The idea of fairness in the law of enterprise liability.

• Date: 01 March 1997
• Author: Keating, Gregory C.

1. THE ESTRANGEMENT OF TORT THEORY FROM TORT LAW

   In one of his more memorable and arresting aphorisms, Oliver Wendell Holmes remarked that "[o]ur law of torts comes from the old days of isolated, ungeneralized wrongs, assaults, slanders, and the like," whereas "the torts with which our courts are kept busy today are mainly the incidents of certain well known businesses. . . . railroads, factories, and the like."(1) The movement from a world of discrete and insular risk to one of generalized and interconnected perils transformed the impact of tort liability on the distribution of the costs of accidents. In the days of "isolated, ungeneralized wrongs," tort damages "might be taken to lie where they fell by legal judgment."(2) In the emerging world of risks incidental to great industrial enterprises, "liability for [accidents] is estimated, and sooner or later goes into the price paid by the public."(3)

   Holmes went on to observe that juries were quite sensitive to the moral significance of the differences between the old and new worlds, and did not seem to share the sense of justice embodied in traditional tort doctrine. In the vast majority of cases involving industrial accidents, they considered it fair to impose the costs of those accidents on the enterprises that engendered them. This double discrepancy between inherited legal categories and the social world that they assumed on the one hand, and emerging social realities and juries' sense of justice on the other, led Holmes to suggest that the law of torts might need to be wholly rethought.(4)

   In the century that has passed since Holmes wrote, tort law has been reconstructed in ways that have reduced -- though not erased -- the mismatch that caught his eye. Modern vicarious liability, abnormally dangerous activity liability, and product liability all show the influence of an "enterprise" or "activity" conception of strict liability. That conception holds that the characteristic risks of the modern world are the inevitable by-products of planned activities -- not the random consequences of discrete acts -- and seeks to make activities -- not actors -- bear the costs of the accidental injuries that they occasion.

   Yet if the law of torts has been partially reconstructed, our understanding of the sense of justice expressed in that reconstruction remains incomplete. In fact, our understanding is incomplete precisely because it slights the sense of justice that lies behind enterprise liability. George Priest's influential history of the rise of enterprise liability, for example, overlooks that sense of justice entirely. Priest argues that modern product liability law burst full-grown upon the legal landscape in the mid-1960s, the precocious offspring of an academic literature thirty years in the making. In Priest's telling of the tale, the normative thesis of that literature was simple: the twin policies of preventing accidents whose costs outweigh their benefits, and dispersing the costs of those accidents that are not worth preventing, called for discarding negligence liability and adopting enterprise liability.(5)

   Whatever its merits as an account of the rationales and concepts informing modern product liability law,(6) Priest's article is a powerful account of the rationales and concepts at the center of much contemporary academic writing on the normative basis of enterprise liability. Largely under the influence of economics, that literature works from and refines the twin policies of deterrence and loss dispersion. It recasts the former as a matter of preventing those accidents whose economic costs exceed their economic benefits. It recasts the latter as a matter of supplying insurance at the correct level and the cheapest cost for harms not worth preventing.(7)

   Contemporary academic writing has all but ignored a wholly different kind of justification for activity liability. That justification takes enterprise liability to rest "not so much" on policies of accident prevention and loss spreading "as in a deeply rooted sentiment that a business enterprise cannot justly disclaim responsibility for accidents which may fairly be said to be characteristic of its activities."(8) This justification insists that considerations of fairness-not efficiency-call for making activities that benefit from the imposition of particular risks bear the costs of accidental injuries issuing out of those risks. Burdens should be aligned with benefits, and "the costs of [enterprise-related accidents should therefore] be borne by those who profit from" the enterprise.(9) The costs of product-related accidents, for instance, should be apportioned across "the manufacturers and distributors who profit from its sale and the buyers who profit from its use."(10) In case law, this "fairness" justification both competes and cooperates with efficiency justifications.(11)

