The Tort Crisis: Causes, Solutions, and the Constitution

Publication year1988


The Tort Crisis: Causes, Solutions, and the Constitution

Wallace M. Rudolph(fn*)

A majority of states, including Washington, have passed or are considering tort reform legislation.(fn1) The push for tort reform comes from a combination of economically organized groups. Among these groups are manufacturers of products, suppliers of services who wish to redefine occupiers' liability, health care professionals who wish to limit malpractice claims, and local government officials who wish to limit their liability for operating governmental entities.(fn2) These groups are arrayed against the organized bar whose interests parallel those of the public at large.(fn3)

Tort reform legislation seeks to limit recovery for pain and suffering,(fn4) to cap attorneys' fees,(fn5) to adopt proportional liability instead of joint and several liability,(fn6) to adopt statutes of repose,(fn7) and to eliminate the collateral source rule in cases of medical malpractice.(fn8) The effect of these changes would be to reduce substantially injured parties' recovery.(fn9)

At present, damages awarded for non-negligent actions have resulted in a tort system that is out of control.(fn10) The chaos has led to increased insurance rates that have in some cases eliminated socially useful businesses. A notorious example is the withdrawal from the market of intra-uterine devices.(fn11) In addition, many local governments have eliminated fireworks displays and have terminated other public recreations and amusements.(fn12) Obstetricians and gynecologists have increasingly switched fields or ceased practicing medicine. Also, many businesses have closed because of higher insurance rates.(fn13) Whether the existing tort system has systematically eliminated such useful economic activity or whether the rise in insurance rates is marginally insignificant is not clear from the existing data.(fn14) Nevertheless, the political perception of harm does exist and has resulted in tort reform in Washington and in other states.(fn15) The ostensible purpose of tort reform is to lower insurance rates while at the same time preserving the extensions of liability adopted by the courts since the 1960s. The preamble to the 1981 Washington Tort Reform Act articulates this purpose.(fn16)

The questions for the public are whether caps on liability and statutes of repose deal with the actual cause of the increased rates, and whether such caps on damages and statutes of repose unfairly impose costs on tort victims in violation of their constitutional rights and standards of fairness. Our thesis is that the expansion of tort liability based on strict liability or enterprise liability without regard to the proper measurement of damages in such cases is at the root of the insurance crisis rather than the awarding of excessive damages in ordinary fault cases. Stated another way, the expansion of tort liability was based upon the appropriateness of internalizing the cost of economic activity by spreading the risk among the beneficiaries of such activity, but the damages were measured under full compensation theories rather than a more appropriate insurance approach. This divergence between basing liability upon insurance principles and measuring damages upon fault principles has resulted in the failure of businesses to incorporate the legal charges against them within the price of their product.(fn17) Our solution is to match appropriately damages to liability while protecting the constitutional right of individuals to life, liberty, and property. This solution necessarily includes the right of an individual to be free from intentional or careless injury to his or her bodily integrity.

I. A Proposed Solution to the Tort Crisis

A. Basic Tort Concepts

The law recognizes three kinds of torts, each requiring a different damage rule. The three kinds of torts are intentional, negligent, and strict liability.

The law of intentional torts defines rights and prevents infringement of life, liberty, and property.(fn18) Clearly anyone who intentionally invades the known interest of another should pay the consequences. Thus, in intentional torts, all damages flowing from the tort, not merely those proximately caused by the tort, are recoverable.(fn19) Damages include loss of dignity as well as general damages.(fn20) The reason for a liberal damage rule is that the law of intentional torts, like the criminal law, seeks to deter particular acts. Hence, when losses arise from intentional torts, we always decide that the loss should be borne by the tortfeasor rather than by the victim.(fn21)

Unlike intentional torts, negligence involves the careless doing of lawful acts. We have no interest in deterring the basic act itself but only in deterring the careless performance of that act. For example, we do not wish to prevent individuals from moving vehicles from one place to another, but we do wish to deter carelessness in the moving of vehicles. Carelessness is always a relative act. Driving 200 miles per hour on the salt flats of Utah to test the durability of an automobile is not careless, whereas driving 45 miles per hour on a busy Manhattan street is careless. Thus, whether an act is negligent depends upon the circumstances under which the act is performed.

According to Judge Learned Hand's generally accepted test for optimal social efficiency, when an act is negligent, the probability that injury will result must be balanced against the cost of avoiding that injury.(fn22) The formula requires that the actor make a prior judgment. Logically, the actor can predict only those risks of loss that would be generally foreseeable. Obviously, the actor cannot take precautions against unknown losses or losses that can be known only at the time of the action. Because the purpose of the law of negligence is to deter careless activity, the rules of negligence allow injured parties to be compensated for losses resulting from careless acts by others. To the extent that a direct relationship exists between the careless activity and the interest invaded, the law requires that the tortfeasor, rather than the victim, bear the loss.(fn23)

Under Judge Hand's formula, a manufacturer is not negligent unless he or she fails to take a cost-justified precaution. For example, use of the sample method of inspection is not negligent if the cost of inspecting a product sample would give a 95% assurance of eliminating defective merchandise and the risk of loss for the sale of defective products was less than the cost of inspecting 100% of the products produced. Using the sample method would also lower the cost of producing the product and under competitive conditions would result in a lower overall market price for that product. Thus, as a group, consumers of the product would benefit from the manufacturer's failure to take unjustified precautions.

Nevertheless, someone will be injured by a defective product not spotted by the sample method of inspection. One could readily argue that a user of a product should not bear a loss caused by a manufacturer's failure to take an unjustified precaution merely to lower the price for the majority of users. The failure to impose liability on the manufacturer would result in the unlucky purchaser subsidizing the other purchasers of the product.(fn24) On the other hand, testing 100% of the product could price the product out of the market.

The theory of strict liability evolved to redress the harm caused by a manufacturer's non-negligent failure to inspect 100% of the products produced. Strict liability in tort, as established by Dean Prosser(fn25) and Justice Traynor,(fn26) derived from Judge Hand's formula, as well as from warranty law. For example, under an implied warranty of fitness, it was not necessary to determine whether an injury resulted from failure to take justified or unjustified precautions. The warranty itself was sufficient to secure for a purchaser the benefit of his bargain.

Strict liability is also called enterprise liability. The enterprise essentially internalizes unavoidable losses by including those losses in the cost of its product. Fault is irrelevant.(fn27) Internalizing the costs of an enterprise is the antithesis of negligence, the social purpose of which is to ensure that the actor pays all avoidable costs and that unavoidable costs be shouldered by the person who is injured by chance.(fn28)

B. Internalization of Losses by Groups Supporting Tort Reform

The push for tort reform is motivated by a need for greater availability of insurance at affordable rates. The groups supporting tort reform can avoid liability for intentional or negligent tortious conduct by modifying their behavior or adopting necessary safeguards. But liability for unavoidable losses-strict liability-can be minimized only through insurance. It is thought that by limiting the amount that juries may award, insurance payouts will decrease; as a result, rates will drop and coverage will become more available. This solution, however, is constitutionally defective, as we shall show in Part II. A better solution for insuring against unavoidable losses that can be employed by each group supporting tort reform consists of internalizing those losses.

In product liability cases, for example, the loss is internalized to the extent that it is borne...

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