For Tort Reform - By Dr. Rowland Stewart

The function of law should serve one purpose:  to defend our natural rights. Frederic Bastiat, the great economist and philosopher, stated it best. For him, Law is “the collective organization of the individual right to lawful defense. Each of us has a natural right — from God — to defend his person, his liberty, and his property. These are the three basic requirements of life, and the preservation of any one of them is completely dependent upon the preservation of the other two.”

To this point, civil society requires that any infringement on an individual’s basic rights should be defended, and that those responsible for damage should be liable to cover the full costs of such damage. Put simply, defense of basic natural rights is the most critical function of law and government. Any human action that unjustly damages others should bear full liability.

In our country, we have a unique legal structure for civil lawsuits (tort). Our system splits the tort costs essentially “to each his own” (meaning that each side pays its own expenses). While this may sound fair initially, it creates an imbalance. That’s because initiating a lawsuit causes injury. When someone files a lawsuit, it forces the defendant to undertake defense, which in most cases is thousands of dollars (or higher). Because initiating a lawsuit is essentially free of liability, we have far too many lawsuits.

Predictably, the total number of lawsuits and the resulting costs have spiraled out of control in our country. We spend greater than $300 billion annually, or about 2.3% of our entire GDP, in civil court cases. That’s between two and three times as much as is spent on tort in other developed nations. Most reasonable people agree that our tort system is out of control.

The debate, then, rests on how best to address the issue.  Reforms, where they have been attempted, have targeted mainly two items, which I will discuss below:

1. Caps -- Limiting the amounts of damages that plaintiffs can claim if they win
2. Loser Pays -- Limiting “unnecessary” lawsuits by making plaintiffs liable if they lose

Most “reform” at the state level has targeted limiting plaintiff recovery through arbitrary caps placed on monetary damage awards. In 2004, according to the Congressional Budget Office, 34 states had passed some form of limitation on damages of plaintiffs (most capped between $250,000 to $750,000) for some direct and/or punitive damages.

I strongly agree with plaintiff's attorneys that limiting damages is not a good solution to our tort problem. Caps on damages violate the most basic premise of law:  when a person’s property has been damaged, the aggressor should bear the full economic responsibility for the damage. Caps arbitrarily limit recovery, which in cases of gross negligence prevents proper and full defense of property. Additionally, arbitrary caps give an advantage to large corporations, for they may calculate a “maximum exposure” for a faulty product, which may be less than the cost to fix the fault. The result is that people are unjustly deprived of their right to fully recover damages. Imagine the Gulf of Mexico disaster right now if BP’s liabilities were capped at $750,000 in each case. In short, arbitrary caps should not be part of any reform.

We should target reform at the true fault of our tort system, which is the fact that filing a lawsuit is essentially free of liability for damages. The very act of suing another person is injurious. It causes damage most directly in the costs to defend oneself against the allegations. With respect to property rights, defendants should have some ability to recover the damages from the aggressor plaintiff.

In 2005, according to the Department of Justice, plaintiffs won 59% of state court civil trials, which means that 41% of the time, the defendant won. In those 41% of cases, the defendant bore the full cost of defense, which usually extends to thousands of dollars of costs. It is this fundamental point that drives the debate:  how does society account for these costs justly?

This point is understood in most of the rest of the world, where the defendant can recover the costs of defense from the plaintiff if the plaintiff fails to prove his or her case. The costs of defense and the costs to the courts can and should be placed at the feet of the plaintiffs. Such a system is more commonly known as “loser pays.”

This point is understood in our own legal system as well, but only on the criminal side. In criminal cases, where the state brings suit against an individual, the state must bear the potential cost of defense. The defendant has the right to place the full cost of defense at the feet of the plaintiff (the state). To quote the Miranda rights, “You have a right to an attorney. If you cannot afford one, then one will be provided to you.”

The main principle here is that plaintiffs should strongly consider the merits of a lawsuit prior to acting, whether it is the state or private parties. Initiating legal action causes injury and should ultimately be the responsibility of the initiator of such action. This is the only system that fully respects property rights.

Most plaintiff’s attorneys oppose any “loser pays” system by arguing that such systems give legal advantage to rich people and corporations. Defense costs are so high, they say, that common citizens could not personally afford the potential personal liability in bearing the costs of the lawsuit. In the rest of the world where “loser pays” is the system in place, such as England, Germany, and Australia, Legal Expenses Insurance (LEI) has developed to fill these gaps. Such a system could be augmented by a public system for the poorest clients who have cases with merit, which is exactly what has occurred in other countries.

Our tort system should serve to protect property rights. The rights of the plaintiffs should be balanced with the same rights of defendants. The ideal system is one where both are protected, and more importantly both are potentially liable for damages. Arbitrary caps on damages most directly violate plaintiff’s rights, but failure to assign costs of litigation to the non-prevailing party is an equal injustice. A “loser pays” model of tort reform is the most reasonable corrective measure to ensure justice for all parties in a lawsuit.

