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Flaherty, Francis X., on behalf of National League of Cities.
Gunter, William D., Florida Insurance Commissioner

Heydinger, Richard C., vice president, governmental affairs, Risk and

321

563

Insurance Management Society, Inc.......

Hitselberger, Tom, on behalf of the Fertilizer Institute..

Hunter, J. Robert, president, National Insurance Consumer Organization.
Jones, T. Lawrence, president, American Insurance Association...

602

849

37

208

Kopek, Richard, chairman, ad hoc insurance committee, New York State
Association of Renewal and Housing Officials

McHugh, Mary K., CNM, American College of Nurse-Midwives...
Maisonpierre, Andre, president, Reinsurance Association of America
Miller, Hon. George, a Representative in Congress from the State of
California

120

91

252

2

Muhl, Edward J., vice president, National Association of Insurance Com-
missioners

530

Porter, Hon. John E., a Representative in Congress from the State of
Illinois...

450

Shaine, Frances, on behalf of Chamber of Commerce of the United States.

Thomas, Burton W., chairman, AIA Liability Task Group, the American

Institute of Architects

Walters, Mavis A., senior vice president, Insurance Services Office, Inc......
Washburn, John E., director of insurance, State of Illinois..........

221

543

Testimony of-Continued

Weil, Nellie C., first vice president, National School Boards Association.....
Zuccaro, Edward R., vice chairman, Law and Justice Committee, National
Conference of State Legislatures.

Page

377

461

Material submitted for the record by:

American Association of Colleges of Nursing, statement..
American Supply Association, statement....
Center for Nonprofit Corporations, statement

291

691

862

Coalition of Automotive Associations, letter, to Paul Joffe, February 20, 1986

689

Commerce, Transportation, and Tourism Subcommittee:

Insurance Services Office, Inc., data gathered for the insurance in-
dustry on loss ratios for 1980-83..

396

Letter, dated October 11, 1985, from Norman Lent to Chairman
Florio re a letter from Charles Landgraf, U.S. general counsel for
the underwriters at Lloyds of London

Coppus Engineering Corp., letter to Hon. Joseph Early, January 3, 1986....
International Childbirth Education Association, statement.

National Association of Casualty & Surety Agents, letter to Chairman
Florio, February 14, 1986..

Organization for Obstetric, Gynecology, and Neonatal Nurses, statement ..
Petroleum Marketers Association of America, statement

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687

293

685

300

868

LIABILITY INSURANCE AVAILABILITY

THURSDAY, SEPTEMBER 19, 1985

HOUSE OF REPRESENTATIVES
COMMITTEE ON ENERGY AND COMMERCE,

SUBCOMMITTEE ON COMMERCE,
TRANSPORTATION, AND TOURISM,

Washington, DC.

The subcommittee met, pursuant to notice, at 9:35 a.m., in room 2203, Rayburn House Office Building, Hon. James J. Florio (chairman) presiding.

Mr. FLORIO. The subcommittee will kindly come to order.

I would like to welcome all in attendance today to our important hearing that launches a full-scale effort by this committee to investigate the effects and the causes of the critical shortage of liability insurance in this nation.

The investigation comes in response to the hundreds of calls and letters members of this subcommittee have received from businesses, professional groups and others for whom liability coverage has either become prohibitively expensive or impossible to obtain at any price.

The crisis in property casualty insurance is widespread and growing very rapidly. The current list of victims includes architects, trucking and bus companies, commercial fishermen, railroads, nurse-midwives, hotels, taverns, restaurants, ski resort operators, State and local governments that we know of, and I suspect the list is much longer.

Some of the groups will be represented by today's witnesses, but as we listen to their testimony, we should bear in mind that they are only telling part of the story. The organizations and individuals who are being harmed during this crisis are too numerous and diverse to be adequately represented at a single congressional hearing.

It is obvious to me that this is a national problem, deserving of a national response. Availability and affordability of insurance are fundamental in today's society. The lack of either can ultimately determine who can buy a car, who can purchase a home, who can obtain child care, and thus be able to enter the workforce, who can engage in business.

Our hearing this morning will examine the dimensions of the problem and, hopefully, afford insights into why these objectives of having an insurable society are not currently being met for so many.

Our modern society relies on insurance to an astounding degree, one that we could not have imagined 30 or 40 years ago. If there

are problems, and I think the conclusion is that there are, certainly there should be an effort to address those problems.

