The principle of misalignment: duty, damages, and the nature of tort liability.

• Author: Geistfeld, Mark A.
• Position: Response to article by Ariel Porat in this issue, p.82

ESSAY CONTENTS INTRODUCTION I. THE ALIGNMENT OF DUTY AND DAMAGES II. THE PRINCIPLE OF MISALIGNMENT A. The Problem of Irreparable Injury B. The Misaligned Negligence Rule, Punitive Damages, and Criminal Negligence Liability C. Misalignment and Differences in Individual Wealth III. MISALIGNMENT AND THE NATURE OF TORT LIABILITY A. Allocative Efficiency B. Corrective Justice C. Misalignment and Compensation CONCLUSION INTRODUCTION

A point that seems to be self-evidently true can be mistaken, although these types of mistakes are often quite valuable for shedding light on something that had not been adequately recognized. A good example is provided by the tort of negligence, which is easily characterized in an apparently unobjectionable manner that turns out to be wrong. Identifying the source of that mistake reveals something important about the nature of tort liability.

Like other forms of tort liability, negligence is defined by a set of elements that must be satisfied for the legal system to enforce the liability rule against the defendant. The first element of any tort claim--duty--specifies the legal obligation owed by the dutyholder to the correlative rightholder. (1) Negligence liability is based on a duty to exercise reasonable care, the breach of which establishes the second of four elements. The duty to exercise reasonable care involves safety precautions that must be taken by the dutyholder in order to avert threatened harms faced by the rightholder. The element of duty, therefore, determines which risks or threatened harms must factor into the negligence calculus, while the standard of reasonable care determines how the dutyholder should behave in light of those risks. Anything outside the scope of the duty is not part of the dutyholder's legal obligation, and so other elements of the tort must ensure that liability is limited to only those harms that are governed by the duty. Within the tort of negligence, the element of proximate cause (element three) aligns the element of duty with the (final) element of damages, thereby limiting "[a]n actor's liability ... to those harms that result from the risks that made the actor's conduct tortious." (2) From these well-established rules of tort law, it would seem to follow that negligence liability recognizes an "alignment principle" that fully "aligns the standard of care with compensable harms," (3) the claim made by Ariel Porat that turns out to be mistaken for interesting reasons.

Tort law aligns these elements to ensure that a defendant's liability is limited to the harms encompassed by the duty. Liability cannot be predicated on harms outside of the duty, as there is no legal basis for the imposition of such liability. The elements, therefore, must be partially aligned in the sense that the duty must encompass a harm in order for it to be compensable with the damages remedy. It is a separate question whether all harms within the duty must be fully aligned with the other elements, requiring a valuation of harm in the duty to exercise reasonable care that equals the valuation of harm in the damages element. The elements would not be fully aligned, for example, if a harm that is positively valued within the duty is not otherwise compensable with the damages remedy, a formulation involving issues of compensation that are obviously distinct from the need to ensure that liability is limited to the harms encompassed by the duty.

Tort law often fully aligns the elements, but there is no principle requiring the complete alignment of elements in the negligence rule. For example, a rule of strict liability fully aligns the damages award with the valuation of harms within the duty, but only because strict liability entails a single obligation to pay compensatory damages for the harms governed by the duty. A duty formulated entirely in terms of the compensatory damages remedy necessarily values harm equally across the elements of duty and the damages remedy. Complete alignment is a characteristic attribute of strict liability, whereas negligence liability involves a fundamentally different type of obligation, one that requires partial misalignment as a matter of principle.

