financial responsibility laws and compulsory automobile insurance and trinagi and CT and MA

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Automobile Insurance--A Brief History I

Prof. Bill Long 4/11/05

My approach to law, as you no doubt have figured out by now, is that history often clarifies cases, statutes and problems that might otherwise remain opaque to us. Taking my cue from OW Holmes, Jr., who said that a sentence of history is often worth thousands of pages of legal decisions, I try here to lay out important features in the history of automobile insurance from the beginnings until about 1970. The four types of statutes I want to introduce are (1) financial responsibility laws; (2) compulsory insurance laws; (3) unsatisfied judgment statutes; and (4) uninsured motorist laws. If you understand what these are and how they emerged, you will be in a good position to understand basic issues in automobile insurance. This essay will cover the first two categories.

The Basic Problems--Fault and the Irresponsible Driver

Ever since the car was invented in the late 19th century, we have faced the dual problem of accidents and financially irresponsible drivers. Because the tort notion of fault was so deeply imbedded in our legal system around 1900, it was inconceivable that the origins of automobile law would rest on anything other than a fault system. If there was an accident, one would determine who was at fault, and then liability would be assessed according to a fault determination. However, since there were (and are) irresponsible drivers, by which I mean drivers who don't have the financial wherewithal to make whole a person whose property or body they might injure through an automobile accident, there was no way of assuring that even though fault was assessed that the victim of an automobile accident would be able to collect from the tortfeasor. This twofold reality led to the almost simultaneous creation in CT and MA of the first financial responsibility and compulsory insurance laws, respectively.

Financial Responsibility Laws

You might be surprised to know that until the 1970s it was much more usual for a state to have a financial responsibility, rather than a compulsory insurance, law for automobiles. CT blazed the trail in 1925 by its requirement that an owner of a vehicle involved in an accident causing death or personal injury, or property damages in excess of $100, had to prove "financial responsibility to satisfy any claim for damages, by reason of personal injury, to, or death of, any person, of at least $10,000." Ct Public Acts, ch.183 (1925). The CT statute, however, envisioned four ways by which a person could demonstrate the requisite level of "financial responsibility:" (1) having liability insurance to the required amount; (2) posting a bond when required; (3) depositing cash; or (4) depositing stocks or bonds sufficient to cover the aforementioned amount of the judgment. Suspension of license was the penalty for failure to comply. The commissioner of insurance technically had the power to demand proof of this financial ability only when an accident had occurred; in practice, however, the commissioner only made this demand when a complaint by an aggrieved party was filed. Thus, the first foray into automobile insurance made it optional and retroactive. You didn't have to "prove" responsibility until you were liable. Thus, like the proverbial dog who is permitted one bite before it is punished, the CT drivers were permitted one accident before the state clamped down on them. However, where the injured party didn't complain, even the first accident didn't invoke the law's operation. Over the next 40 or so years, well over half the states passed such laws. We see one of them in the Tringali case.

Compulsory Insurance

The automobile insurance industry, which had vigorously fought compulsory insurance in CT (why?), was less powerful in MA. After all, CT is the "home of insurance," and its lobbyists could keep the "free will options" open to consumers through the financial responsibility laws. However, MA has always been a more pro-consumer state, a state with more "grassroots" political clout, and so in the same year CT passed its financial responsibility law, MA passed the first compulsory automobile insurance statute (went into effect in 1927). The MA statute, which looks very "modern" to us 80 years later, required all motorists to acquire liability insurance as a prerequisite to registration of their autos. Mass. Acts 1925, ch. 346. Interestingly enough, for more than 30 years, MA remained the only state with a compulsory auto insurance law. NY passed theirs in 1956, NC in 1957 and then the floodgates opened in the 1960s and 1970s on compulsory auto insurance. Only two or three states today do not require auto liability insurance.

A Few Other Legislative Schemes

In the 1930s and 1940s two kinds of laws, called the "future proof" and "security" laws were passed in many states to try to eliminate the problem of the financial irresponsible/uninsured motorist. The "future proof" laws were similar to the financial responsibility statutes, and required that a person who either was convicted of a serious traffic law violation or a failure to satisfy a judgment resulting from an automobile accident, would have his/her license automatically suspended. The laws made the suspension mandatory in several situations and made the removal of suspension conditional on the passage of time and a subsequent showing of financial responsibility. However, as has often been pointed out, the motorist did not confront any legal constraints on operating the vehicle until an accident or serious violation of the motor vehicle laws took place. In addition, if the driver could satisfy a judgment against him/her, the license would not be suspended. This law, too, was seemingly ineffective in encouraging financial responsibility in motorists.

The "security" laws had a more powerful effect. Under these statutes, first adopted in NH in 1937, all motorists involved in accidents resulting in death, personal injury or property damage exceeding a specified amount, immediately were required to show financial ability to the limits of the financial responsibility law of the state. Although you still had to have an accident for these laws to "kick in," once you had one you immediately had to prove financial competence or have your driving license suspended. The effect of this kind of addition to financial responsibility laws, where enforced, was to encourage most motorists to buy automobile insurance, since this was the easiest way to demonstrate that responsibility.

The next essay brings us up to the uninsured motorist statutes.

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