I. INTRODUCTION

A. HJR-601's SCOPE AND BACKGROUND

HJR-601 approved by the 1995 Session of the Virginia General Assembly established a joint subcommittee to "study the appropriate minimum levels of motor vehicle liability and property insurance coverage" (Appendix A). The subcommittee considered "(i) whether the required minimum levels of motor vehicle liability and property insurance coverage should be increased or decreased; (ii) whether comprehensive coverage should be required; and (iii) whether exemptions from the required minimum levels of motor vehicle liability and property insurance coverage should be permitted."

As introduced, HJR-601 called for a study of the appropriate minimum level of uninsured motorist coverage for property damage. The introduced resolution's language stated that "the current level of required minimum coverage may exceed the amount of [uninsured motorist property damage] coverage many insureds can reasonably expect to need." The resolution ultimately passed by the General Assembly, however, broadened the study to include an examination of all minimum coverage levels above.

HJR-601 was patroned by Delegate Gladys B. Keating of Franconia who also served as the subcommittee's chairperson. Additional General Assembly members appointed to the joint subcommittee were as follows: Delegates William W. Bennett, Jr. of Halifax, Vincent F. Callahan, Jr. of McLean, and William S. Moore, Jr., of Portsmouth, together with Senators Charles J. Colgan of Manassas, Thomas K. Norment, Jr. of Williamsburg, and Louise L. Lucas of Portsmouth, elected vice-chair of the joint subcommittee.

The Joint Subcommittee met twice at the General Assembly Building in Richmond, first on October 6 and then on December 6. Final subcommittee action included (i) recommending a 1996 study of model legislation establishing a "choice" auto insurance program which combines fault and no-fault insurance, and (ii) opposing a plan by the Department of Motor Vehicles to eliminate its current paper-based insurance audit program in favor of an electronic cancellation-based model.

B. OVERVIEW OF VIRGINIA'S AUTOMOBILE INSURANCE PROGRAM

Automobile insurance in Virginia is not mandatory. Drivers who wish to drive without insurance may do so by paying an annual $400 uninsured motorist fee upon registration of a motor vehicle at the Department of Motor Vehicles (DMV) (Va. Code §§ 46.2-705, 46.2-706, Appendix B) for its insurance monitoring program. The remainder is distributed by the State Corporation Commission (SCC) to liability insurers, offsetting their costs in providing mandatory uninsured motorist coverage.

Virginians who choose to purchase motor vehicle insurance must purchase a minimum of $25,000 coverage for personal injury liability with a $50,000 limit, and $20,000 for property damage liability (Va. Code § 46.2-472, Appendix C). They must also purchase uninsured motorist coverage with identical minimum coverages (Va. Code § 38.2-2206, Appendix D). Uninsured motorist coverage provides insurance coverage for bodily injury and property damage incurred by insured individuals who are injured by drivers who have no insurance coverage, or coverage that is insufficient to cover the insured's damages. The difference between an at-fault driver's available liability coverage and the uninsured coverage limits of an injured individual's own auto insurance is called "underinsurance" coverage.

Virginia's minimum liability levels have increased slowly over the years since 1950 when they were at 5/10/1 [numbers are in thousands]. By 1972 they had been increased to 20/40/5. And the most recent change to Va. Code § 46.2-472 occurred in 1989 when the minimum liability coverage for property damage was increased from $10,000 to $ 20,000 culminating in the current 25/50/20 levels.

C. MINIMUM COVERAGES IN OTHER EASTERN STATES

Three states adjoining Virginia have minimum liability requirements within the range of those in our Commonwealth. North Carolina has compulsory liability insurance requirements of 25/50/15. Maryland and West Virginia require 20/40/10. All three states require uninsured motorist coverage at levels at least equal to their minimum liability levels.

Tennessee, while not requiring insurance, establishes minimum liability coverages for those purchasing insurance at 25/50/10. Pennsylvania sets its minimums at 15/30/5. New York requirements are 10/20/5. None of these states require uninsured motorist property damage coverage.

II. WORK OF THE JOINT SUBCOMMITTEE

A. MEETING AGENDAS

The joint subcommittee used its first meeting to determine the study's focus. It received testimony from the Department of Motor Vehicles about Virginia's insured and uninsured motorist population, and how the Department verifies auto insurance coverage through random audits and other means. Jeffrey O'Connell, a University of Virginia law professor, testified about legal, economic and policy issues generated by Virginia's current statutory scheme. He advocated permitting Virginia's motor vehicle owners to go uninsured, with the penalty of denying them "pain and suffering" damages. And, he advocated Virginia's adoption of a "choice" plan for automobile insurance which would permit Virginians to select fault or no-fault insurance. Finally, representatives of motor vehicle insurers stated that the current minimum automobile insurance levels in Virginia are appropriate and should not be increased.

The second and final meeting provided a further opportunity to examine Professor O'Connell proposals for automobile insurance reform. Additionally, the joint subcommittee reviewed but did not act on a proposal to permit Virginians to opt out of uninsured motorist property damage insurance coverage. The joint subcommittee also discussed the Department of Motor Vehicle's plan to eliminate its paper-based insurance coverage audit system in favor of an electronic system keyed to insurance cancellation notices.

