Juries as regulators of last resort.

• Author: Landsman, Stephan
• Position: The Civil Jury as a Political Institution

TABLE OF CONTENTS INTRODUCTION AND A BIT OF HISTORY I. JUDICIAL TORT-BASED REGULATION II. THE BAD FAITH TORT: A CASE STUDY IN LAST RESORT Regulation by Juries A. Pre-1950 Developments B. The California Cases: 1958-1979 C. The California Courts' Articulated Justification for Last Resort Jury Regulation III. THE UNARTICULATED GROUNDS FOR JUDICIAL ACTION: THE REGULATORY VACUUM IV. ANOTHER RELATIONSHIP WARRANTING JURY REGULATION? CONCLUSION INTRODUCTION AND A BIT OF HISTORY

Juries were once the primary government regulators in America. (1) Throughout the eighteenth century and well into the nineteenth, at a time when legislation was rare and the executive branch weak, juries not only adjudicated legal disputes but, through court cases, enforced taxes, determined welfare rolls, mandated highway repairs, and generally oversaw public business. (2) In the early days of the Republic, the decisions of juries were also viewed as determining the law of the land, hence defining the legal standards for proper conduct. (3) With the growth of the other branches of government--and the judiciary's assertion in the nineteenth century of control over law fixing--the jury lost its role as the chief regulator of societal conduct. (4) Yet, the regulatory function of juries never entirely ended. The jury's determination of reasonableness in negligence cases provides an example of its continuing participation in the establishment of the parameters of proper social conduct.

Today, legislatures and executive bodies generate huge volumes of legal regulations and are the central instruments of governance. (5) Yet these bodies have, in a number of areas, faced substantial impediments to regulation. Some of these impediments are built into the American way of doing things. Samuel Issacharoff has explored the American inclination to allow free entry into markets and the legal consequences of that approach. (6) Such a policy has fostered dramatic business growth but has also meant that there may be few fixed regulations or standards to address harmful activities. (7) This has necessitated frequent resort to courts and juries. (8) Where regulation has been undertaken, the well-heeled and well-connected have often been able to powerfully influence the regulatory process. (9) Sometimes this has amounted to the "capture" of the regulatory machinery by the regulated. (10) The substantial likelihood of such capture is suggested by the economist George Stigler's observation that, when regulatory machinery is set up, it is often "acquired by the industry and is designed and operated primarily for its benefit." (11)

In addition to outright capture, members of various regulated industries secure sympathetic treatment from regulators in a variety of other ways. (12) The desire among some regulators for future employment has led them to refrain from zealous enforcement. (13) When enforcement is undertaken, it is often based on information prepared and provided by the regulated. Such material is likely to favor industry claims (14) or simply overwhelm regulators because of its volume and complexity. (15) To add to the normal challenges regulators face, they are often hampered by inadequate budgets, (16) as well as the possibility of funding cuts engineered by politically powerful members of a regulated industry. (17) In a number of circumstances, those potentially subject to oversight have also been able to use their economic power and communications skills (honed through advertising and public relations campaigns) to skew the regulatory debate in their favor--as exemplified by the often cited McDonald's coffee spill episode. (18) The result of these checks on the efficiency and integrity of regulators is the creation of a less than perfect regulatory mechanism containing gaps, many of them perpetuated by those who might otherwise have been subject to scrutiny.

