Friday, June 20, 2008

So, I Can't Sleep And Then I Read This...

I was reading over at TortsProf Blog about the a recent report issued by the publication, Directorship talking about which states have the best "litigation climates". And as I was reading the article, I came across this:

The Guide is a collaboration of Directorship and the American Justice Partnership (AJP), a coalition of more than 70 state and national organizations that work together to achieve tort and other business liability reform at the state level through legislative action and public support for pro-reform candidates for state office.
Why the mobilization? Trial Lawyers Inc. has created nearly a trillion-dollar tort industry. If America’s tort system was a country and tort awards were its gross domestic product, our tort system would be the 17th largest economy. The total direct and indirect costs of our tort system are $865 billion annually; Australia’s GDP is only $24 billion more than this.
Then there’s the danger of the “litigation trifecta.” The first stage was asbestos lawsuits, the longest running mass-tort category in history. The second stage was the $265-billion national tobacco settlement between states and tobacco companies. The R&D arm of Trial Lawyers Inc. hopes to cash in on the third stage of the trifecta: global climate-change litigation. If the plaintiffs’ lawyers hit the “litigation trifecta,” U.S. tort costs could soon exceed Russia’s GDP of $1.2 trillion.
Let's think about this paragraph for a second. Or rather, what they are trying to say. First, they start off by decrying the costs to their target audience, saying how bad things are for corporate America because of the U.S. tort system. They point out how much money has been paid out in judgments and settlements, as well as the costs of defending the cases. Then to show how truly horrific these numbers are, they compare them to the GDP of Australia.

Of course, a lot of the numbers to support the alleged "tort crisis" which are used come from a study which has been repeatedly reviewed and found to be inaccurate. Included in the numbers are the administrative costs for insurance companies (i.e. rent for their offices, employees on staff, and etc) and the costs of auto accidents (paid for by a driver's premiums).

There is always room for improvements to the system. We do need to take a look at some of the tort actions which we as citizens allow to be filed every day in almost every jurisdiction of this country. But then, they try and point out the evils of some of the largest tort groups going on in various states: asbestos and tobacco.

Why has asbestos been going on for so long? Could it be that asbestos was used in so many different types of products? That asbestos was used on virtually every ship manned by members of the U.S. Navy and Coast Guard during World War II, Korea, Vietnam, as well as all throughout the numerous other small actions that made up the Cold War? That it was even used by a tobacco company as filter for a brand of Kent cigarettes?

What the article conveniently omits is that asbestos industry brought this on themselves. From as early as 1935, with the Saranac Lab studies, as well as Johns Manville's own testing, it was known that inhalation of the fibers could cause pleural plaques, asbestosis, and possibly cancer. Earlier studies from Britain at the beginning of the twentieth century had already revealed a link between asbestos fibers and respiratory problems and deaths among asbestos miners and workers. Fearing that they might lose their profits, or be sued, the companies and their insurers decided to alter the report of the Saranac Lab when they published it. They covered up other studies which confirmed the earlier ones... because they looked only at the profits they were reaping.

Terrible now that those companies and their successors are being sued for their actions.

The second example of the horrors of the mass tort litigation is the tobacco industry. That's right, saying that the poor tobacco industry has been hurt by plaintiff's attorneys and various state attorney generals pressing suits against the tobacco industry. The cost in terms of health-expenditures alone for smoking has been variously estimated at being around $55 billion to $75.5 billion a year. Did the smokers bring on these? To an extent they did. On the other hand, the companies which produce the cigarettes have agressively marketed their products, that they knew their products were addictive, and that they caused cancer. However, the tobacco industry, instead of doing something other than making money off addiction, did everything in its power to undermine studies, and cover up what it knew about the health effects of their products.

Apparently producing a product which you know to be harmful, which causes a great amount of harm, should be rewarded by insulation from further law suits. Ok.

Then the authors of the report go into their top states, the ones which they believe are the best for corporations. However, even the states which they believe to be the best for corporations under this "litigation climate" are worrisome for them. For instance,

Moving up from 11th place in last year’s rankings, Tennessee is now the top-ranked state. Pacific Research Institute’s 2008 report listed Tennessee as the state with the lowest litigation risks in the country. While the state’s liability climate encourages growth and job creation, it’s also a state to watch because its tort laws do not place limits on non-economic and punitive damages and there are someplaintiff-friendly venues in Tennessee. The state Supreme Court is considered neutral on liability issues.
The key here is that the authors are applauding the ones where corporate America will face the least cost in litigation. In reading the article, the methodology seems to be placed heavily on the question of "how much can a corporate wrongdoer expect to pay if they do wrong."

