‘Ridiculous and tragic:’ Why insurance is unlikely to cover Simeon’s crash victims

In 2015, 4,067 people were killed in large truck crashes in the United States

‘Ridiculous and tragic:’ Why insurance is unlikely to cover Simeon’s crash victims

July 28, 2015
by Jeff Stein

ITHACA, N.Y. — In 1980, the U.S. Congress passed a bill forcing all trucking companies operating across state lines to have insurance that covered at least $750,000 in damages in the event of a crash.

That number hasn’t been raised in the 35 years since.

“It’s so pathetically low,” says John Lannen, executive director of the Truck Safety Coalition. “That $750,000 is not going to be anywhere close to covering the cost of a catastrophic crash.”

The company that owned the truck that hit Simeon’s in downtown Ithaca on June 20, 2014, had a policy of $1 million, which is considered by experts to be slightly higher than the $750,000 minimum. That information was confirmed in legal papers released earlier this month, in which the Sparta Insurance Firm asked the court to divide the $1 million between possible victims.

It’s not likely to be nearly enough to meet claims of damages. A claim from a death alone — Amanda Bush, 27, was killed in the accident — routinely leads to lawsuits in excess of $1 million, according to insurance experts.

The aftermath of the crash at Simeon's on June 20, 2014

Then there’s all the other people who have claims resulting from the crash: the Cornell Barber Shop, a more than 100-year-old institution that was permanently closed in the accident; the owners of the Titus Gallery, which was badly damaged and closed in the crash; the Simeon’s workers and patrons hospitalized in the crash; and Simeon’s Restaurant itself.

Some of that may be covered by other forms of insurance. Lannen and other experts, however, say that the federal government has failed to protect the victims of major trucking crashes by failing to guarantee that the trucking companies have sufficiently high insurance payouts for catastrophic events — and that Ithaca is likely to suffer the consequences.

If it was adjusted for medical inflation, the minimum insurance policy would guarantee at least between $3 million to $4 million, according to Lannen.

And if that was the case — if federal law reflected something close to the reality of rising medical costs over the last 35 years — the victims of the Simeon’s crash would be likely to get three or four times as much money than they will under current law, Lannen said.

“All costs have gone up,” he said. “The fact that this has not been increased is ridiculous and tragic.”

The U.S. Capitol building. Photo courtesy of Wikimedia

Trucking industry official: Don’t increase minimum insurance

Sean McNally, vice president of public affairs of the American Trucking Associations, says there’s a good reason the $750,000 figure has not been raised: Because it’s not necessary.

Sean McNally. Photo courtesy of McNally's LinkedIn profile

“Something like 98 or 99 percent of all truck crashes are covered by the minimums as currently set,” McNally said.

The Simeon’s crash in Ithaca, McNally says, was an exception; it simply doesn’t make sense to craft public policy around a highly unusual, unlikely situation, McNally argues.

“I would posit that that incident is the exception even among truck crashes,” McNally says of the Simeon’s incident, “the reason that can be cited is because it’s an aberration.”

McNally works for the American Trucking Associations, which is the largest national trade association for American trucking companies.

The American Trucking Association spent $1.8 million in lobbying and about $900,000 on contributions, mostly to politicians or political organizations in Congress, according to the Center for Responsive Politics. (The ATA was in the top 300 of U.S. companies spending money on lobbying in 2014; the president of the organization is the former governor of Kansas.)

McNally pointed to a study by the group, whose focus he said was on ensuring truck safety, that found there had been 166 accidents between 2006 and 2012 where damages amounted to more than $1 million.

A photo posted on the Facebook page of the American Trade Association

“There have been a number of studies that show we haven’t seen compelling evidence that it needs to be increased until we see data that says there’s A) a link between safety and raising the limits and B) compelling evidence that the limits are insufficient,” he says.

By overcorrecting for a small problem, McNally said, the federal government would ultimately be hurting the consumers by building more costs into trucking around the country.

“Ultimately, it’s going to pass cost onto consumers in a number of ways,” he said. “When things are more expensive — whether insurance or fuel — those costs work their way into the supply chain.”

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Federal government’s data suggests minimum should be raised

McNally also sent the Ithaca Voice a study from the federal government that appeared to contradict his assertion that the federal minimum should not be raised. That report presents a very different picture of the status of insurance minimums.

In the study, the Federal Motor Carrier Safety Administration found that the minimums were “due for re-evaluation” and ultimately concluded that the current limits were insufficient.

From the report:

“Member companies of the Trucking Alliance voluntarily tracked 8,692 accident settlements between 2005 and 2011. The data shows that 42 percent of the trucking companies’ monetary exposure from these settlements would have exceeded their insurance coverage, if all companies in the study had maintained the minimum$750,000 insurance requirement.

“Overall, the study’s findings provided preliminary support for increasing the current levels of financial responsibility.”

Like Lannen, of the Truck Safety Coalition, the federal government report also says that the $750,000 insurance minimum had not kept up with inflation.

Insurance minimums would now guarantee $1.6 million in coverage if tied to the general “Cost Price Index” and $3.1 million if tied to medical inflation, according to the federal government’s report, which can be read in full below.

The federal government also suggested that “catastrophic crashes” were more common than the trucking industry did; overall, citing a non-profit, it concluded that 42 percent of injury claims “could have had no avenue for offsetting medical costs.”

From the conclusion of the FMSCA report. Underlines by the Ithaca Voice

Another non-profit cited by the federal government estimated that the top 10- to 25-percent of liability awards in truck crashes with death or injury run as high as $9-10 million, and that the DOT should “set a policy limit per crash of at least $10 million.”

“When catastrophic and severe/critical injury crashes do occur, the costs of resulting property damage, injuries, and fatalities, can far exceed the minimum levels of financial responsibility,” the federal government’s report says.

” … The decreasing real value of the current minimum levels has effectively removed the function of insurance in covering catastrophic crashes, as medical and other crash-related costs have increased significantly.”

Why is $1 million not enough?

Still, officials should know there’s a public policy trade-off involved in raising the minimum insurance threshold, according to Peter Kochenburger, executive director of the Insurance Law Center at the University of Connecticut.

“Are we going to burden everyone with significantly higher limits for a very small number of accidents?,” he says.

“The answer could be yes, because it’s not much of a burden for everyone and we want these people covered … But there is an economic cost and you don’t want small businesses to close. You have to balance that.”

Kochenburger, who thinks the insurance limits should probably be raised, explained why claims from a single death often exceed $1 million — plaintiffs can seek compensation for a variety of factors like medical bills, future lost wages and relatives’ emotional suffering.

“A million dollars is a decent amount of money,” he says, “but it won’t go far if there’s an accident like this with catastrophic injuries.”

Earlier this month, Sen. Corey Booker (NJ) proposed the Truck Safety Act.

Among its provisions are limiting truckers’ excessive commuting, requiring “speed limiting devices” in commercial motor vehicles — and raising minimum insurance levels from $750,000 to $1.5 million. Booker released a statement about the proposal, which was reported on by a handful of trade publications.

The bill was then referred to a Senate committee on July 9. There has been no sign of it progressing since then.

Article: http://ithacavoice.com/2015/07/ridiculous-and-tragic-why-insurance-is-unlikely-to-cover-simeons-crash-victims/