I have read testimony on this point, I believe before the Senate Judiciary Committe. One constitutional law expert claimed, as I understood his testimony, that as soon as S. 354 becomes Federal law, that climinates all State laws that are contrary to the provisions, including tort laws and existing no-fault laws. I believe he said something to the effect that it would also include any insurance regulatory provisions counter to the Federal law. Until some action is takeneither that the State enacts minimum standards or tile 3 comes into effects-there is no reparation law.

Now, I don't think that is what this committee means.

Senator Moss. No, that is not. Title III doesn't become operative for 4 years if the State already has a no-fault law.

Senator BUCKLEY. But would this mean that if a State has guaranteed certain rights under its constitution that that State would be required or bound by the law to amend its constitution?

Mr. KIRCHER. Whether they'd be required to amend their constitution or their provisions would be declared inoperative Federally, the net effect would be the same.

Senator BUCKLEY. Does anyone else want to comment on that?

Mr. BAUMAN. Perhaps Illinois provides an example of the chaos that Mr. Kircher is talking about. It's my understanding and I'm from Belleville, Ill.-that when that no-fault act was declared unconstitutional, that it cost the insurance companies approximately $6 million, because of the unconstitutionality of it.

The $6 million, of course, is passed on to the public in Illinois, to make up the deficit.

If the same thing happened federally, it would be compounded.

Senator BUCKLEY. There is one other area that I would like to inquire about if I may. I believe, Mr. Brock, that in your testimony you stated that compliance with title II would change the rating system for automobile insurance to one similar to the ratings structure for accident and health insurance.

Could you give me any examples of what the effect might be on the rates paid by various groups in our society-the elderly, veterans, and so on? Would this dramatically affect their individual costs? Mr. BROCK. It is my conjecture here just how the companies would rate it, but since it is no-fault coverage, I would assume that the rating would be done basically the same way that your accident and health policies are rated. So that a person with a preexisting injury or a preexisting illness which might be aggravated by a collision of any sort, regardless of his care as a driver, would carry a higher rate, and would pay a greater premium than would, for example, a very healthy, 6 foot 4 inches specimen who barrels down the highway in an armored tank and who is impervious to injury, although he might crush a few people on the way.

And there seems to us to be a basic inequity in that setup, or in a law which would lend itself to and would probably promote that sort of a premium rate, consistent rating system.

Senator BUCKLEY. Thank you.

The Commerce Committee is very much concerned about protecting small businesses and not creating conditions that might squeeze them out of existence.

Am I correctly informed that if S. 354 becomes law, a number of small insurors currently in the automobile liability field would be unable to meet the standards and would therefore be forced out of business, or at least out of the automobile insurance business?

Mr. KIRCHER. Well, Senator, I have heard testimony to that effect. I don't think we are in a position to respond to that adequately.

As I understand the problems raised for the small companies, it is that there is possible inability to secure reinsurance for these large risks, especially where you have the medical payments provision without a cap on the top-unlimited dollars and time amounts. Basically these small companies might find that difficult.

But I don't think we have an expertise, really, to speak to that. Senator BUCKLEY. I believe two of you represent insurance companies and groups? I suppose that is in the litigating courts and hot at the other aspects?

Mr. KIRCHER. Yes.

Senator BUCKLEY. Thank you very much. I suspect that I will remain in your corner.

Mr. BROCK. Thank you very much.

Senator Moss. Thank you very much.

[The statements follow:]

STATEMENT OF PAUL W. BROCK, PRESIDENT, DEFENSE RESEARCH INSTITUTE My name is Paul W. Brock. I am a practicing attorney from Mobile, Alahama. I am President of the Defense Research Institute. Joining me today are Theodore P. Shield of Los Angeles, California, President of the International Association of Insurance Counsel; Phillip W. Knight of Miami, Florida, Chairman of the Board of the Federation of Insurance Counsel; and John D. Bauman of Belleville, Illinois, President-Elect of the Association of Insurance Attorneys. Also accompanying us today is Prefosser John J. Kircher of the Marquette University School of Law who is the Research Director of the Defense Research Institute.