I yield at this point to the gentleman from New York, Mr. Lent. Mr. LENT. Thank you very much, Mr. Chairman. I want to commend you, Mr. Chairman, for calling this hearing. There is no doubt that the insurance industry performs a vital function to our Nation by enabling businesses, both large and small, to plan for and manage the risks associated with doing business.

I am most concerned when I hear that the insurance industry is unable or unwilling to perform this function. I can understand the reluctance of a person to provide day care in the home or nursemidwives to perform their important function, or of city officials and employees to stay on the job if in doing so they must risk all of their assets in the event of lawsuits arising out of their jobs.

Clearly, insurance is important to all of us, and I think that this hearing will provide us with a good start at exploring the reasons for insurors' unwillingness to write certain lines of insurance.

I look forward to the exchange of views on this issue, one that is so vital to the continuation of everyone's ability to do business. Mr. FLORIO. Thank you very much.

We are now pleased to have as our first witnesses two distinguished Members of the Congress, the Honorable George Miller, a Member from California, as well as the Honorable Ron deLugo, delegate from the U.S. Virgin Islands.

I would ask both to kindly come forward.

As with all of our witnesses today, their formal statements will be made a part of the record in their entirety, and the witnesses may feel free to proceed as they see fit.

Congressman Miller.

STATEMENTS OF HON. GEORGE MILLER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA; AND HON. RON deLUGO, A DELEGATE IN CONGRESS FROM THE VIRGIN ISLANDS

Mr. MILLER. Thank you, Mr. Chairman, and thank you and the other members of the committee for making this hearing available to us. I welcome the involvement of your subcommittee and, hopefully, the full committee in this issue of liability insurance coverage.

I would like to take a few minutes to outline what our Select Committee on Children, Youth and Families has learned in the hearings which it has conducted.

As you know, last year the House Select Committee on Children, Youth and Family spent a year looking into the issue of child care in America, and I must tell you that we found a system that was woefully inadequate to meet the needs of working parents in this country for the safe protection and care of their children during their working hours.

We found that the only way that we will ever be able to meet the need for child care is with the full participation by all facets of our society. But now what we find in recent months is the alarming reports that the child care operations, family day care home provid

ers and Head Start programs across the Nation, in their efforts to meet the child care needs of this Nation, are in jeopardy.

With little or no advance warning, the liability insurance for child care providers is subject to midterm cancellation, nonrenewal, severely restricted coverage and dramatic rate hikes, ranging from 200 to 1,000 percent. It is not an exaggeration to say that, as a result of these events, child care could be approaching a major crisis.

As a result of our recent hearings on this issue, we have learned a great deal, and I would like to share some of those findings with you.

Family day care providers in nearly every State, who care for an estimated two-thirds of the Nation's children in child care, cannot find liability insurance. Their homeowner's policies have been cancelled or they have been offered insurance at premiums that equal or exceed their average salary for 1 month.

Well-established youth serving agencies such as the YWCA and Campfire face increases in premiums that range from 300 to 500 percent or more, threatening their ability to provide child care services or other youth programs.

The National Association for the Education of Young Children, which represents 47,000 individuals who work in all facets of early education, told the committee that the loss of insurance and the prohibitive rate increases bear no relationship to the professionalism, quality or claims history of the affected programs. Most programs suffering dramatic changes in their liability coverage have never filed a single claim.

Insurers are concerned about the long tail of exposure that occurs when insuring children because insurers may be responsible for loss litigated many years after the policy is purchased.

Insurers are also expressing hysteria over a perceived threat of child sexual abuse that has received so much media attention of late, but the Select Committee also learned that only an estimated one to one-and-a-half percent of the reported perpetrators of child sexual abuse are child care employees.

In addition, one insurance industry representative who researched the problem could not find a single award for child abuse claims that had been made by any of their affiliated companies. In fact, what became quite apparent from the insurance industry's testimony was that poor financial management, cash flow underwriting to generate dollars for investment purposes, and the historical cycle of highs and lows in the industry were the reasons for the sudden change in policy.

There was general agreement among the insurance industry representatives testifying that losses from child care were comparable to aggregate general liability losses and did not warrant abandonment of the child care market. It appears as if the child care community, which provides one of the most valuable and necessary services for American families, has been held accountable in large part for poor financial decisions made by the insurance industry and has been put in the position, along with other affected businesses, of making up for the insurance industry losses.

This is simply an unacceptable situation. The Select Committee has continued to monitor the situation to determine to what extent

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