SB 33 (HB 542) - As Amended and Currently Before the NC House
Folks, there is a lot wrong going on in the NC House right now. If passed, this bill (note: this is v.1, we are actually onto v.6 now) will impact you on a daily basis. But instead of jumping headfirst into the mechanics of the bill, let’s propose a little thought experiment.
Imagine two small neighborhoods in one small town in Anywhere, USA. In both neighborhoods, there is a civil justice system that metes out punishment for civil wrongs. You cheat on your wife? You’re going to the neighborhood court. You accidentally kill the prized tomatoes in Ol’ Lady Weatherly’s garden? You’re going to the neighborhood court.
So in Neighborhood A, there is a Rule of the Court. That Rule says the following: “If you break it, you bought it, end of story.”
But in Neighborhood B, there is a slightly different Rule. B’s Rule says the following: “If you break it, you bought it, to the extent that the owner doesn’t have any insurance for it.”
Neighborhood A thinks that Neighborhood B’s Rule is against all that’s good and holy in this world. Neighborhood B thinks their Rule is much more sophisticated, and it generates less cost over time. Well let’s see about that.
There’s a group of young boys that meet once a week to play ball in the neighborhood streets. They play stick-ball, and the best place to play stick-ball is a good ol’ fashioned cul-de-sac. The teams are comprised of kids from Neighborhood A and Neighborhood B.
One day, these young boys are playing ball, innocently as you did when you were a kid. But lil’ Tommy Jones is up at the plate. He’s a pretty good batter, nothing special, but good. He takes the first pitch outside. “Ball!” yells his friend pretending to be the umpire. Next pitch, Tommy Jones makes perfect contact, and sends the ball clear out of the park. Well, except it isn’t a park, it’s a cul-de-sac, and the ball sails clear through the front window of Mrs. Smith’s house!
“Uh oh!” says an exasperated Tommy Jones. But Tommy, in addition to having a heckuva swing, also is a Boy Scout and a black-belt in karate. He knows, from his family, and from Scouts and karate, that when you do wrong, the best thing to do is own up to it and take full responsibility.
He rings Mrs. Smith’s doorbell, she greets him with a look of disdain, holding the ball. Tommy expresses remorse, gives Mrs. Smith his home phone number, and tells her to please get an estimate and he’ll make sure he pays her back the cost of repairing the window. “Every red cent!” Says Tommy.
Story continues on the flip!
Mrs. Smith gets an estimate of $150. She sends it to Tommy and his father, and Tommy cracks the piggy bank, and then asks his friends for donations to cover the cost. Everyone on the team cracks his or her piggy bank. They are still $20 short. Meekly, Tommy takes the $130 to Mrs. Smith and tells her that’s all the money he’s got but he’ll work off the rest. Mrs. Smith now has someone to take her garbage out for the next month, free of charge.
After that’s all done with, Tommy is playing with his friends again, they’ve wisely moved from
the streets to a park, out of the way of any houses. But of course, street ball isn’t street ball in a park, it’s baseball, and the game isn’t nearly as fast or as exciting as playing it in the streets is.
One of Tommy’s friends is from Neighborhood B. He tells Tommy they should play over in their streets next time. Tommy says no. But his friend insists, and he tells Tommy that because of Neighborhood B’s policy, if Tommy had broken Mrs. Smith’s window in neighborhood B, he would have had to only pay $25 dollars, because “her insurance paid for the rest!” Tommy thinks that makes sense, but he doesn’t think its right.
He stays in Neighborhood A with some of his buddies, and they play at the park for the rest of the summer. The rest of the boys go to Neighborhood B. And guess what happens several more times that summer to the windows of homes in Neighborhood B? That’s right. A lot more windows get broken. The social cost, therefore, of Neighborhood B’s Rule is that more people are affected by risky behavior, whereas in Neighborhood A, the steep cost of one was enough to curtail the risk for all.
That little story is, in a nutshell, the economics of the proposals currently facing the NC House of Representatives in SB 33. One side wants to say: “you broke it, you bought it.” That has always been the law in North Carolina. But the sponsors of SB 33 want to say something different. They want to say: “you broke it, you bought it, but only to the extent it isn’t otherwise paid for by insurance.”
That little wrinkle is what is called the “billed v. paid” or “quoted price v. incurred amount” provision in SB 33.
Here is what the text of the proposed bill says in its latest amended form:
Rule 414. Evidence of medical expenses.
Evidence offered to prove past medical expenses may include all bills reasonably paid and a statement of the amounts actually necessary to satisfy the bills that have been incurred but not yet paid. Evidence of source of payment and rights of subrogation related to the payment shall be admissible.
Currently, there is no such Rule of Evidence in NC (or most other states) and insurance payments are kept out of evidence under the Collateral Source doctrine.
But this amendment would, for the first time, allow juries to hear evidence about the plaintiff’s health insurance. It does not allow the jury to hear about how much the plaintiff has paid for that health insurance. Nor does it allow the jury to hear about the defendant’s liability insurance, that’s all still kept hidden from the jury.
Instead, SB 33 only allows the jury to know that, for example, the $150 x-ray bill was actually paid for by the plaintiff’s insurance at a cost of say $80 or $75 or whatever amount your health insurance plan has contracted with your provider to pay for that service.
That all may seem pretty reasonable on its face. And for now, let’s exclude any normative judgments on the bill’s fairness. Instead, let’s try to imagine, by using the hypothetical above, what will happen to risky behavior on our highways if we install this regime?
We can’t predict human behavior with precision, but we do know that when costs are raised for certain types of behavior, it tends to occur less. Take, for example, the costs associated with drunk driving, versus the costs associated with driving while distracted. Or, if you like, look at Mrs. Smith and Tommy Jones. His ball team would have naturally tried to go somewhere else, some place where windows were not as prevalent, because there was a steep price to pay for hitting one. That’s how our tort system works right now. Our juries are allowed to bill back the fair market value (exclusive of insurance) to the person who did the wrong. Part of the reason why our juries do this is to discourage risk-taking behavior that has negative social impact.
But in Neighborhood B, it’s all about insurance. That’s what the sponsors of SB 33 want in North Carolina. What do you think will happen if that becomes law? We can safely guess that a lot more people will take a lot more risk on our roads because there isn’t nearly as much cost associated with it. So when we talk about “reducing costs” in the tort system, what we ultimately mean is reducing liability for the bad act and the bad actor. We attract more risky behavior, just like Neighborhood B attracted a lot more boys playing stick ball in the streets, and as a result we increase the risk of society that we will be impacted by such risky behavior. We’ll all be living in Neighborhood B, and more than just our windows won’t be safe, that’s for sure.
