Sky-high liability costs have wide impact. For towns, doctors, day-care centers lawsuit protection is hard to find

Gale Marceau, an official in the western Massachusetts town of Montague, was threatening to quit her job. The town was having trouble renewing its liability insurance, and she wasn't about to risk losing ``everything I've worked for all my life if someone sues me over a decision I made.'' Towns and cities in the United States are caught in an insurance crunch. ``It's a national problem,'' says Natalie Wasserman of Public Risk Insurance Management Association in Washington. ``It's a hard market. . . . It's more severe than the last [downturn] in the mid-'70s.''

The insurance industry, coming off its worst year ever (See story right), is trying to recover by raising its rates, canceling policies, and refusing to cover certain professions or businesses. While the crunch has hit municipalities before, this time it is squeezing a host of others who want liability insurance -- lawyers, commercial fishermen, bar owners, obstetricians, and day-care providers.

People who work in these fields report that their premiums have at least doubled in the past year. For some, premiums have increased tenfold.

Worse, many of those who want liability insurance cannot obtain it at any price. The town of Montague, for instance, looked in vain for a company to take over its policy, which expired in July. Ms. Marceau decided to keep her position as a selectman after learning Montague had a separate policy to protect town officials, but she says she's not sure if that policy will be renewed when it expires in a year or so.

``Town officials are essentially volunteers,'' she says. ``Not many are going to be willing to put everything on the line. There just won't be town officials anymore [if the liability-insurance problem is not resolved].''

Groups caught in the crunch -- including the insurance industry itself -- agree permanent solutions to the problem are complex. Some experts, citing an increasing readiness of Americans to sue, say reform of the tort system is needed to discourage frivolous lawsuits and control the size of awards. Others want the federal government to become more involved in the reinsurance market to help stabilize the highly cyclical insurance industry. All agree such solutions will take time to implement.

Meanwhile, groups hardest hit by the rate increases are struggling to find ways to cope.

Day care. The day-care industry has asked the brokerage firm Marsh & McLennan to work with insurance companies to negotiate a national group policy for day-care providers, says James Strickland, executive director of Child Inc., in Austin, Texas.

Mr. Strickland, who is ``extremely optimistic, but cautious'' that a deal will be worked out soon, says affordable liability insurance is a matter of survival for many day-care providers.

``We get 10 or 12 calls a day from people who say they're going out of business or are about to go out of business,'' says Strickland, who is also a member of Child Care Action Campaign, a nonprofit group that monitors day-care issues nationwide. Although he is not sure how many day-care facilities have folded because of rising insurance costs, Strickland says the small businesses -- run by people who take no more than half a dozen children into their homes -- are being hit hardest.

``When you couple a shortfall of capacity in the insurance industry with headlines about child molestation in day-care facilities, then you have what I'd call a crisis,'' he says.

Groups like Child Care Action Campaign have been working to ``gain control of the situation'' by providing better information about day care to insurance companies, he says. Only 12 percent of all day-care centers ever have a need to use their liability-insurance policies, he adds. For those that do, the average claim is $1,200.

Obstetrics. Medical malpractice suits -- and medical malpractice insurance -- have been on the rise for all physicians since the mid-1970s. Obstetricians, however, paid more for professional liability insurance in 1984 than did doctors in any other specialty, according to a report by the American Medical Association.

The result? ``A significant percentage of our members'' have decided to quit delivering babies, says Ken Heland, head of the professional liability department for the American College of Obstetricians and Gynecologists. A survey in 1983 showed 9.1 percent of the college's members had given up obstetrics. A new survey is due out next month, and Mr. Heland expects the number to be much higher. ``We believe access to health care may be threatened by this,'' he says.

Heland cites a number of reasons for spiraling insurance premiums: the number of lawsuits is rising, settlements are higher than ever before, and obstetricians handle some of the most difficult medical cases.

Municipalities. From California to Kentucky, from Massachusetts to Florida, cities and towns either cannot afford to renew their liability insurance or cannot find an insurance company that will write a policy. As a result, many are searching for new ways to protect themselves against lawsuits.

While some communities are uninsured, others have set up programs to insure themselves. One plan, now becoming more popular, is for towns to band together to create their own insurance association, says Stanley Corcoran of the Massachusetts Municipal Association. Each town pays into the association, which invests the money and pays out losses from its funds. Whatever is left over is refunded to the member towns.

Mr. Corcoran warns there must be a cap on liability, however, to protect the association from going bankrupt. Although Massachusetts has a $100,000 limit on tort claims, many other states have no such cap, he says. Cities and towns can no longer rely on the common-law doctrine of governmental immunity, which has been steadily eroded in the courts, he adds.

Many municipalities are also working to reduce the risk that they will be sued. Plainfield, Mass., decided to close its beaches because it couldn't afford lifeguards, Corcoran says. Efforts by other cities to reduce risk include reexamining procedures for hiring and firing and removing hazards in the workplace.

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