Tort reform


Tort reform

Tort reform refers to the idea of changing the rules applicable to the law of tort. Tort deals with compensation for wrongs and harm done by one party to another's person, property or other protected interests (e.g. reputation, under libel and slander laws). The most contentious area of tort, and the area on which tort reform advocates focus is personal injury. The levels of compensation for accidents vary greatly between different jurisdictions, but there has been a general upward trend in the awards for compensation. [Tony Weir, 'The Staggering March of Negligence', in Peter Cane and Jane Stapleton (Oxford, 1998) "The Law of Obligations] The ideas for reform vary greatly between different jurisdictions also, and inevitably depend on the rules and practices of the country.

In the United States tort reform has become a contentious political issue. This is particularly true in the medical malpractice arena, where it has been argued that the high costs of compensation awards are passed through to health care consumers. US reform advocates have proposed, among other things, limiting the number of claims, and capping the awards of damages. In Commonwealth countries, the tort reform debate has taken a very different track. Proposals have been not to eliminate, but replace tort litigation with a social security framework. In 1972 New Zealand introduced the first universal no-fault insurance scheme for all accident victims. This is based on the principle that anyone suffering personal injury, regardless of whether they can point to a negligent party who caused their loss, may receive state benefits from the government run Accident Compensation Corporation. The goal is to achieve full equality in compensation, while reducing costs by removing the process from courts where litigation is hugely expensive. In the 1970s Australia [For a speech by High Court judge Michael Kirby, see [http://www.hcourt.gov.au/speeches/kirbyj/kirbyj_med11sep.htm "Medical malpractice - an international perspective of tort system reforms"] (11.9.2000)] and the United Kingdom drew up similar proposals for similar no-fault schemes. [in the UK, see the "Pearson Report" (1978) by the "Royal Commission on Civil Liability and Compensation for Personal Injury"] But the efforts and recommendations amounted to little, and with changes of government the reform agenda were abandoned.

alient issues

A number of recurrent issues can be identified in the debates about tort reform, though in many cases, these issues are particular to the United States. To understand why tort may need reform, it is first necessary to understand how tort works. Tort seeks out those responsible for harm to others, usually on the basis of some fault. It requires those responsible to compensate, usually in money. For instance, a supermarket may not have been safe enough for its customers to shop in by failing to mop up a spillage of yoghurt on the floor. ["Ward v. Tesco Stores Ltd" [1976] 1 All ER 219, where the "res ipsa loquitur" doctrine was applied where someone slipped on yoghurt in a supermarket] An employer may have failed to properly fence off some dangerous machinery, which exposes workers to risk of injury. ["Summers v. Frost" [1955] 1 All ER 870, on the application of the Factories Act 1961, s.14, saying "every dangerous part of any machinery... shall be securely fence"] A manufacturer of ginger beer may have allowed a bottle it sells to have become contaminated, which has made a consumer ill. [see, of course, "Donoghue v. Stevenson" [1932] AC 580, where a decomposed snail was found in a soft drink, see Lord Atkin's judgment in particular] And so on. In cases similar to these, the person injured can get a monetary payment to make up for their loss. This can include loss of income (while the person recovers), medical expenses and a payment for pain, suffering or perhaps a loss of a body part itself. Criticisms of the tort system are usually that it costs too much. This may either be the cost of compensation payments themselves, or that, granted that compensation is a worthy goal for the injured, litigation is an inefficient method of giving compensation. In Britain, for instance, it has been argued that 85p is spent on litigation for every £1 of compensation paid. In contrast, the social security system costs 8p or 12p for every £1 delivered. [Cane (2006) 466; This figure is disputed, because there is no easy method for accounting for transaction costs particularly when pre-litigation settlements are considered.]

The compensation principle

The starting point, is that the classical purpose of tort is to provide full compensation for harm, where a good case can be made. This is known under the Latin phrase "restitutio in integrum" (restoration to original state). In other words, the idea underpinning the law of tort is that if someone harms someone else, they should make up for it. Compensation should be, in the words of Lord Blackburn in "Livingstone v. Rawyards Coal Co", ["Livingstone v. Rawyards Coal Co" (1880) 5 App Cas 25,39]

"that sum of money which will put the party who has been injured in the same position as he would have been if he had not sustained the wrong for which he is now getting his compensation or reparation."

