The ABCs of tort reform -- Page 2

Noneconomic damage caps. There's been a lot of publicity in connection with huge awards running into the tens of millions of dollars. Caps on different types of damages would limit awards. Noneconomic damage caps limit the amount for a victim who wasn't damaged economically, such as a woman whose capacity to bear children was impaired, to a certain figure. In contrast, if the same woman's capacity to earn money were damaged, there would be no limits on that figure.

Lucinda Finley, a professor of law at the University at Buffalo School of Law, who has authored research studies on tort reform, believes that such caps discriminate against the most-vulnerable members of society, such as children, the elderly and the poor. Because they don't have much economic value to start out with, any amount of economic damages they suffer would be minimal at best.

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Punitive damages caps. Punitive damages are another controversial subject. The point of such damage awards is to punish outrageous behavior such as companies or individuals who knowingly injure others in the pursuit of profits. By capping punitive damages, there is less cost to companies who put out defective products, anti-tort reform advocates believe. Those in favor of tort reform deny that companies would benefit in any way by manufacturing and marketing defective products.

Contingency-fee limits. Many tort cases are brought by lawyers who don't charge their clients an up-front fee, but rather receive a percentage of any monetary award the client receives. In many cases, this fee is a third of the award. Limits on contingency fees would curb the incredibly large amounts some lawyers and law firms make on such cases, advocates say. On the other hand, anti-tort reform groups believe that many poor consumers who were wronged wouldn't have access to lawyers if such fees were capped because lawyers couldn't then afford to spend the time and money necessary to win such cases.

Product liability curbs. Product liability curbs either prohibit suits against companies that manufacture certain products or impose some type of requirement before a suit can be filed. Such requirements can include a statute of limitations that cuts off any liability after a certain number of years, or a requirement that a certain standard of damage must be met. For example, a drug liability law passed in Michigan in 1996 states that someone injured by a drug company must prove that the company knowingly deceived or hid information from the federal Food and Drug Administration, or FDA, during the drug approval process. In other words, it isn't enough to simply prove that the drug harmed someone.

Other tort reform issues include:

• Limits on prejudgment interest that would either abolish or greatly restrict the amount of interest on a consumer's award between the time the suit is filed and when a judgment is rendered.
• Restrictions on a company's liability to compensate victims when several companies are found at fault. In this case, if one or more of the at-fault companies goes bankrupt, consumers who were wronged could receive substantially less than awarded by a judge or jury.
• Rules that would allow juries and judges to reduce the amount of compensation by the amount of any insurance or disability coverage the victim will get.

The debate on costs
How much money tort-related cases cost the American economy is fiercely contested. A study conducted by Tillinghast-Towers Perrin, an insurance industry consulting firm, states that tort-related cases cost $246 billion in 2003. The study also claims that tort costs have increased more than 100 times in the past 50 years, much faster than the economy as a whole.

Anti-tort reform advocates charge that the Tillinghast study is biased and vastly overstates the cost of tort cases. One advocacy group, Americans for Insurance Reform, calculates the costs at less than half of the $246 billion because they say Tillinghast includes many costs that aren't related to tort cases, including insurance-company overhead, as well as many cases that never reach the courts.

"The Tillinghast study is a classic example of junk science," says Finley. "What they do is not a valid way of determining what injury costs society.

"Also, they are only looking at one side of the picture. They aren't considering what injury and accidents cost the economy and society in terms of lost productivity and the impact on family members who have to take care of the disabled," she says. "There is research that actually looks at the cost of accidents, and that cost dwarfs the supposed costs in the tort system."

Costs are a hotly contested issue in the tort reform debate because costs are the basis on which many state laws have been enacted in the name of tort reform. Many tort reform advocates say that such reforms will drastically lower insurance costs, since big tort-related legal verdicts are a drain on insurance companies. Anti-tort reformists argue that the actual insurance premiums that are paid by consumers and the industry won't drop by much because of the insurance industry's desire for increased profits.

Where we are now
A variety of tort reforms have been enacted in states. The reforms have had mixed success in reaching the self-espoused goals of the tort reform movement, according to a study released by the Congressional Budget Office in June 2004.

The report says, "As a whole, studies [of the effects of tort reform] provided little systematic evidence that any one type of reform had a significant impact on any of the various outcome measures studied."

The report also says that no study has documented how the tort system, when reformed, functions in terms of its "efficiency and equity." In other words, the tort system exists to right wrongs that otherwise wouldn't be rectified, and it's still uncertain whether a changed system would accomplish that.

In addition, according to Schaefer, tort reform is designed to rein in the tendency of judges to regulate rather than judge. "A lot of what's gone on in the judicial system is regulation, which is the job of regulators and the legislature, not the judiciary," she says. "Regulation is not the proper role of the judicial system."

Finley disagrees. "In a sense, the tort system does function as a backdoor regulator, which is important in a democratic society. It is an indirect form of regulation, but sometimes a form of regulation with more teeth."

She says that tort reform proponents frequently cite the United States as a country with far more tort issues than other countries, but notes that in those countries, there is a much more extensive social safety net. "Our country has a more free market approach to health care, disabilities and other issues, so the tort system exists here to mop up the messes. In other countries, there is much more stringent regulation and provisions for health care, disability and wage replacement, so people aren't facing destitution if they are badly injured. We could greatly reduce or eliminate tort law if we had national health insurance and a rigorous regulatory system."