Joy ride: auto-choice legislation would help consumers and hurt lawyers. Do the Republicans have a winner.

Mr. Miller is NR's national political reporter.

ON July 17, 1997 -- the day after the news broke of House Republicans' failed coup against Speaker Newt Gingrich -- Majority Leader Dick Armey took refuge in a Senate Commerce Committee hearing on auto-insurance reform. Armey testified on behalf of legislation popularly known as "auto choice," which, as he told his Senate counterparts, could put billions of dollars "back into the pockets of real people -- without costing the government a single penny."

It's an idea that other congressional Republicans may yet take solace in. Auto choice is perhaps the only new and substantive proposal that they will pass this year, but it is a beauty. The underlying issue -- the rising cost of auto insurance -- is one that affects every American who drives. This legislation would benefit the urban poor, potentially split the Democrats, and deny funds to a fiercely liberal interest group, the trial lawyers.

Not bad for a GOP otherwise in a defensive crouch. The idea is to allow drivers to save money on their auto-insurance premiums and receive quicker compensation for their economic losses resulting from accidents, in return for dropping their coverage for costly "pain and suffering" damages. Supporters estimate that premiums nationwide would drop by 24 per cent, creating annual savings of, on average, $184 per car, amounting to $35 billion economy-wide. Sen. Daniel Patrick Moynihan (D., N.Y.) calls it potentially the biggest tax cut of the decade.

The idea, which has been gaining momentum at the state level, is starting to catch on in Washington. The GOP leadership in both the House and the Senate favors it -- Armey is a sponsor (he has offered only two other bills as Majority Leader), and Senate Majority Leader Trent Lott has promised floor action this year. Meanwhile, a handful of Democrats -- notably Sens. Moynihan and Joseph Lieberman (Conn.) -- give it a bipartisan imprimatur.

But the bill's passage is hardly a done deal. Auto choice inspires strong opposition from the wealthy Association of Trial Lawyers of America (ATLA), a leading patron of the Democratic Party. Personal-injury lawyers handling auto-accident cases reap an estimated $17 billion annually, and the proposal threatens to reduce that take significantly. "Its defeat is very important to us," admits ATLA president Rich Hailey.

Auto choice grew out of a state-level movement in the 1970s to adopt no-fault insurance laws. No-fault laws essentially remove drivers' unlimited right to sue but guarantee a certain level of compensation for actual injuries; drivers recover economic damages from their own insurance companies, and can sue other drivers for pain and suffering only if losses pass a defined threshold. Needless to say, trial lawyers hate the idea.

Actually, in the 1970s, no-fault was something of a liberal cause. Serving in the Massachusetts state legislature, Democrat Michael Dukakis sponsored and passed the country's first no-fault bill in 1971. Over the next several years, 16 other states followed suit. The Senate approved a federal bill in 1974, but the House, preoccupied with Watergate, never took it up. That proved to be a turning point. By the late 1970s, the trial bar had successfully exploited public concerns about no-fault's restrictions on the right to sue, and the movement sputtered out. Today, only 13 states have no-fault laws on their books.

Meanwhile, lawyers' fees and medical expenses kept driving auto-insurance prices up, even in states with no-fault laws. Trial lawyers successfully urged state legislatures to set low damage thresholds in their no-fault laws, making legal action almost inevitable in all but the most minor fender-benders. Often, accident victims would run up bogus medical bills in order to exceed the thresholds and enter the pain-and-suffering lottery.

By 1996, according to the National Association of Insurance Commissioners, the average auto-insurance premium had risen to more than $774 annually. Excessive litigation and medical fraud had fueled much of the cost increase, which had outpaced the rate of inflation by 50 per cent. Today less than 15 per cent of each premium dollar pays for legitimate medical expenses and wage loss. Almost 30 per cent goes to lawyers, and at least 13 per cent pays fraudulent and excessive claims.

The trend, as a new report by the Joint Economic Committee demonstrates, hits urban residents and the poor particularly hard. The average premium for a 38-year-old woman in central Los Angeles with a clean driving record is nearly $3,500 per year. As a percentage of household income, the poorest 20 per cent of families spend seven times as much on auto insurance as the richest 20 per cent. No wonder so many drive without buying insurance at all --which is illegal in most states. "If I were to offer a tax this regressive," said Armey at a March 10 press conference, "I would be howled out of town."

REPUBLICANS hope that numbers like these will encourage more Democrats to support auto choice (some of the New Democrats in the Clinton Administration reportedly favor the idea). But the GOP will have to play it right. "Auto choice can't become another exercise in lawyer-bashing for the Republicans," warns one Democratic staffer close to the debate. "They have to think of this as a consumer issue that saves people money, not as tort reform." Armey's sponsorship is a mixed blessing. For all the political clout the Majority Leader lends to the cause, he also gives auto choice a partisan tinge that may repel wary Democrats.

Other factors work in favor of auto choice. The concept received an unexpected boost last November when the two off-year gubernatorial elections both revealed a public angry about the high costs of driving. In New Jersey, home to America's highest auto-insurance premiums, nine out of ten voters told the Associated Press that auto insurance was an important factor in their choice for governor. In Virginia, Republican Jim Gilmore coasted to victory on a promise to eliminate the state's car tax.

Auto choice first came to the attention of Armey and Sen. Mitch McConnell (R., Ky.), another key sponsor, because of Michael Horowitz, a budget counsel in the Reagan Administration who is now at the Hudson Institute. Horowitz joined with University of Virginia law professor Jeffrey O'Connell, a pioneer of no-fault insurance in the 1960s, to develop the auto-choice proposal. Their idea was to let each driver choose between staying in the current system -- with its high costs but potentially big rewards in the event of a pain-and-suffering lawsuit -- or switching to coverage simply for economic losses. They also added a federalist touch by suggesting that states should have the ability to opt out of the new system.

By writing law-review articles and making pitches to the mainstream media, Horowitz and O'Connell have assembled an impressively broad coalition in support of auto choice, from conservative Michigan Gov. John Engler to the New York Times editorial page. But the trial lawyers' lobby will try to replay the no-fault debates of the 1970s, which they essentially won by exploiting people's fears over losing their pain-and-suffering coverage. The ATLA likes to point out, for example, that if a child is killed in an auto accident and his parents have opted out of the expanded tort coverage, they won't recover anything more than medical and burial expenses unless the other driver was criminally responsible (e.g., driving drunk).

Business groups, meanwhile, are divided. Ford believes the bill will help it sell more cars because of the lowered cost of driving, and that it will also reap savings on insuring its own fleet of vehicles. General Motors, on the other hand, worries that if fewer people can sue for whiplash, more will target automakers with product-liability claims. The insurance industry is also split on auto choice, with State Farm taking a lead in support and others concerned that lower premiums will hurt their revenues.

Passing auto choice will require some careful handling by Republicans, and it won't be a shock if they end up failing this year. But at least in this case, they're moving down the right road.