 

 

Against Tort Reform - By Joey McCutchen, JD

We’ve all seen emails claiming that frivolous lawsuits are raising medical costs; such emails, which are usually verifiably false, end with rousing calls for tort reform and cleansing of the justice system. But it’s called the justice system for a reason; it’s the way that injured members of society can seek justice. Tort reform would limit that ability.

Typical tort reform limits the amount of damages that may be recovered for pain, suffering, and emotional harm--elements that are called “non-economic damages.” This “reform” limits an injured person’s ability to obtain full compensation for injuries by taking control away from the people (i.e., those who serve on juries) and placing it in the hands of the government. It is ironic and concerning that oftentimes conservatives--who want less government control of our schools, our health care system, and every other facet of our lives--are the people who scream the loudest for government control of our civil justice system.

Tort reform in the context of medical malpractice liability has been a source of much debate.  According to the Institute of Medicine, there are at least 1.5 million preventable injuries due to medication errors each year in the United States, at a total annual cost of $3.5 billion.  Approximately 100,000 people die in hospitals in the United States each year as the result of medical errors.  This number is greater than the number of deaths that would occur if a fully loaded jumbo jet crashed every day for a full year.

According to a 2003 report in Public Citizen, 2.6 percent of Arkansas’ doctors account for more than 43 percent of all medical malpractice payments over a period of approximately 13 years. It is rare for the Arkansas State Medical Board--the entity regulating physicians--to punish a doctor that commits malpractice.  The only way that doctors who commit malpractice can even be sanctioned by the Medical Board is if the Board determines that the doctor committed gross negligence or ignorant malpractice--which is extremely difficult to prove.  In practicality, our civil justice system is the only mechanism that insures that doctors follow safety rules.

Tort reform advocates, typically insurance companies and big businesses, often use factually inaccurate scare tactics in an attempt to influence others to believe that a crisis exists that can only be cured with the immediate adoption of tort reform.  Stories of  “jackpot justice” and “runaway juries” are common claims to make people believe that malpractice claims are driving up health care costs.  In reality, according to a 2004 Report by the Congressional Budget Office, medical malpractice makes up only two percent of U.S. health spending.  In addition, a 2006 study from Harvard University found that 97 percent of medical malpractice claims were meritorious, stating “portraits of a malpractice system that is stricken with frivolous litigation are overblown.”

Additionally, damage caps aren’t even legal in Arkansas. The Arkansas Constitution guarantees that persons injured by another’s wrongdoing shall receive complete justice (Ark. Const. Art. 2, § 13).  Another provision prohibits a limit on the amount of damages that may be recovered for injuries except in cases involving workers injured on the job (Ark. Const. Art. 5, § 32).  Not only is damage cap tort reform a bad decision, it is patently unconstitutional.

Another type of tort reform is the “loser pays” system, which makes the losing party pay the other side’s attorney fees. This requirement overlooks the fact that many meritorious cases result in losses for reasons unrelated to the merits of the case.  For example, losses may be caused by errors in the admission of evidence or unwillingness of an essential witness to testify.  For a party who should otherwise prevail but who loses for one of these reasons, imposing attorney fees is an unfair punishment.

Because of the risk of a meritorious case being lost,  the “loser pays” system deters litigation that should otherwise be brought by the poorest members of society. Many minimum wage earners with legitimate cases wouldn’t bring their cases to court because of the fear of losing and having to pay the attorney fees.

Those who tout the “loser pays” system fail to fully consider the system's possible consequences.  The loser pays system actually encourages litigation where negligence is clear but damages are minor.  Take, for example, a doctor who clearly commits malpractice that results in minor damage to a patient.  In our present system, it is not economically feasible to pursue such claims.  But in the “loser pays” system, such claims will become much more frequent because the chance of prevailing is high and the plaintiff's attorney will have his or her fees paid by the losing doctor.

Minor cases with clear liability will become so commonplace that they may clog the judicial system and prevent more serious cases from being decided quickly.  “Loser pays” will probably deter many meritorious cases from being filed, and it will also encourage the filing of many smaller damage cases with clear liability that are not pursued in our present judicial system.

With neither damage cap reform nor “loser pays” reform good solutions, and the necessity of tort reform itself in question, we should turn to another place to save money on medical costs. Insurance reform is the answer.  Take California as an example.  For more than 12 years after non-economic damages were capped (that’s the tort reform so gloriously hailed), medical malpractice premiums actually rose 450 percent.  Yet when voters enacted insurance reform, medical malpractice premiums decreased.  California’s insurance reform, adopted in 1988, required every insurance company to reduce its rates to at least 20% less than the rates that were in effect on November 8, 1987, unless the rate rollback would lead to insolvency.  It also required approval of insurance rate increases that could be granted only upon meeting certain criteria.  After 1988, doctor’s rates in California fell by 2% due to insurance reform.  

If doctors and citizens in Arkansas are truly interested in reducing insurance premiums, I encourage them to join with me in calling for insurance reform.

Joey McCutchen, JD, has practiced law in Fort Smith for over 20 years. He is currently a partner in the law firm McCutchen & Sexton. He focuses on personal injury, products liability, and medical malpractice.