For the most important harm governed by tort law, the duty to exercise reasonable care, is not fully aligned with the element of compensable damages. The duty encompasses risks threatening fatal injury, and yet the loss of life's pleasures due to premature death is not a compensable harm under the common law or the vast majority of wrongful death statutes. (4) This misalignment is not an exception to a more general principle of full alignment. Instead, tort law recognizes that the compensatory damages remedy does not adequately protect the rightholder's interest in physical security: monetary damages do not compensate a dead person, nor do they fully restore the loss in other cases of physical harm. In order to adequately protect the rightholder's interest in physical security, the negligence rule recognizes that accident prevention is far more important than an entitlement to an inherently inadequate award of compensatory damages. The negligence rule accordingly imposes a primary obligation on the dutyholder to exercise reasonable care. In the event of breach, the dutyholder is subject to liability for the ensuing harms, but the secondary obligation to pay compensatory damages is not fully interchangeable with the primary obligation to exercise reasonable care. A dutyholder cannot unilaterally choose to pay compensatory damages in exchange for acting unreasonably; such conduct is prohibited and subject to

punitive damages and perhaps even criminal negligence liability. (5) Because the duty to exercise reasonable care cannot be fully satisfied by the dutyholder's willingness to pay compensatory damages, the standard of reasonable care is not fully aligned with the element of compensatory damages. The resultant principle of misalignment simply recognizes that the compensatory damages remedy does not fully protect the rightholder s interest in physical security, justifying a legal valuation of harm in the standard of reasonable care that can exceed (or be misaligned with) the monetization of harm in the compensatory damages remedy. This tort principle prohibits a dutyholder from choosing to substitute the obligation to pay compensatory damages in place of the (more highly valued) obligation to exercise reasonable care.

The principle of misalignment has deep implications for the ongoing controversy over the underlying rationale for tort liability, one that pits a welfarist norm of allocative efficiency against a rights-based norm of corrective justice. (6) Because there is no consensus in this debate, one must engage in an interpretive exercise in order to identify the most plausible rationale for tort liability. The interpretive exercise has been conceptualized in different ways by different scholars, but there is widespread recognition that any viable interpretation must first offer a minimally plausible description of the important doctrines and practices of tort law. (7) This question of "fit"--whether tort law can be adequately described in terms of efficiency or a rights-based principle of justice--is central to the scholarly debate over the rationale for tort liability, with the efficiency interpretation being particularly dependent on its ability to describe the case law. (8) As established by an analysis of the applications and non-applications of misalignment, courts have formulated the negligence rule in a fundamentally inefficient manner, an outcome that may be sufficient to defeat the claim that tort law can be plausibly described as furthering a welfarist norm of allocative efficiency.

Within negligence law, misalignment occurs in only a few critically important instances, but it would be a pervasive feature of an allocatively efficient negligence rule. By relying on the principle of misalignment, courts could have formulated duty to encompass the total social cost of harms as required by the allocatively efficient standard of care, while employing the element of proximate cause to limit liability for general categories of harms (like pain and suffering) in order to avoid the associated inefficiencies created by the damages remedy. Such a limitation of the compensatory damages remedy would reduce the financial incentives to comply with the duty to exercise reasonable care, but that deterrence problem is addressed by the threat of punitive damages and criminal negligence liability. Consequently, courts could have formulated the negligence rule so that it would efficiently promote deterrence without inefficiently increasing the costs of injury compensation. Instead of developing the negligence rule in this manner, however, courts have limited duty in order to limit liability for important categories of harms (as with most stand-alone emotional and economic harms), thereby inefficiently excluding large swaths of social harms from the standard of reasonable care. (9) By revealing the range of choices that courts could have made while developing negligence law, the principle of misalignment decisively shows that courts have formulated the negligence rule in a fundamentally inefficient manner. This principle accordingly casts considerable doubt on the descriptive claim "that the common law of torts is best explained as if the judges who created the law ... were trying to promote efficient resource allocation," (10) although it also shows that the leading rights-based accounts of corrective justice must be reformulated to explain why that form of justice would primarily value the exercise of reasonable care as opposed to the payment of compensatory damages.

The logic of alignment is more fully described in Part I, which explains why the ordering of the elements in a negligence claim creates the misleading appearance that tort law has adopted a principle of full alignment. The...