Now, I know, not every corporation is evil. Not every plaintiff is an angel. However, where someone does wrong, why should they not be placed at risk for their actions? Why should we limit punitive damages in the way that U.S. Supreme Court has fashioned over the past decade? Punitive damages, based on number which I can find right now, were calculated at being awarded in only 1 to 4% of all civil cases.

When looking at the numbers for tort actions (which is really what the Directorship "study" is about), the numbers indicate the juries and judges award punitive damages in approximately 5.3% of the cases filed. Interestingly, when businesses sue each other, the number goes up a bit to 5.8%. The average punitive award in a tort case was (inflation adjusted average) $50,000. In cases based on contract action (typically corporation vs. corporation) punitive awards were typically $83,000.

Let's see, studies by the DOJ and others show that tort actions only produce the rare punitive damage award averaging $50,000. Then we have Directorship, along with the misnamed American Justice Partnership and the American Tort Reform Association fanning the fears of uncapped punitive awards.

Not only do they want to limit punitive damages, but they also seek to limit what are referred to as "non-economic" damages. That is what people who have been injured call the pain and suffering which they go through. However, they are more than that. They include damage claims for permanent disability.

One of the more commonly cited examples of a success is California's MICRA law. This law caps recovery for injured people in medical malpractice cases to $250,000. Sounds like a lot. However, when you consider that this is the most someone can recover for a life-long injury, its really not that much. Furthermore, since the law was passed in 1975, the cap has remained the same. $250,000 in 1975 was a lot of money. Were it to be adjusted for inflation, that cap should be $1,006,654.28. Unfortunately, no such provision was included. And every year, the insurance industry reaps the benefits while the people injured by medical malpractice are forced to try and stretch out the cap limit even further.

Getting back to the tort-reform groups, these organizations, like all others, represent an interest group. In this case, these organizations are representing the people who by and large are the targets of plaintiff's suits: corporations, manufacturers and etc. They argue that people are better served by allowing these groups to be able to have certainty when it comes to forecasting their own wrongdoing.

From my perspective, this is simply nuts. We live in a society where the implements which we use have become so complex, that it is simply impracticable for us not to turn to corporations to produce them. A century ago, the pharmaceutical industry was competing with doctors and pharmacists for control of the drug market. A century ago, it was not necessary to have a computer, all that was necessary was a pen/pencil and paper to do much of what would be necessary to operate a business.

Now, corporations have an interest in keeping their customers happy. However, they also have a greater interest in keeping their bottom line healthy. In the past when corporations have felt able to plan out how much they can expect to incur in litigation costs when determining whether to make a safety improvement, the result is a situation like Ford Pinto litigation.

The only way that consumers, individuals, in this era can protect themselves from being taken advantage of is by being able to assert their rights. Not only must individuals have the ability to assert their rights in court, but they must also have the ability to seek to civilly punish a wrongdoers. The only thing that hurts a corporation is money. Since that is the one thing about which a corporation ultimately values, it stands to reason that the deterrent effect of lawsuits is a valid one.

Of course, tort reformers, argue that what law suits really do is simply inhibit corporations from doing more innovative things. Maybe. However, what is to protect the end-user, or even the bystander when that new innovation proves to be half-baked? The government can only regulate so much, or else the free-market will cease to be free. Furthermore, it depends on the government to fully fund and support the agencies which enforce the regulations in order to make that work.

The better course would be to allow for people to take responsibility for what happens to them. If they feel that they have been injured, then they should press their own rights in court. If industries want to decrease their litigation exposure, maybe they should implement better practices which take into account something other than the bottom line. It would be in their own self-interest to do so.

Limiting a person's ability to seek compensation and redress devalues the people in our society. Are there abuses of the system? Yes. Are there cases that go unprosecuted because people choose not to press for their rights? Yes. Are there cases which result in unusual verdicts that seem outrageous? Yes, but when you get into the facts of the case, the verdicts make more sense.

Despite all the hoopla of the tort-reformers, the sky has not fallen. The sky is not going to fall. Bottom line is this: this report is just another piece of propaganda to solve a problem which does not really exist.

1 comment:

Anonymous said...

Great (and long) post. I wrote a blog post today on the impact of medical malpractice tort reform - specifically caps on noneconomic damages like the California cap you talk about - at

- Ron Miller