It will be this Article's contention that the civil jury has been pressed into service by the judiciary on a number of occasions to address situations where a regulatory gap is perceived, administrative intervention--either grounded in a pre-existing statutory duty or prompted by court directive--seems hopeless, and the need for a rule to restrain the powerful from gross overreaching appears essential. What the jury has become in these circumstances is a regulator of last resort--albeit one without the focus or expertise of an executive agency or legislative committee, but one charged to respond nevertheless. Part I of this Article will examine the judge's and jury's roles in considering otherwise under or unregulated situations and the reasons why courts have been inclined, at least sometimes, to turn such matters over to juries. Part II will use the development of the tort of bad faith in insurance transactions as a case study of the growth of the use of the jury as a last resort regulator. This Part, while briefly considering the early history of the bad faith tort, will concentrate most of its attention on a series of California cases decided between 1958 and 1979. California's decisions steadily expanded the bad faith tort from its narrow beginnings in so-called third-party situations, where an insurance carrier failed to honor an obligation to defend the interests of its insured against claims by others, to the much more common first party settings where an insurer, for one reason or another, denied a compensation claim by its own insured. Part II will analyze the California courts' expressed reasons for acting, including the insured's and company's circumstances, as well as broader policy concerns. Part III will explore possible unarticulated motivations, like the absence of effective regulation and the capture by the insurance industry of the regulatory apparatus. Part IV will consider another area where the courts may be warranted in turning to the jury as a regulator of last resort: bad faith manipulation of adhesion--contract-imposed arbitration proceedings.

1. JUDICIAL TORT-BASED REGULATION

   America's courts have retained a significant role in law making, most particularly in the tort area. (19) They have continued the common law tradition of addressing perceived wrongs by recognizing a right of action accruing to those harmed. (20) In Blackstone's words: "[I]t is a general and indisputable rule, that where there is a legal right, there is also a legal remedy, by suit or action at law, whenever that right is invaded." (21) While creation of truly new torts has been rare since the middle of the twentieth century, there are at least four instances where a substantial number of courts have created new causes of action. (22) Two of these, the intentional infliction of emotional distress (IIED) tort and the expanded protection of privacy, (23) might be characterized as responding to heightened social sensitivity to the mental harms that tortfeasors can do their victims. The parameters of the IIED tort are flexible, as befits a cause of action about the myriad ways people and institutions can cause substantial psychological harm. (24) That said, courts have concentrated on limiting actionable IIED claims to particularly outrageous conduct that caused verifiable mental suffering. (25) The privacy tort concerns itself with a handful of ways defendants may intrude upon and undermine the privacy of others. (26) While the privacy tort has its roots in the classic work of Warren and Brandeis in 1890, (27) it truly flowered in the latter part of the twentieth century as the doctrines of intrusion, false light, misappropriation, and publication of private facts were all fleshed out. (28) Although both of these torts are arguably regulatory in thrust because they seek to curtail injurious behavior, (29) the serious restrictions placed on their scope by free speech concerns have narrowed their reach. This point was illustrated when the Supreme Court recently decided in Snyder v. Phelps that extraordinarily provocative behavior during the funeral of a soldier killed in the war in Iraq was protected from an IIED claim despite the great likelihood it would cause severe emotional pain. (30) Snyder relied on the limiting approach adopted by the Supreme Court in earlier privacy law rulings, like that in Hustler Magazine v. Falwell regarding Hustler Magazine's brutal parody about incest in an outhouse directed at the minister Jerry Falwell. (31) Moreover, it appears neither tort has been used to regulate the conduct of a specific industry or relationship.

   The remaining two "new" torts have been far more clearly regulatory in thrust. The first of these torts is strict products liability. (32) Beginning in 1963 with Greenman v. Yuba Power Products, Inc., (33) the courts developed a series of legal doctrines designed to regulate the distribution of defective products dangerous to the consuming public. (34) The judiciary stepped into a setting in which American industry was not extensively regulated and insisted on more regulation to ensure the manufacture of safe products. (35) The courts thus became the guardians of a broad swath of consumer interests. (36) Since the 1980s this regulatory activity appears to have slowed, but the courts continue to consider consumer products safety questions. (37)

   The other new tort created in this period was the insurance bad faith tort. (38) This one also had an intensely regulatory thrust, focusing on the perceived misconduct of one particular industry, the providers of insurance coverage. Unlike products liability doctrine, the bad faith tort has continued to expand and has played an ongoing part in regulating the conduct of insurance companies. (39)

   In these tort-based contexts, the key mechanism by which authority has been exercised is the verdicts of juries in civil cases. Juries have been asked to say when conduct is so outrageous as to be an intentional infliction of emotional distress, so intrusive as to violate our notions of privacy, so risky as to...