A Reexamination of the Distinction between "Loss-Allocating" and "Conduct-Regulating Rules"

• Author: Wendy Collins Perdue
• Position: Associate Dean and Professor of Law, Georgetown University Law Center
• Pages: 1251-1258

Page 1251

Associate Dean and Professor of Law, Georgetown University Law Center. Professor Perdue co-authored a casebook on conflict of laws with Dean Symeonides and Arthur von Mehren, see Conflict of Laws: American, Comparative, International (1998), and gratefully acknowledges all that Dean Symeonides has taught her about choice of law. She also thanks Lynn Stout and Carlos Vzquez for their comments on this paper.

The Louisiana choice of law code, drafted under the leadership of Dean Symeonides, is an important effort to codify the best of modern conflicts understanding. I routinely teach it to my conflicts students even though few will practice in Louisiana. I think it quite possible that someday states that have followed more ad hoc judicial codifications¹ may consider adopting the more systematic codification found in Louisiana.

The basic philosophy underlying the Louisiana choice of law code is set forth in Louisiana Civil Code article 3515, which calls for the application of the laws of "the state whose policies would be most seriously impaired if its law were not applied to that issue."² The remainder of the codification is an effort to delineate how this general principle applies in different substantive areas. The starting point for building these specific rules is an understanding of the policies underlying the particular substantive area of law. The Louisiana choice of law code for torts³provides. an excellent illustration of this approach. The tort rules also illustrate that a set of choice of law rules built around particular assumptions about the substantive law may not work as expected if those substantive assumptions prove incorrect.

The Louisiana choice of law articles on torts⁴ incorporate a distinction, first developed in New York,⁵ between tort rules that are conduct-regulating and those that are loss-allocating. The distinction has been described as "one of the few breakthroughs in modern American conflicts law."⁶ The basic rule is, as to laws that are conduct-regulating, to apply the law of the place of conduct, and, as to laws that are loss-allocating and the parties are from the same state, to apply the law of the common domicile. Dean Symeonides has succinctly explained the basic rationale behind the distinction: "most reasonable people can agree that conduct- regulating rules are territorially oriented, whereas compensation and loss- distributing rules usually are not territorially oriented."⁷ This conflicts rule is built around the premise that there are two fundamental purposes of tort law-deterrence Page 1252 and compensation-and that all tort rules can meaningfully be classified as serving one of those two purposes.⁸ For example, the drafters of the code expected that rules such as caps on damages or immunity from suit would be treated as loss- allocating and rules such as "rules of the road" would be treated as conduct regulating.⁹

In this paper, I disagree with the premise that all tort rules can be meaningfully classified as either compensatory or deterrent. I argue that most tort rules are both and that "the compensation and deterrence goals ascribed to the tort system cannot be separated."¹⁰ I then explore the impact on the Louisiana tort choice of law code of this alternative understanding of tort law.

My analysis begins with the proposition that all tort rules are loss-allocating. A liability rule shifts the loss from the injured victim to the tortfeasor; conversely a rule of no liability means that the loss, no matter how real, will be borne by the victim. All tort rules determine who will bear a loss and thus all are loss-allocating. In addition to all tort rules being loss-allocating, I believe that most affect conduct. The reason is directly tied to loss-allocation. Loss-allocation creates incentives for those who must bear the loss to behave differently than they would if they did not bear the loss. To the extent people respond to incentives, tort rules will affect conduct.¹¹ As I note later in the paper, these effects on conduct may not always be intended by the lawmaker, and in particular situations, the conduct effect of two different rules may be quite small. Nonetheless, I believe there are few situations in which one can conclude that a tort rule is inherently loss-allocating but not conduct-regulating.

The difficulties of classification have not gone unnoticed. Indeed, Dean Symeonides, with typical intellectual candor has acknowledged the problem¹²but has admonished that "difficulty . . . is no excuse for abandoning the judicial function. "¹³ However, if one accepts the view offered here that all tort rules allocate loss and thereby affect conduct, then the classification problem is not merely the result of insufficient diligence. The problem is more fundamental.

The difficulties of classification can be illustrated with a brief examination of several different categories of tort rules with which the courts have struggled. These illustrations are not exhaustive but do highlight problems that are typical in this area.

Page 1253

Strict liability. One question on which the New York courts have split¹⁴ is whether a strict liability rule is conduct-regulating or loss-allocating. The court split is not surprising. Strict liability is a classic example of a tort rule that both allocates loss and affects conduct. Strict liability undeniably contains an element of insurance or loss-allocation.¹⁵ Under a negligence standard, victims are insured against accidents that the defendant could have avoided with due care. Strict liability expands the insurance component and insures the victim against all accidents (including unavoidable ones).¹⁶ Thus, strict liability is loss-allocating. But strict liability is also conduct-regulating. A negligence rule creates an incentive for an actor to use due care.¹⁷ A strict liability rule does not alter the incentives concerning the level of care,¹⁸ but instead creates an incentive to reduce the level of an activity. ¹⁹ Consider, for example, a negligence versus a strict liability rule concerning the liability of employers for accidents on scaffolds. ²⁰ Under both rules, the employer will have an incentive to take due care with respect to the scaffold, and we would not predict any greater level of care under one rule than the other. What would be different is that under a strict liability regime, we would predict that employers will use fewer scaffolds. ²¹ Thus, in addition to allocating loss, a strict liability rule is likely to affect conduct, though not the level of care.

Limits on damages. A second category of rules that are both loss-allocating and conduct-regulating are rules limiting damages. There are a variety of laws that limit the amount or type of damage that can be recovered. Examples include: caps on pain and suffering, limits on wrongful death recoveries, and limits on what types of losses will be covered, e.g., loss of consortium. One might easily characterize these as loss-allocating since they obviously directly and explicitly determine how much a party must pay. But these rules have significant impact on conduct. From an economic perspective, it is the possibility of a damage award that causes an actor to internalize the costs its conduct imposes on others. The level of damages that an actor expects to pay directly affects the level of care the actor will take.²² A potential tortfeasor will take precautions so long as it is cheaper to take precautions than to pay the expected damage award.²³ If the damages are low, then the amount Page 1254 spent to avoid those damages will also be low. Thus, although damages limits have an allocative effect, they also affect conduct.

Immunity. A third category of rules that are both loss-allocating and conduct- regulating are rules granting immunity to certain actors or for certain conduct. The New York Court of Appeals has held that immunity is loss-allocating.²⁴ While it clearly is that, it is also conduct regulating. Immunity is simply the flip side of strict liability.²⁵ Under strict liability, if a tortfeasor engages in particular conduct and harm results, that person is liable. The rule creates an incentive for the tortfeasor to reduce the amount of that risk-creating conduct. Immunity puts the risk of loss entirely on the victim and thereby eliminates incentives for the tortfeasor to take care and creates incentives for the victim both to take due care and to take precautions to avoid the risk-creating activity.²⁶

The immunity at issue in...