B. DEPARTMENT OF MOTOR VEHICLES REPORT

Department of Motor Vehicles (DMV) representatives reiterated that drivers who wish to drive without insurance may do so by paying an annual $400 uninsured motorist fee upon registration of a motor vehicle at the Department of Motor Vehicles. Part of the fee is used by the Department to defray the expense of its $3.9 million insurance audit program. The remainder (currently $5 million) is distributed by the State Corporation Commission (SCC) to liability insurers, offsetting their costs in providing mandatory uninsured motorist coverage.

DMV estimates that approximately 200-300 thousand Virginia-registered motor vehicles are uninsured--exclusive of those vehicles for which uninsured motorist fees have been paid. In 1994, the Department issued 231,000 insurance audit notices and determined that 6 percent of that sample was without insurance. Its uninsured vehicle calculation is extrapolated from that sample. The Department also monitors motor vehicle insurance coverage through information gathered from traffic law-related convictions; accident report data; vehicle stops by law enforcement officers; and information from insurance agents. A chart summarizing all sources of insurance verification is attached as Appendix E.

DMV representatives told the Joint Subcommittee that DMV proposes to replace its current uninsured motorist monitoring process with a more automated method linked to automobile insurance cancellation notices issued by insurers. Any individual receiving a notice of insurance cancellation would be required to proffer evidence of continuing coverage to the Department.

C. "CHOICE" LEGISLATIVE PROPOSAL

Professor Jeffrey O'Connell of the University of Virginia Law School urged the joint subcommittee to endorse legislation eliminating the choice between the uninsured motorist fee and liability insurance (Appendix F). Noting that even the $400 uninsured motorist fee may be beyond the means of many of Virginia's poor, he proposed that Virginians be permitted to drive uninsured. Under his plan, uninsured drivers would give up claims for noneconomic loss (principally "pain and suffering") in connection with injuries resulting from collisions with at-fault, insured drivers. Uninsured motorist coverage would be optional. Insured drivers, he noted, could elect to purchase uninsured motorist coverage or take their premium savings and purchase additional medical expense, disability, or life Insurance coverage.

O'Connell's proposal is one component of a broader auto insurance system he advocates known as "choice". Under a "choice" system, drivers may choose either a traditional auto insurance plan (using the tort system to apportion fault and recovery) or a no-fault plan. Those choosing no-fault neither recover (nor are they liable to others for) noneconomic losses resulting from less serious injuries incurred in auto accidents. According to a Rand research report O'Connell authored (Appendix G), Virginians would save nearly 35% percent in auto insurance premiums under a "choice" plan if 50 percent of insured motorists chose no-fault coverage. The subcommittee examined a "choice" legislative model developed by Professor O'Connell (Appendix H) as part of its deliberations.

Virginia Trial Lawyers' Association representative Mark Rubin, told the Subcommittee that the "choice" proposal is no panacea. He cited the "medical payments" coverages under current Virginia motor vehicle insurance policies (covering medical expenses up to a certain level under one's own policy) as an example of litigious issues that can arise between an insured and his insurer. Moreover, "pain and suffering" damages -- eliminated under no-fault -- are legitimate means of compensating for automobile-related personal injuries, he said.

D. INSURANCE INDUSTRY PERSPECTIVE

Several representatives of Virginia's auto insurance industry told the subcommittee that the industry might support a proposal to make uninsured motorist property damage coverage optional. This proposal was the study's focus in the HJR-601 resolution as introduced. Its proponents believe that such coverage (currently at $20,000 minimum) is excessive since many insured vehicles are worth substantially less than the minimum amount. However, insurers' representatives pointed out, the premium savings would be modest for most insureds. The insurance industry opposes any increases in the insurance minimum levels, suggesting that the uninsured population would probably increase if this occurred. Insofar as the "choice" proposal was concerned, the industry took no unified position.

III. SUBCOMMITTEE FINDINGS AND RECOMMENDATIONS

The Joint Subcommittee concluded that the "choice" legislative model merited further consideration, but that it presented numerous collateral issues (e.g., recoveries permitted when driver with fault-based policy is injured by driver with no-fault policy) precluding comprehensive subcommittee action in 1995. Accordingly, a majority of the joint subcommittee recommended a 1996 legislative study devoted exclusively to the "choice" model. A joint resolution to that effect is attached as Appendix 1.

A proposal to make optional uninsured motorist property damage coverage was not recommended by the subcommittee. While the subcommittee learned that some Virginians oppose paying for insurance they do not need (many have vehicles worth substantially less than the mandatory $20,000 minimum uninsured property damage coverage), projected premium savings associated with this initiative were very modest. A copy of proposed legislation is attached as Appendix J.

Finally, the subcommittee expressed opposition to the Department of Motor Vehicles' proposal to discontinue its random audit process of monitoring motor vehicle coverage. The subcommittee concluded that the current random audit process is more proactive and may provide a more dynamic indicator of automobile insurance coverage trends.