A Misrepresented Reform: The Story of the Road Accidents Victims' Compensation ActTel Aviv University Law Review (2004)
AbstractThe official motive for the enactment of the Road Accidents' Victims Compensation Act of 1975 was a social one. According to the traditional view, the Act was meant to guarantee an appropriate and immediate compensation to all victims of road accidents. The abolishment of fault, the expansion of mandatory insurance, and the establishment of the Road Accidents' Victims Compensation Fund (Karnit) were supposed to turn the dream into reality. Furthermore, in order to aid the victim and avoid undue pressure to compromise, the legislature granted the victim the right to immediate (interim) payments. Finally, the alleged simplicity of the Act was supposed to alleviate the burden of tort litigation from the courts. My first argument is that the representation of the Act as a revolutionary scheme that guarantees appropriate compensation to victims, who would not have been entitled to compensation otherwise, is, to say the least, exaggerated. First and foremost, the framers and interpreters of the Act overstated (and still overstate) the significance of the abolishment of fault. In fact, prior to the passage of the Act, fault was a stumbling block in only a few cases. On the other hand, it seems unfair to argue that the Act gives compensation to any victim of a road accident. In addition, the abolishment of fault could not solve the problem of hit and run accidents and other cases of unidentified injurer. The solution for this problem was a patch that could be equally added to the traditional fault-based liability regime. Moreover, even those who are entitled to compensation do not always receive appropriate damages. The Act sets very strict limits to compensation in various heads of damage, and accident victims still tend to compromise for inadequate sums. The goal of immediate compensation turned out to be too pretentious. Turning the emphasis from questions related to fault to questions related to the scope of damages, along with the creation of new hubs of litigation, resulted in the complete frustration of this goal. Minimally, in cases of severe injury, the process may be much longer than previously. Saying that the Act allows for efficient loss-spreading was also a hyperbole. Even if the Act had not been enacted, a considerable portion of the costs of road accidents would have been spread through private and social insurance. Moreover, the method chosen for loss-spreading by the legislature was not the optimal one. Furthermore, the sections dealing with interim payments are much worse than those proposed in the original draft. The authority given to the court to require the injurer to make an interim payment was represented as novel and revolutionary, which, in fact, it was not. Finally, the Act, practically, has resulted in a significant upsurge in tort litigation, contrary to the original intention of the legislature. My second argument is that the Israeli compensation scheme is the product of an intensive and consistent pressure by insurance companies on governmental officials. Insurance companies' greatest achievement lies in the fact that the government relinquished its original plan, supported by both economic and social considerations and recommended by an official professional committee in 1966, to nationalize compensation for road accident victims (as actually happened in New Zealand). Subsequently, the insurance companies convinced the legislature to restrict and, gradually, even lower their financial risks. Compensation to victims was limited, and they were deprived of their original rights of action in torts; the court's ability to require the injurer to make periodical payments was restricted; and the 8th amendment of the Act in 1990 excluded liability in various cases on dubious grounds. At the same time, insurance companies convinced the government to increase insurance premiums significantly, without a true justification. Following a statutory reform in 1997 (that took full effect only in January 2003) a regulated competition has begun in the road accidents insurance market. However, due to structural deficiencies, it has not decreased the profitability of insurance companies. It only reduced the socially warranted cross financing. In sum, I argue that there is a significant gap between the traditional perception of the Act and reality and that many of its characteristics stemmed from a consistent pressure by insurance companies. I believe that these two arguments are interlinked. There is no doubt that some of the flaws in the traditional view result from the intervention of the insurance companies at various stages of the legislative work and from the companies' application of the Act throughout the years. But beyond that, I think that preserving the traditional understanding of the Act and its goals served a significant interest of insurance companies. The revolutionary social guise successfully concealed the fact that the compensation scheme advanced, most of all, the economic interests of those companies. Their desire to maximize profits was not illegal or immoral. But they wished to secrete it on account of their sensible fears of losing public legitimacy, of counter-pressures to amend the Act, or - worst of all - of nationalization of the scheme.
Publication DateJuly, 2004
Citation InformationRonen Perry. "A Misrepresented Reform: The Story of the Road Accidents Victims' Compensation Act" Tel Aviv University Law Review Vol. 28 Iss. 1 (2004)
Available at: http://works.bepress.com/ronen_perry/5/