The Defense Research Institute is a national, non-profit organization with with over 6,000 members. It is headquartered in Milwaukee, Wisconsin. Nearly all of our members are trial lawyers. They come from all fifty states, Puerto Rico and Canada. Our lawyer members are engaged in the defense of civil lawsuits. They are from law firms totaling over 20.000 attorneys. All of the lawyer members of the International Association of Insurance Counsel, Federation of Insurance Counsel and Association of Insurance Attorneys are members of DRI.

The Defense Research Institute was organized in 1960 as a research and educational organization to promote improvements in the administration of justice and to improve the service of the legal profession to the public.

Representatives of our organizations have appeared before this and other Congressional committees in the past to present testimony on the subject of federal involvement in automobile accident reparations reform. Our position here today is consistent with the position we have taken toward federal legislation on this subject in the past. We are opposed to S 354 as well as any other federal measure which would prevent the legislatures of tthe several states for exercising their own independent judgments as to the type of auto reparations reform which would best serve the interests and needs of the states' citizens.

I should hasten to add that our opposition to federal legislation in this area is not grounded upon the fact that the defense bar as such is opposed to all "no-fault" legislation. It is not. Too often we have heard the claim that "trial lawyers" are opposed to "meaningful no-fault legislation." While we cannot speak for the entire trial bar, we wish to make it clear here and now for the benefit of the Chairman and the members of this Committee that much of the defense bar. lawyers who regularly defend automobile accident litigation, has, for some time, supported meaningful "no-fault" legislation. When representa

tives of our organizations appeared before the Senate Judiciary Committee on February 5, 1974, for example, we filed, as part of our statement, a copy of our position paper entitled "RESPONSIBLE REFORM-An Update (1973)." It may be found at page 1401 of the record of the Judiciary Committee Hearings on S 354. As RESPONSIBLE REFORM demonstrates, the four groups represented here today support "meaningful no-fault legislation" even if this means legislation which would limit to some extent an automobile accident victim's tort remedies.

Our opposition to S 354 is based upon our strong belief that the states should be allowed to shape their own destinies as respects automobile accident reparation reform. In addition to our general opposition to federal legislation in this area we have several objections to specific provisions of S 354 itself.

NEED FOR FEDERAL ACTION

Our study of the subject of automobile accident reparations demonstrates that three basic reasons are usually given as to the need for federal legislation in this area: (1) there is a need for uniformity among the states in view of the amount of interstate travel and confusion which would result from different state plans; (2) some of the state plans already enacted are not adequate enough to meet the needs of accident victims; and (3) the states are not moving quickly enough to establish their own automobile accident reparations systems. Each of these alleged reasons for federal "no-fault" will be discussed separately.

NEED FOR UNIFORMITY

It has been claimed that federal legislation is necessary on this matter because of the possibility that a motorist driving through each of the fifty jurisdictions in the continental United States (including the District of Columbia but excluding Hawaii) may be exposed to fifty different state laws dealing with his rights and obligations in the event of an automobile accident. This, it is claimed, would lead to uncertainty and confusion and would hamper the free flow of interstate commerce.

If this argument is valid, and we believe it is not, S 354 as now written would hardly be a solution. As this Committee is well aware, the bill we are here to discuss today does allow the states certain flexibility as to the levels of first party insurance benefits that will be set as well as to the amount of tort liability that will be retained by the states. In fact the bill itself, if enacted, will result in uncertainty and confusion since, as we understand Section 110 (c) (2), an accident victim's right to maintain a tort action will be determined not by the law of the jurisdiction in which the accident occurred, but under the tort law in the jurisdiction where the victim maintains his principal place of residence.

