Reports to the 2007 General Assembly

Legislative Report 13

Title: State Liability Limits

State Liability Limits

Introduction
In accordance with 12 V.S.A. §5601(h) this report reviews the adequacy of the current tort liability limits contained within the sovereign immunity statute, 12 V.S.A. §5601-5606.

History
In the early 1960s the General Assembly determined that the state should be held accountable for its actions and established that the state could be sued as a common person. In so doing, the General Assembly also recognized two additional issues: that the state should not be subject to unlimited liability and that there were distinct areas where it is necessary for the state to be protected by absolute immunity. The General Assembly at that time determined that liability limits of $75,000 per person / $300,000 per occurrence would represent fair maximum compensation for persons injured through the negligent actions of the state. The set of behaviors for which the state may claim sovereign immunity is also set forth in 12 V.S.A. §5601 et. seq.

During the 1989 legislative session questions were raised regarding the adequacy of these liability limits, including whether or not the original intentions of the legislature were being maintained since the limits had remained unchanged for over 20 years.  At that time the General Assembly determined that the liability limits should be increased.  The new limits were determined by applying the consumer price index (CPI) to the original limits to yield a current value; the resulting value was then brought into conformance with insurance industry conventions.  Effective July 1, 1989, the maximum liability limits were revised to $250,000 per person / $500,000 per occurrence. The following year, July 1, 1990, the limits were revised again to $250,000 per person / $1,000,000 per occurrence, where they remain.  The changes were made in two steps in consideration of the effect on our commercial insurance carrier at the time.  

The General Assembly has directed the Commissioner of Buildings and General Services to consider the adequacy of these limits and report his/her conclusions to the Judiciary Committees of the House and Senate in every odd-numbered year. 

Review of Adequacy of Existing Limits
The values of sovereign immunity limits are a matter of policy that should balance the need to protect the state (and therefore its taxpayers) from unreasonably large damage awards with the need to provide fair and equitable compensation to persons who are injured through the negligent actions of the state.

To foster the goal of fair and equitable compensation it has been state policy that these limits should not be revised too frequently. Short periods between revisions can create seemingly arbitrary differences in outcomes. The revisions to date have been made to correct serious deficiencies.
The original limits of $75,000 per person / $300,000 per occurrence were in place for over 20 years.  When revised, the new limits represented a 200% increase over the previous limits.   

The existing limits have been in place for 16 years.  If the current limits were adjusted by applying the CPI from the date of last revision, the new values would be $380,000 per person / $1,520,000 per occurrence.1   A comparable industry convention would be $400,000 per person/ $1,500,000 per occurrence.  Such a revision would represent a 60% increase over current levels.

The state’s most recent actuarial analysis (as of June 30, 2006) estimates that a $400,000/$1,500,000 retention would increase claim payments 1.0% - 3.5% over expected losses at current limits. It should be noted that this estimate assumes that any revised limits would apply to claims occurring after the effective date of any revision and that it would not apply to events/claims predating the change.2

Since their establishment in 1990, approximately 17 general liability and automobile liability claims have exceeded the current sovereign immunity limits.3  At the time of the last report (2005) there had been 15; at the time of the 2003 report, there had been 13.

Conclusion
Based on the foregoing, we recommend that the state’s tort liability limits remain as they are.  We have not seen a substantial increase in the number of claims that exceed the liability limits and the rate of occurrence of such claims has remained steady at approximately 1 per year.  The 63% increase that would result from applying the CPI and adjusting to conform to industry conventions does not yet begin to approach the previous increase of 200%.  We believe that the interests of the state would be best served by keeping the current limits in place until a more serious deficiency is identified, either through an increase in the number of claims with values that exceed the liability limits, or through a greater gap between the existing limits and the CPI- and industry-adjusted limits.