   The absence of this conception of fairness from recent academic writing on enterprise liability is partially explained by the economic cast of that scholarship. Policies of deterrence and loss distribution lend themselves to economic explication whereas principles of fairness generally do not. The ascendance of law and economics, however, is only half of the story. The other half of the story is the recent renaissance of moral theorizing about tort liability and the reluctance of these moral theorists to embrace the fairness justification for enterprise liability. For the most part, recent moral theories of tort have been organized around the idea of corrective justice, and this orientation has led them to view enterprise liability with suspicion. The guiding idea of corrective justice theories is that the proper end of tort law is the restoration of a preexisting equilibrium between victim and injurer, an equilibrium wrongly disrupted by injurer's accidental infliction of harm on the victim.(12) Moral theorists gripped by this idea have thought that enterprise liability violates the institutional integrity of tort law because it rests either on the ideal of loss spreading, which smacks of distributive justice, or on the goal of optimal deterrence, which is instrumentalism incarnate. On a corrective justice conception of tort, neither criteria of distributive justice, however right, nor instrumentalist goals, however good, are legitimate grounds for the imposition of tort liability.

   In his influential account of the role of fairness in tort law, for instance, George Fletcher takes loss spreading to be the principal justification for enterprise liability, and asserts that this justification has no place in a fairness conception of tort liability because it "is an argument of distributive rather than corrective justice."(13) Tort liability, Fletcher rightly insists, must turn on what people have done, not on who they are.(14) Writing around the same time, Charles Fried articulated a fairness conception of tort liability similar to Fletcher's in its reliance on social contract ideals of equal freedom and mutual benefit,(15) but that work, too, provided no support for the conception of fairness invoked by enterprise liability case law. Like Fletcher's work, Fried's account of fairness focused on the criterion of reciprocal risk imposition. That criterion does little to justify enterprise liability, and as a consequence Fried's own arguments only grapple with negligence law.(16)

   Not long after Fletcher and Fried's work, Richard Epstein proposed a libertarian theory of strict liability that also claimed the mantle of corrective justice.(17) Epstein's theory assumed a starkly individualistic vision of the social world within which accidental injuries arose. Its only reference to a form of enterprise liability occurred in the course of a causation discussion. Even that reference was incidental. Product defects, Epstein explained, are one of the three most common instances of the "dangerous conditions" paradigm of causation,(18) and this, not any distinctive characteristic of enterprise-related accidents, supports the imposition of strict liability on them. Ernest Weinrib, another important corrective justice theorist, has pressed the argument that enterprise liability rests on instrumentalist ideals of loss spreading and deterrence that are wholly alien to private lawn.(19) The principle of fairness invoked by Friendly as the master principle of vicarious liability, and cited in cases as a cornerstone of enterprise liability, is an academic orphan.(20)

   Its orphanage is all the more remarkable in light of the attractiveness of the fairness justification to judges. James Henderson's careful empirical study of judicial justification in products liability cases discovered that "[m]easured by what judges say in their published opinions . . . fairness norms, not efficiency norms, [predominate]," and their predominance increases when they conflict with efficiency rationales.(21) The prominence of fairness arguments alone ought to spark academic interest. That interest seems all the more warranted in light of Henderson's observation that judges who relied on fairness rationales apparently "found it comparatively more difficult [than judges who relied on efficiency did] to explain why fairness supported a given resolution of a legal issue."(22) When judges are confident that certain decisions are correct because they are fair, but are unable to explain precisely why those decisions are fair? scholars have their work cut out for them.

   In this article I propose to develop the "fairness" rationale for enterprise liability and to explore how its implications differ from efficiency rationales. I hope to show that the fairness rationale invoked by the cases is ripe for adoption into a family of principles embraced by a social contract conception of accident law as a realm of equal freedom And mutual benefit. When risks are recurrent and related, enterprise liability distributes the burdens and benefits of accidental risk imposition...