Regardless of the probles with S 354 itself, we believe that the need for a uniform, federal approach to automobile accident reparations has been grossly overstated. For decades interstate travel and commerce have expanded in spite of the fact that the laws affecting automobile accident reparations are not uniform among the several states. We see no valid evidence that would lead us to believe that things will change in the future. The problems, if any actually exist, resulting from fifty different state "no-fault" laws certainly do not call for one, grand, federal solution. In fact, witnesses who appeared before this Committee the last time this subject was considered testified that the insurance industry is already modifying auto policies to provide, in effect, that they will conform to the laws of any state in which the vehicle is operated.

It should also be noted that claims of uncertainty and confusion on the part of motorists engaged in interstate travel in the face of differing state auto reparation laws seem to be grounded upon the belief that most motorists are now knowledgeable as to both the extent of their automobile insurance coverage and the laws applicable in their own states and are concerned with the possible differences in the laws in the states in which they may travel. As a lawyer with a good deal of experience in automobile accident cases, I find that this is hardly the case. Most motorists are completely unaware of the nature of the auto reparation law in their own state and, for that matter, as to the extent of coverage they are afforded under their auto policies. I would venture to say that the farthest thing from an interstate traveler's mind at the beginning of or during his journey is the auto reparations law in each state in which he might travel.

ADEQUACY OF EXISTING STATE LAWS

When the Senate Commerce Committee's report on S 354 was issued in August of 1973, it listed eleven states as having "genuine no-fault laws" [Massachusetts, Florida, Connecticut, New Jersey, Michigan, New York, Utah, Kansas Nevada, Colorado Hawaii] and eight more states were designated as having "other motor vehicle insurance laws" [Minnesota, Delaware, Oregon, South Dakota, Virginia, Maryland, Texas and Arkansas]. Since the Commerce Committee's report was issued, the number of states having enacted some form of auto reparations law has grown from the nineteen mentioned in the report to twenty-four. The states of Georgia, Kentucky, Minnesota, North Dakota and Pennsylvania have enacted laws which would bring them within the Commerce Committee's definition of "genuine no-fault" and South Carolina joined the "other" group.

Although two-thirds of the twenty-four states that have enacted some form of auto reparations reform would be considered as having "genuine no-fault" laws under the standards of the previously mentioned Commerce Committee report, we believe that only two of those states, Michigan and Minnesota, would be close to complying with the states standards provisions of S 354. This would lead us to the conclusion that the drafters of S 354 believe that the laws in the remaining twenty-two states are inadequate to meet the needs of motorists within those states. In fact some persons, including the Chairman of this committee, have labeled the laws in some states as "phony." We do not presume to be in a position to be able to judge what the best approach to automobile accident reparations reform should be in each jurisdiction of this country. We have studied the subject long enough, however, to realize that many gifted individuals from the legislative, academic, insurance and legal communities have drafted hundreds of different auto reparation plans and proposals. While we are sure that each draftsman believes in the merits of his own work product, we are equally sure that state legislators, the persons closest to the motorists that these plans will serve, are in the best possible position to judge the type of plan which will be best for a particular jurisdiction. Labeling a particular plan as "genuine" or "phony" means nothing more than that the person who chose that label has made an evaluation of a plan based upon his own subjective beliefs as to the elements which a plan should contain.

The fact that twenty-four states have enacted differing auto reparations reform laws clearly demonstrates to us that the states which have acted are following the recommendations of the Department of Transportation made when it closed its study of the automobile accident reparations situation. As this committee will recall, DOT recommended that the best course to be followed in automobile reparations reform was to have the states experiment with diverse plans to gain meaningful experience as to the best course which should ultimately be followed. S 354 would not allow for this type of experimentation. In fact, it would tell the states that experimentation is unnecessary since Congress has devised the best possible approach to automobile accident reparations reform. With all due respect to this Committee and the other members of Congress, we do not believe that anyone is now in the position to claim, with any degree of credibility, that the best feasible auto reparations reform plan has been found.

