Senate bills tackle Colorado's 'lawsuit tax'

Wednesday, March 01, 2017

Colorado consumers frequently ask why premiums for auto and home insurance are rising so much. 

Answer: Colorado's lawsuit tax - obscure laws that drive up the cost of a lawsuit beyond the actual cost of damages.

Fortunately, several bills introduced in the Colorado General Assembly would rein in this lawsuit tax by conforming Colorado law to real-world facts.

Senate Bill 181 (sponsored by Sen. Bob Gardner and Rep. Yeulin Willett) addresses an obscure law which keeps Colorado juries in the dark when evaluating the amount of reimbursement to which an injured victim is entitled.

Let's say someone injured in an auto accident receives an initial bill for $140,000 for medical costs. The injured party's insurance company settles the bill for a negotiated amount of $40,000. But when the injured party sues the at-fault driver for other damages - like pain and suffering or physical impairment - he will begin by claiming the full $140,000 in damages for medical costs. That's because current law says that juries cannot be told that those bills were actually settled for $40,000.

The $100,000 difference is sometimes called "phantom damages" because it represents costs that were never truly owed and never paid.

SB 181 would allow the jury to consider both amounts when deciding what reimbursement to award.

Senate Bill 191 (Sen. Jack Tate, Reps. Yeulin Willett & Cole Wist) tackles a second anachronism in Colorado law by setting interest rates on judgments at 2% above the federal rate. Under existing law, not only can someone claim phantom damages (as above), but they are entitled to receive 9% interest on those phantom damages.

So why settle a lawsuit and put that money in the bank to earn 1% interest (or less) when you can drag it out and continue to earn 9% interest?

On a $140,000 judgment, the difference just in interest in four years' time is $40,000.

So the injured party suffered $40,000 in actual paid medical bills, which over four years at 3% interest, would accumulate to $45,020. But under existing Colorado law, they would be entitled to $197,621 - because the law doesn't reflect the real facts!

Yet, Colorado drivers and homeowners must pay higher insurance premiums to cover these unjustified costs.

SBs 181 and 191 preserve the right of an injured party to be fully and properly compensated for their injuries, while sparing Colorado drivers and homeowners the burden of paying for phantom damages and ridiculous interest rates.



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