Tort also applies to property damage, where the replacement value is a market price (plus interest). The trouble is, that where people's body parts and minds are concerned, where somebody loses a leg in a workplace accident, or suffers nervous shock in a road traffic collision, it is difficult to quantify the injury that they suffer. There is no market for severed legs or sanity of mind, and so there is no price which a court can readily apply in compensation for the wrong, as they can in cases concerning damage to property or economic loss. So what happens instead is that courts develop a scale of damages awards, benchmarks for compensation, which relate to the severity of the injury. For instance, in the United Kingdom, for the loss of a thumb, one will get £18,000, for an arm £72,000, for two arms £150,000, and so on. [see, "Guidelines for the Assessment of General Damages in Personal Injury Cases" (2006), which lay out the standard figures, up to £200,000 for severe brain damages] In addition, claimants may win awards of damages for the pain and suffering they endured as a consequence of the injury. But while a scale may be consistent, the award itself is argued by some to be arbitrary. Professor Atiyah has written that one could halve, or double, or triple all the awards and it would still make just as much sense as it does now. [see generally, Patrick Atiyah and Peter Cane, "Atiyah's Accidents, Compensation and the Law" (2006) 6th Ed., Cambridge University Press] Damages may be awarded to compensate for the loss of future income. A typist who loses an arm suffers a loss to his future job prospects and in the case of fatal accidents, financially dependent relatives may be compensated for the loss of money that their loved one would have provided. [Known as "bereavement damages" under the Fatal Accidents Act 1976 in the United Kingdom.] These heads of the award can be adequately predicted in money terms, and (outside the United States) they most often constitute the largest element of the award. There is however also a case to say that people should not receive such full compensation for income losses, because it could be said entrench an existing and inequitable distribution of wealth in society. [see, "Atiyah's Accidents", p.155]

Punitive awards and juries

Another head of damages that can be awarded is called "punitive damages", or sometimes "exemplary damages". The word "punitive" means punishment and the word "exemplary" implies that damages should "make an example" of the wrongdoer. The purpose of such damages are twofold: to deter wrongful conduct by other actors, and to serve a normative function of expressing social shock or outrage at the defendant's actions.

In most jurisdictions, punitive damages are not available. They are considered contrary to public policy, because the civil justice system in many countries does not have the same procedural protections as the comparable criminal justice system. Therefore, allowing punitive damages would have the effect of punishing actors for wrongful conduct without allowing them the ordinary procedural protections that are present in a criminal trial. The fear is that punitive damages encourage a vindictive, revenge seeking state of mind in the claimant and society more generally. In the UK, "Rookes v. Barnard" ["Rookes v. Barnard" [1964] AC 1129, [1964] 1 All ER 367] limited the situations in which punitive damages can be won in tort actions to where they are expressly authorised by a statute, where a defendant's action is calculated to make profit, or where an official of the state has acted arbitrarily, oppressively or unconstitutionally. In the United States, though rare in tort cases, punitive damages are available. When punitive damages are awarded, the sums can sometimes be quite staggering. For instance, in "Phillip Morris USA v. Boeken" [US No. 05-594 (2006)] the US Supreme Court refused to overturn a $50 million award in damages to the family of a smoker who died of cancer. But originally, before the appeals court had limited it, the jury in the trial had awarded a whopping $3 billion in punitive damages. [see also, "State Farm Mutual Auto. Insurance Co. v. Campbell" US No. 01-1289 (2003) WL 1791206]

