed to tell the jury of these statutory "caps".  The jury is allowed to render a verdict in whatever amount it deems appropriate, but the judge subsequently reduces the verdict to the capped amount.  These rules on disclosure were instituted at the behest of insurers who believe that juries will artificially depress verdict amounts to protect an individual and his family from a large award, if they are unaware of the fact or amount of insurance.

        Of course, the legislature did not consider some of the other ramifications of instituting a cap.  For example, if a company knows that an award cannot exceed $300,000.00, it need not fear a "runaway" jury, or even a significant award, and the impetus for the insurer to compromise is removed or significantly reduced.  Further, since the cap represents the MOST the insurer can award, many insurance adjusters will not offer to settle by paying the "cap"--even if payment would be warranted:  in effect, the practical cap on recovery becomes an amount much smaller than the actual cap.  The "true cap" becomes the statutory cap, reduced by the cost of drawn-out legislation, taking into account the risk of losing or winning a smaller verdict.

        One of the most difficult aspects of recovery limits is the public policy impact of the choice to institute caps or to minimize coverage limits.  In the case of catastrophic injuries, if the applicable liability coverage is minimal, it is likely that taxpayers and the victim's family end up bearing the cost of the injury or death.  If the injury resulted from risky behavior by the at-fault, the cost of that behavior is not increased in advance to reflect its actual human toll by realistic underwriting.

        In Michigan, the caps and limitations on death cases operate to limit the total recovery for the death--not the recovery for each family member.  Thus, if an at-fault purchased liability limits of $20,000.00/$40,000.00, only $20,000.00 will be paid, in total, to all of the survivors of the victim, and only $40,000.00 will be paid, in total, to all of the victims of a single occurrence, regardless of how many victims were killed or injured.  Under Michigan "stacking" rules, if the at-fault owned two different vehicles, the policies are normally written so that only one policy limit applies and the coverages cannot be "stacked", and these coverage rules are enforced by the Courts.  Coverages on two separate people (say the owner and the driver) through two separate companies can be "stacked".

Thompson O’Neil, P.C.
309 East Front Street
Traverse City, Michigan 49684
Toll Free: 1-800-678-1307
Fax: 231-929-7262