Imagine a system that takes $ 350-$ 1,500 a year from motorists to insure them against liability for bodily injuries; funnels 55 per cent of that to lawyers and insurance companies; pays out most of the rest in ”pain-and-suffering” damages to accident victims and a growing legion of fraud artists; dispenses just 15 per cent to victims for monetary costs such as doctors’ bills and lost wages; and grossly undercompensates those with the most-severe injuries.

That’s our car insurance system, as shaped by a tort litigation regime that pits driver against driver in a futile quest to assign blame for accidents and provide compensation for intangible injuries that money cannot heal.

Premiums have shot so high that the push for reform has become a potent political issue. The proposed Auto Choice Reform Act, now pending in Congress, has enough support to alarm even the mighty trial lawyers’ lobby. But lest it be dismissed as mere lawyer bashing, note that the auto-choice bill is also opposed by many insurance companies–the betes noires of the trial lawyers.

Unlike conventional tort-reform proposals, the auto- choice bill is assiduously crafted to blunt complaints that it would strip accident victims of their rights. Although it would leave a few injured parties with less compensation, it would leave most with more, while offering all car owners a new right: to save hundreds of dollars in premiums each year by giving up their current rights to seek monetary compensation for any pain and suffering that they themselves may suffer. (Economic damages cover measurable monetary costs, such as medical expenses and lost wages; pain-and-suffering damages compensate for intangible injuries such as physical and emotional distress.)

The bill has won enthusiastic support from a small but respected group of Democrats, including Sens. Daniel Patrick Moynihan of New York and Joseph I. Lieberman of Connecticut, as well as numerous Republicans and business groups. Moynihan claims that it would, in effect, be the biggest tax cut of the decade.

It would save motorists up to $ 35 billion a year, an average of $ 184 a car, by cutting total car insurance premiums by 24 per cent, according to the Rand Institute for Civil Justice and the congressional Joint Economic Committee staff.

The percentage saving would be much higher–ranging from 30-50 per cent–for many low-income drivers, who generally buy only liability insurance (the legally required minimum), and in big cities, where fraud has helped push annual premiums as high as $ 3,500 (in central Los Angeles), and where many people must either drive without insurance (which is illegal) or not drive at all.

Here’s how auto-choice would work: Consumers would be given the option of paying lower liability insurance premiums, and immunizing themselves against claims for pain-and-suffering damages, in return for giving up their own rights to seek compensation for any pain and suffering they might experience.

These consumers would be automatically reimbursed by their own insurance company for any economic losses–medical expenses and lost wages–that they incur as a result of car crashes. Indeed, proponents argue, consumers would be reimbursed far more surely and swiftly by their own insurers than they are now through time-consuming litigation. They would also retain the option to sue other drivers’ insurers for any out-of-pocket costs in excess of their own policy limits.

At the same time, motorists could retain the right to collect pain-and-suffering damages by paying the same high premiums they pay now. If injured by another driver who has made the same choice, such a motorist could sue for full damages. If injured by a driver who has opted out of the pain-and-suffering regime, a motorist could sue his own insurer for full damages, up to his policy limits.

The auto-choice proposal has two logical underpinnings. First, by paying out more in damages for pain and suffering than for actual economic losses due to bodily injury, the current auto-tort system pushes up the cost of liability insurance both directly and by creating incentives for costly litigation. Second, most people (especially low-income people) would not willingly choose to pay hundreds of dollars in extra premiums for the right to seek pain-and-suffering damages.

The first point is a well-established fact. The second is suggested by this example: Suppose you slip and fall down the front steps of your own house, permanently injuring your back. Your health or homeowner’s insurance will cover your medical expenses. But you won’t get a dime for pain and suffering, no matter how agonizing or protracted. The reason is that no health or homeowner’s policy insures against such nonmonetary injuries. So few consumers would pay for such coverage, that there is no market for it.

In the current auto-tort system, on the other hand, you have to insure against your liability to me for pain-and- suffering damages, and I have to insure against my liability to you. It’s a lousy deal for both of us. Legal and insurance costs eat up most of the premiums; those with the worst injuries tend to get the smallest percentages of their actual costs reimbursed; and the system is especially unfair to low-income people, who often pay higher premiums than people who earn more, but get lower awards because pain-and-suffering damages tend to be pegged at double or triple the plaintiff’s lost wages and medical costs.

The auto-choice plan is a kind of social compact not to sue one another for pain-and-suffering damages, entered into by all those who would prefer not to pay for pain-and-suffering insurance.

Wasteful auto-tort litigation and high car insurance premiums fueled the no-fault insurance movement of the 1970s, spearheaded by good-government liberals such as Michael Dukakis. But no-fault has not reduced premiums in most states and is widely viewed as a failure. At the trial lawyers’ behest, the no- fault laws in most states were qualified–gutted, really–by provisions allowing old-fashioned tort suits to proceed whenever the total damages reach specified dollar thresholds. This created incentives for plaintiffs to reach the thresholds by exaggerating their injuries and pumping up their medical expenses.

The current auto-choice bill–conceived by professor Jeffrey O’Connell of the University of Virginia Law School (a Democrat who also helped conceive no-fault) and Michael Horowitz (a conservative former Reagan Administration official now with the Hudson Institute)–is designed to avoid no-fault’s flaws.

Rather than simply depriving all consumers of their rights to sue for negligence–a nonstarter politically even when it makes sense economically–auto-choice legislation would tempt consumers to vote with their pocketbooks. This takes some sting out of opponents’ assertions that auto- choice is really just no- fault in disguise.

Similarly unpersuasive are assertions that drivers would be more reckless if they knew they could be sued only for economic damages and not for pain and suffering.

The opponents have three more-serious arguments. First, they say, even those drivers who choose to keep their pain-and- suffering coverage would nonetheless be relegated to suing their own insurers up to their policy limits, and would be deprived of their current rights to bring larger pain-and-suffering claims against other drivers. True. But in most cases, those same drivers could probably get more money from their own insurers under the proposed system than they can get under the current system from most other drivers, a growing percentage of whom are uninsured or underinsured.

Second, opponents say, auto-choice legislation might fail to produce the dramatic premium savings projected by enthusiasts, and the bill’s complexity makes it hard to foresee how a new approach would work in practice. And third, these uncertainties would make it especially unwise for Congress–especially a Republican Congress given to attacking federal regulatory schemes–suddenly to intrude on such traditional state functions as regulating tort litigation and car insurance.

It’s true that many Republicans are less than consistent in their approach to such state-federal issues. But that does not refute the economic logic of auto choice: Car insurance would cost a lot less if fewer premium dollars were absorbed by pain- and-suffering litigation and payouts.

Beyond that, the bill contains two self-correcting features. States could opt out of the proposed system either by legislation or–if the insurance commissioner finds that bodily- injury premiums would fall by less than 30 per cent–by administrative ruling. And in those states that don’t opt out, individual consumers could do so if the premium cuts offered by the insurance companies were too small.

A purist advocate of federalism might say that Congress should await experimentation by states. A realist would say that Congress should seize the day and give auto-choice a try.