It is argued by some that extraordinary damage awards in the United States are a result of the jury system. In federal courts in the United States, the right to a jury trial in most civil cases is entrenched in the Seventh Amendment of the United States Constitution (drafted in 1789). Many state constitutions have similar counterparts that protect the right to a jury trial in state court proceedings. In many countries, particularly in continental Europe, juries are not used at all, even in criminal cases, because of the cost of protracted trials necessitated with a jury present and confidence in judicial impartiality. In the United Kingdom, juries are available in criminal cases, and for tort cases involving defamation, false imprisonment and malicious prosecution. Even in these three limited areas of tort there have been growing concerns about juries' role. In particular the disparity between awards in defamation cases (which invariably concern celebrities, politicians and the rich) and awards for personal injuries has been growing. Why should the vindication of reputation of a famous person, it is argued, be given a higher value than the loss of somebody's arm who is not famous? Inevitably, the awards climb, in a way that a fixed system of damages under judicial scrutiny does not allow. Juries are unseasoned with a daily exposure to tragic accidents in tort litigation. When confronted with their first case they may be shocked and outraged, which inspires a willingness to teach the wrongdoer (through a big damages award) that "tort does not pay". [the words of Lord Devlin in "Rookes v. Barnard" [1964] AC 1129] When the problem is viewed from a social and economic perspective, it could be argued that juries are not a good policy option.

On the other hand, most federal judges in the United States, for instance, come from a very narrow segment of society. They are all lawyers by trade, they all earn in excess of $100,000 per year, and they tend to have been educated at elite colleges and universities. The majority of federal judges are also white, male, and over the age of fifty. Therefore, their ability to mold damages awards to evolving norms of social conduct may be weaker than that of a jury. For instance, multi-million dollar punitive damage awards against tobacco companies could be said to reflect an evolving societal attitude towards corporate wrongdoing, which lay-jurors apply in their decisions. Judges may not share those evolving corporate attitudes, but rather exist within an isolated social subclass which is itself drawn from the ranks of America's societal elite. Therefore, it may be argued for some countries that a jury remains a healthy check on the judiciary.

Compensation culture

Another issue which arises is whether the courts are the appropriate forum for seeking redress for personal injuries. In the United Kingdom, those who see the tort system as encouraging frivolous claims often use the slogan "compensation culture" to deride the state of law which encourages people to "have a go" at filing a law suit, so that they might win lots of money. In fact, most personal injuries cases never reach court. They are settled between insurance companies. This is especially so for road accidents (where no-fault compensation schemes operate, and drivers mostly have third party insurance), and workplace injuries (where employers are usually required to have insurance, and will get compensation on the injured worker's behalf), the forum which account for the majority of personal injuries. Settlements are made "in the shadow of the law", so the amounts paid will usually approach or approximate what would be an expected award in court, if a credible threat from a claimant's solicitor is seen to exist. But in cases, for instance, involving product liability, occupiers' liability or medical negligence, where the claimant must "himself" get the money out of the opposing corporation, including perhaps his Health Maintenance Organisation ("HMO", in the US), the personal expense, time and anxiety of making a claim and seeing it through can be daunting.

The flip side is that if cases do in fact reach the point of trial, the costs are likely to be large. On top of paying expensive legal fees, the court process comes from public funds. Judges, their staff and the court administrators must be paid for through taxation.

There are also concerns about the use of class actions. This is where a group of claimants band together to bring similar kinds of claims all at once. These do not exist in most countries, and what will usually happen is that one case will be funded as a "test case", and if judgment falls in the claimants' favour the tortfeasor will settle remaining claims. [A famous example in English law is "Carlill v. Carbolic Smoke Ball Company" [1893] 1 QB 256, after which "Carbolic" went insolvent] . Class actions are justified on the basis that they ensure equal treatment of similarly situated victims, avoid the risk of conflicting judgments on similar issues, and allow an efficient resolution of a large number of claims.

But in the U.S., class actions have been used (and by some views abused) in order to overcome the differences in tort laws applicable in different states. So if one claimant lives in State X, where tort laws are unfavourable to their claim, but another claimant lives in State Y, where tort laws are favourable, they may bring a class action together in State Y. Strictly speaking, State Y must not adjudicate the claim unless it is found that the applicable law is similar or identical in both states, but as a practical matter this rule is often disregarded in favor of efficient resolution of claims. [see now, Class Action Fairness Act of 2005] Another measure particular to the U.S. is the introduction of "proportionate liability", in place of joint and several liability.

