Understanding how motor insurance operates in the US provides an insight into the differences between the UK and US insurance markets. Roger Rubin explains

CPD is not just about our jobs and what we do on a day-to-day basis. It is also about broadening knowledge and understanding of the insurance market beyond our own day-to-day existence.With global travel an every day event, it is becoming more relevant that practitioners take note of insurance market practice around the world. After all it is our clients who are travelling more regularly to foreign parts and asking for advice on the local requirements for insurance.Just to whet your appetite here is an article on New York motor insurance from Roger Rubin, an authority on international insurance law. To download a PDF of this article as it appears in the magazine click here .He is due to be delivering a series of lectures in the UK in 2004 and if you are interested email us and we will keep you informed. The learning point today is not just what Rubin has to say, but also the fact that a well planned programme of CPD and maintenance of competence should consider some wider aspects of knowledge than just what we deal with on a regular basis.A recent article in Insurance Advocate indicated that Lloyd's was becoming a force to be reckoned with in the US insurance industry. The article presents a short recent history of Lloyd's and a view towards its future in the US market. The article indicates recent reform undertaken including the order to GoshawK Syndicate Management to cease accepting new risks. Although the situation may be clear to the average US reader who is involved in the insurance market in the US, to understand the true relationship between Lloyd's and the US market, in point of fact, to understand the relationship of the UK market to the US market in general a few basics must be looked at.The insurance market in the US, which has as its backbone the bodily injury market, differs substantially from that in the UK. These differences are not solely predicated on difference in law, but have found their way into the psyche of the American insured. The average American believes the slogan of one of the major American carriers, that they "...are in good hands with..." and no doubt to some greater or lesser degree they are. The naïveté of US insurance consumers is measured by their belief that their carriers actually want to pay their claims. This culture has been fostered by media advertising, often showing an accident, either man made or produced by a higher power. After the occurrence the carrier's representative is standing there, chequebook in hand, looking only for an undamaged surface to write out evidence of the carrier's largesse.

Guaranteed freedomAt the outset, it must be stressed that years of advertising and statutory favours have placed the US insurance consumer in a unique position. This position must be recognised by the UK as it proceeds apace in the US liability insurance market. The position of the average US citizen is that if he is involved in an insured event, he will collect. He will collect either directly as a first party insured or he will collect after a lawsuit. Rightly or wrongly, he feels that his right to file that lawsuit is one of the freedoms guaranteed by the constitution. In the UK, a possible litigant faces hard choices. If he is unsuccessful, the costs may be enormous. Not so in the US. Whereas UK insurers advertise "Don't leave family legal protection to a game of chance" and propose various and sundry legal policies to protect UK insurance consumers from costs incurred should he decide to (heaven forbid) exercise legal rights against a liable party and possibly lose, what that consumer is actually doing is purchasing more insurance to allow him to recover under his existing policies.Not so the US insurance consumer. Just as constitutional law in the US is shot through with "fundamental fairness" as defined by the nation's highest court, so is the US insurance consumer secure in the knowledge, that when he pays his premium he is receiving the maximum protection against those incidents over which he has no control.The principal situation that must be borne in mind by the UK insurer who ventures into the US market is that there exists no compunction to litigate. In point of fact, litigation is encouraged by the lack of claimant's liability in the event of a loss of a lawsuit. Just as the new spate of claims firms in the UK advertise that there is no cost in the event they do not settle the claim, so too in the US, all contingency personal injury cases (the majority in the US), do not involve any costs to the litigant from the beginning of the suit to the verdict or settlement.

Fully protectedUnlike the UK, where claims companies work with cases involving liability situations which are unquestioned, in the US, an attorney will "take a chance" in a very questionable liability circumstance, banking on the fact that the carrier will settle rather than spend money on defence. The State of New York is a prime example. In New York State, should the miscreant who struck you or your automobile, rendering you sick, sore, lame and permanently disabled have no insurance, you are fully protected. First, by your own policy of insurance, which has personal injury protection (otherwise known as "no fault coverage" to the extent of about $29,000 (£16,800) for medical costs). Second, so that the New Yorker should not feel that (heaven forbid) he has no one to sue, the Motor Vehicle Accident Indemnification Corporation provides a handy party to sue, should the real liable party be uninsured.Since 1957, insurance in New York for owners of automobiles has been mandatory. Where motorists are, what is termed: "financially irresponsible" , the legislature of the State of New York (in its infinite wisdom) passed a law which provided limited compensation for an injured party, where his injuries were caused by, uninsured motorists, unidentified drivers, stolen motor vehicles, vehicles operated without consent of the owner and other situations where insurance would not be applicable. In that case also, the injured party sues, but he sues the state-created corporation (Motor Vehicle Accident Indemnity Corporation) for his damages.One must realise that the prime difference between motor vehicle insurance in the UK and that in the US, is that in the latter, it is not the individual that is inured, but the motor vehicle itself. Therefore, it is quite possible for a motor vehicle, normally owned and operated by a responsible person, to be out on the road, legally, driven by someone irresponsible with the permission of the owner. What does that mean for the insurer? To begin with, it means that the carrier has no control over who drives the car. Second, the carrier faces liability when the owner is held liable under vicarious liability for the acts of others, whether or not he actively participated in the event. All that is needed is permission and the owner will be liable.

Umbrella policyThis liability becomes even more evident where an "umbrella policy" of insurance is extant. In such a case, pure passivity giving rise to liability is the rule rather than the exception. The only possible limitation to the above is where there is a commercial "high risk" policy for vehicles such as taxis or rented cars. In those cases, the insurer may require that a driver be approved before being put on the road by an insured. However, should another driver be used in his stead, it would be against public policy to deny coverage vis-à-vis an innocent injured party. The lesson is simple. Before entering the insurance market in the US, eyes must be wide open and the risks fully examined. The risks arise not only from the standard criteria used to assess underwriting liability, but also from the societal peculiarities of "the land of the free".

  • V Roger Rubin is university professor of law, New York
  • This page is edited by RW Associates, specialists in training, compliance and competence. Email, ruy.lopez@brokercompliance.co.uk
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