Liabilty insurance is consumer fraud.
by Alf Temme

Alf Temme is not a senior fellow at the Manhattan Institute or a distinguished member of one of the big political thinktanks. He is a manufacturer of products (prebuilt sauna rooms and a 4 minute per day exercise machine)  and he is the only member of www.OneManThinktank.com .

We, the general public, are paying for all the lawsuit madness in America. We pay it in higher prices and in the insurance we buy (car insurance for example). This lawsuit madness is suing large and small businesses out of existence and it is a major factor in the decline of American manufacturing jobs and is exporting these American manufacturing jobs to China and other developing countries.

How do you and I pay for all these lawsuits and for the majority of the high incomes of the million strong army of lawyers in the USA plus a large percentage of the profits of all insurance companies? Manufacturers and all other businesses buy liability insurance to try to protect themselves against the lawsuit disease. But these businesses pass all that insurance cost and other liability related costs on to the consumer by adding these costs as part of the cost embedded in the products and services they sell. 

So the total cost of lawsuits and insurance are passed on to, you guessed it, us the consuming public. The cost of liability insurance is embedded in the price we pay for food, goods and services. The sellers and manufacturers of food, goods and the providers of services all buy liability insurance that fund all these lawsuits and lawsuit awards. They also pay for lawyer wages and insurance company overhead and insurance company profit. So you might think that this does not affect you, so why should you be bothered by all this? Think again, you and I pay for all that insurance because all these businesses pass the cost for insurance on to us, the consumers, by including the insurance cost in the price of their products and services.

This means that you and I and all the general public pay for all the insurance. The manufacturers, retailers and service providers do not pay for the insurance, they just pass the insurance cost on to us, the consumers.  Amazing that the government allows the passing on of the insurance to the consumer without the consumer having a choice whether the consumer wants to buy the insurance or would like to decline the insurance. The consumers do not even get an insurance policy issued in their name for the insurance money they paid. We get nothing. That is consumer fraud and it should be brought to the attention of the Consumer Protection Agency. 

So how is this liability insurance CONSUMER FRAUD?
It is consumer frauf because we the consumers pay for all the insurance but we are not the policy holder of the insurance that we have paid for. In other words, when we are paying for a product or a service that has the price of insurance included in the price we pay, we do not get an insurance policy with it. So if or when we get injured with a product or a service for which we have paid the insurance we have no insurance policy with which we can go to the insurance company and make an insurance claim.

If we get injured we need to find a lawyer who will represent us for free in exchange for a hefty percentage of the insurance award. If the damage that we are claiming is under $25,000 we will likely not find such a friendly lawyer because there is not enough in it for him to compensate him for his legal services. If the manufacturer or the business that paid for the liability insurance that was part of the product or service we purchased is out of business by the time we got injured, then we are totally out of luck, because there is no one a lawyer could go after for compensation. So we paid for the insurance, we did not get an insurance policy and we were defrauded because we got nothing in return for the insurance money we paid. That is pure consumer fraud and should be brought to the attention of the FTC Consumer Protection Agency.

Not only should it be brought to the attention of the authorities, there should be legislation introduced that would make it illegal to embed the cost for insurance in the price of a product or a service. The Liability Insurance Freedom Act (LIFA)would require that no form of insurance can be embedded in the price of a product or a service and that such insurance can be purchased separately at the time of purchase of the product or service similar to the extra insurance coverage that is offered separately when renting a rental car. You can either buy it or decline it. And if you buy the extra car rental insurance you get a copy of the insurance policy right then and there and you are the insured and the policy holder.

This LIFA law would require a companion law that would make it unlawful to sue anyone in relation to a product or service failure or accident. That law could be called the People's Lawsuit Freedom Act (PLFA).

You might be asking now what compensation there would be for the unsubstantiated argument from trial lawyers in which they claim that they are the ones that with all their lawsuits are protecting the public from unscrupulous manufacturers and service providers that knowingly deliver shoddy products and services and only have profit in mind and care nothing for the safety and well being of the consuming public. They argue that these nasty capitalist criminals need to be taught a lesson that will be very expensive so that they will now be forced to improve their defective products and services and not knowingly and wantonly subject the consumer to dangerous products and services any longer.  This selfserving argument requires a fairly complex answer to unmask it as the fraud it is.

For a small number of manufacturers and service providers it is true that they knowingly manufacture shoddy products and provide defective services. Most of these businesses are proscecuted through the criminal justice system and are pursued by the Consumer Protection Agency because their lacking business practices are so obvious and a noticeable number of their customers are damaged in one form or another. So these blatant abusers of the marketplace are punished through the criminal justice system and generally will be barred from continnuing their business practices or are forced to close their businesses alltogether. That would take care of the worst abusers of the free enterprise system. They would get punished and they would be out of business or start delivering far better products and services.

Going after all manufacturers and service providers with lawsuits to improve the products and services of the worst abusers is the wrong approach and totally counter productive. Fact is that in countries without this idiotic lawsuit disease of ours in the USA, manufacturers have constantly improved their products and have created lots of innovation (Japan, Germany) whereas manufacturers in the USA have been reluctant to innovate or upgrade their products for fear of lawyers finding new reasons to sue them out of business.