Economic effects

Three possible charges can be levelled at the tort system, for having distorting economic effects. First, the high costs of litigation and compensation payouts raise the cost of insurance. Because most tort claims will be paid from the pockets of insurance, and because the public generally pays into insurance schemes of all kinds, the public generally is footing the bill for tort claims. On the other hand, the insurance market can be argued to be flexible enough to adjust so that only high risk policy holders are footing the bill. Of course, taxpayer-funded insurance programs such as Medicaid and Medicare do not share this flexibility. If people are undertaking high risk activities (or are themselves high risk people) then it would seem fair that they share the appropriate social burden. Moreover the level of compensation in tort cases may not strictly correlate with insurance premiums. The market may keep costs to a minimum, provided that competition is effective. However, insurance regulations often limit the degree to which charges can be matched to risk levels at the policy-holder level. For instance, it would be illegal for an auto insurance company in the United States to charge African-American drivers more than Asian drivers, even though the claims rate of Asian drivers is substantially lower.

Secondly, and related to insurance in countries which do not have "socialised medicine" (i.e., free public health care), the costs of the tort system, and in particular medical malpractice suits, may raise the costs of health care. The difficulty in this area is to distinguish between public and private health care providers. The experience in the UK, where there is a fully public system run by the National Health Service, is that tort claims have been restricted, for instance in disallowing loss of chance cases. The Medical Defence Union actively combats, and attempts to settle all cases where potential negligence claims are at stake. While successful, the costs of litigation to the health system are steadily growing, [see "Heil v. Rankin" [2000] 3 All ER 138 on the increase of damages] and stand at around £446m a year. [see, Sir Liam Donaldson, "Making Amends" (2003)]

In the United States, it is easier for victims of medical malpractice to seek compensation through the tort system. The American medical negligence record is also the worst in the developed world, with around 195,000 deaths per year, which itself leads to a higher number of claims. [see ' [http://www.medicalnewstoday.com/articles/11856.php "In Hospital Deaths from Medical Errors at 195,000 per Year USA] ', "Medical News Today" (9.8.2004); by comparison, see A. Towse and P. Danson, [http://www.ncbi.nlm.nih.gov/pubmed/10342723 "Medical Negligence and the NHS"] (1999) 8 Health Economics 93] It is open to debate as to whether a change in the law of tort either way would lead to a change in practice.

On the one hand, it may be said that resources transferred to fight tort cases detract from money that could be used to improve patient care. On the other hand, it could be said that increasing liability would deter medical staff from making mistakes. For instance, it is a direct result of well-publicized tort judgments that standard practice is for a nurse or surgeon to count the number of sponges that are present on a surgeon's table after the completion of surgery, in order to ensure that none are left behind within a body cavity. The motivation for this precaution was to avoid tort judgments for left-behind sponges, which had been a common cause of claim.

Thirdly, there is an argument that tort liability could stunt innovation. This argument usually comes in connection with product liability, which in every developed country is strict liability, subject to a "state of science" defence. If a product is faulty, and injures somebody who has come across it (whether they are the buyer or not) then the manufacturer will be responsible for compensating the victim regardless of whether it can be shown that the manufacturer was at fault. The standard is lower in other injury cases, so that a victim would have to prove that a tortfeasor had been negligent. It can be argued that strict liability deters innovation, because manufacturers could be reluctant to test out new products for fear that they could be subjecting themselves to massive tort claims. [Michael Porter, "The Competitive Advantage of Nations", p. 649, ISBN 0684841479] This argument is characteristic of the law and economics movement. It may be somewhat confused about the relevant law because it misses the state of science defence. This defence means that a manufacturer can always say "there was no warning or evidence in the scientific literature that this new product could be dangerous".