THE PACE OF STATE ACTION

Another reason ascribed to the need for federal "no-fault" legislation is the claim that the states are not moving quickly enough to enact their own auto reparations reform laws. As noted previously, twenty-four states now have new laws on their books affecting automobile accident reparations reform. In that regard it should be noted that the legislature of the state of Illinois, a state not now having an auto reparations reform law, has actually passed two "nofault" laws. The first was found unconstitutional by the state's supreme court and the second was vetoed by its governor. The Legislature in New Mexico has also passed a no-fault law only to have it vetoed by the governor. Minnesota is currently operating under the second "no-fault" law to be passed by that state's legislature. Therefore, in the space of a little over five years, twentysix states' legislatures have passed a total of twenty-eight auto reparation reform laws. This total includes only those states that have had affirmative legis

lative action on laws dealing with the addition of first party insurance benefits to the auto insurance policy. It does not include states which have reformed their auto reparations systems through other means such as the enactment of comparative negligence laws, the abolition of guest statutes and the improvement of uninsured motorists coverages.

It is easy to claim that the twenty-six states that do not have auto reparation reform laws on their statute books are in that position due to legislative indifference to the needs of the motorist in those states. Whether that claim is valid would more likely depend on whether, in all of those states, a need to reform the auto reparations system exists and whether it exists to much an extent as would make it a high legislative priority item. The mere fact that a states does not have an auto reparations law is not, of itself, determinative of whether a problem exists and whether the legislature is indifferent to that problem. If the case were otherwise, the Congress itself could be accused of legislative indifference to auto reparations because of the fact that the District of Columbia does not have a "no-fault" law.

We believe that the legislators in the states that have not passed auto reparations laws have been loyal to the oaths of office they took to serve the best interest of the citizens of their states and have failed to enact such laws because other matters were of more pressing urgency to their states or because of their belief that the types of plans presented for legislative approval were unworkable or not in the best interest of the states' citizens.

We submit that the members of this Committee and of Congress would find it impossible to disagree with the proposition that automobile accident reparations reform is an extremely complex subject. Material generated on this subject in the form of books, articles and reports of studies would fill a small library. Even after the expenditure of countless dollars and much time studying this concept, the alternative approaches available are not clear-cut, since there are hundreds of different alternatives to take. Therefore it is unjust to criticize those states who have decided to move cautiously.

In summary, we are opposed to federal legislation because it is grounded on the false assumption that it presents the best possible alternative available for auto reparations reform. Admittedly, S 354 does provide for limited variations among state plans. However, contrary to the belief of some, S 354 is not a "minimum" standards plan. Only two, or possibly three, of the state laws now in existence come close to meeting S 354's "minimum" requirements as to the extent of first party benefits provided or the restrictions placed on tort liability. Therefore, should it be enacted, the legislatures of the remaining twenty-one or twenty-two states would have to drastically amend their existing laws thought when passed to be in the best interest of their citizens-to comply with S 354's requirements. This should not be. We do not think that the situation in Kentucky is necessarily the same as that existing in New York or that a law beneficial to the citizens of Michigan would necessarily be in the best interests of the citizens of Kansas. While there are some who might believe that it would be better to eliminate state government in favor of complete federal control and legislation, this is a fallacy that could only lead to the destruction of our constitutional freedoms as we know them.

If a state enacts its own "no-fault" law and that law later proves unworkable, it would be relatively easy for the state legislature to amend or repeal that law in favor of some other proposal. We use the term "relatively" in the context of a comparison with the situation that would exist if S 354 were enacted. Should a state enact a law complying with the provisions of S 354 and that law proved to be unworkable, the state's ability to correct the situation would be restricted by the "minimum" standards of S 354. If the problem were impossible to correct at the state level because of S 354's requirements, an amendment of the federal law would be necessary. We seriously question how responsive Congress would be to pleas from individual states to provide assistance by amending S 354 because of problems experienced with its operation at the state level.

We question whether that a sound case for national uniformity in auto reparations reform has been presented-indeed just the opposite is true. When the auto reparations reform movement began several years ago, it was claimed that reform was necessary for the benefit of the persons served by the auto reparations system-accident victims and insureds. Rather than allowing each state to tailor its own laws to the needs of the individuals served by the sys