Equality in treatment

Equality of treatment is the issue which the New Zealand reforms, and debate in the Commonwealth more generally have focussed on. If someone has an accident then they have a statistical 8% chance of finding a tortfeasor who they may be able to blame for their injury. If they are lucky enough to have been injured by someone else's fault, then they can get full compensation. For the other 92% who are injured through no fault of anybody, by natural accidents, by themselves, by disease or bolts from the blue, no compensation is available, and the most that can be gained for all their losses will be meagre state benefits for incapacity. Why should someone who has a broken leg be compensated on the basis that someone else has caused it? If two people have broken legs, why should society not view their misfortunes as the same?

This was the basis for much of Professor Patrick Atiyah's scholarship. His first book to put the argument forward was "Accidents, Compensation and the Law" (1970). Originally his proposal was the gradual abolition of tort actions, and its replacement with schemes like those for industrial injuries to cover for all illness, disability and disease, whether caused by people or nature. This is what happened in New Zealand, except coverage of disease. [Cane (2006) 488-493] This approach, generally, is still advocated in the recent editions by Peter Cane. More recently, Atiyah wrote "The Damages Lottery" (1997), which advocated a private insurance solution. Over the 1980s Atiyah's views shifted. He still argued that the tort system should be scrapped. But instead of relying on the state, he argued people should have to take out compulsory first party insurance, like that available for cars, and this model should be spread progressively. [P.S. Atiyah (1997) "The Damages Lottery", Ch.8]

Health and safety

An underlying issue with the law of tort, as it relates to accidents, is what, if anything, it can do to make people stop having accidents in the first place? On one view, it cannot, and the law of compensation is precisely that: there to compensate. On another view, the imposition of tort liability can make people take better care over their actions. If people have to pay compensation, they will not disregard the health and safety of others so callously. The logical conclusion on this "deterrence" view, may well be that the higher the damages that a tortfeasor must reckon to pay, the greater the care he will take. In that sense, health and safety could be maximised by maximising damages awards.

Alternatively, the best way to prevent accidents and injuries could simply be, for instance, to pursue better workplace safety policy, increase inspections and standards in product manufacturing, organise and fund hospitals better, and so on. Even if tort liability does in some cases deter people from making mistakes, in the cases where it does not, better preventative action is needed. In the US presidential election, 2008 one candidate, Mike Huckabee, made a slogan of the fact that "America does not have a health care crisis, it has a health crisis", implying that Americans could save much on health care bills by taking better measures to stop getting ill in the first place.

Individual countries

New Zealand

United Kingdom

*Pearson Commission (Royal Commission on Civil Liability and Compensation for Personal Injuries) 1979
*Sir Liam Donaldson, [http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_4010641 "Making Amends"] (2003) Crown Copyright
*Proposed NHS Redress (Wales) Measure 2007

United States

ee also

*Australian tort law
*English tort law
*United States tort law

Notes

References

*Peter Cane, "Atiyah's Accidents, Compensation and the Law" (2006)
*P.S. Atiyah, "The Damages Lottery" (1997)

External links

*Donald Harris, [http://www.jstor.org/view/01436503/ap030037/03a00050/0 Tort Law Reform in the United States] [1991] OJLS 407-415
*The Reagan Administration's [http://www.popline.org/docs/049701 "Report of the Tort Policy Working Group on the Causes, Extent and Policy Implications of the Current Crisis in Insurance Availablity and Affordability"] (1986)
* [http://de.wikipedia.org/wiki/Gesetzliche_Unfallversicherung_%28Deutschland%29 Gesetzliche Unfallversicherung] (Legal accident insurance) from German Wikipedia
*New Zealand's Accident Compensation Commission [http://www.acc.co.nz/index.htm homepage]
* [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=981192 Zeiler et al. Physicians' Insurance Limits and Malpractice Payments: Evidence from Texas Closed Claims, 1990-2003, Journal of Legal Studies 36:S2 (June 2007)]
* [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=914415 Black et al. Do Defendants Pay What Juries Award? Post-Verdict Haircuts in Texas Medical Malpractice Cases, 1988-2003, Journal of Empirical Legal Studies 4:3 (March 2007).]


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