WHAT DRIVES TORT REFORM LEGISLATION? AN ANALYSIS OF STATE DECISIONS TO RESTRICT LIABILITY TORTS

• Author: George Zanjani,Yiling Deng
• Date: 01 December 2018
• Published date: 01 December 2018
• DOI: http://doi.org/10.1111/jori.12186

WHAT DRIVES TORT REFORM LEGISLATION?

ANANALYSIS OF STATE DECISIONS TO

RESTRICT LIABILITY TORTS

Yiling Deng

George Zanjani

ABSTRACT

This article studies the timing of state-level tort reform enactments between

1971 and 2005. Using discrete-time hazard models, we find the level of

litigation activity—as measured by incurred liability insurance losses, the

number of lawyers, and tort cases commenced—to be the most important

and robust determinant of tort reform adoption. Political-institutional factors

and regional effects—such as Republican control of the state government,

single-party control of the legislature and governorship, and a (relatively)

conservative political ideology among a state’s Democrats—are also

associated with quicker reform adoption.

INTRODUCTION

Over the past several decades, the United States has experienced several waves of tort

reform. The first wave came in the mid-1970s, when a number of states enacted

reforms such as caps on noneconomic damages, changes to collateral source rules,

and limitations on the application of joint and several liability. This was followed by a

larger wave in the mid-1980s and another wave in the early 2000s.

Much research has been devoted to estimating the impact of tort reforms, with many

studies finding that tort reforms have large negative effects on various measures of

Yiling Deng is at the Department of Accounting, Finance, and Economics, Donald R. Tapia

School of Business, Saint Leo University, Saint Leo, FL 33547, 325-588-8190. Deng can be

contacted via e-mail: yiling.deng@saintleo.edu. George Zanjani is at the Department of Risk

Management and Insurance, J. Mack Robinson College of Business, Georgia State University,

Atlanta, GA 30303, 404-413-7464. Zanjani can be contacted via e-mail: gzanjani@gsu.edu. The

authors thank the editor, an anonymous referee, Charlotte Alexander, Daniel Bauer, Richard

Butler, Martin Grace, Tyler Leverty, Nan Zhu, and seminar participants at Georgia State

University, 2014 American Risk and Insurance Association (ARIA) conference, and the 2015

ASSA conference for helpful comments. Travel support from the Center for the Economic

Analysis of Risk (CEAR) is gratefully acknowledged.

© 2016 The Journal of Risk and Insurance. Vol. 85, No. 4, 959–991 (2018).

DOI: 10.1111/jori.12186

959

litigation activity. However, relatively little attention

1

has been paid to the question of

why states enact tort reforms, and the propensity to reform varies significantly across

the states. For example, as can be seen in Table 1, Florida has been extremely

aggressive in instituting reforms, while, nearby, South Carolina has stood pat;

similarly, one moves from an aggressive to a passive reform environment when one

crosses the border from Idaho to Wyoming. Why did some states enact tort reforms

while others stood pat? This article maps out the diffusion of tort reforms across states

over time and studies the social, economic, and political factors associated with

reform decisions. Specifically, we focus on adoptions of four of the most common and

prominent liability tort reforms—caps on punitive damages, limitations on joint and

several liability laws, caps on noneconomic damages, and changes to collateral source

rules—during the 1971–2005 period.

Several theories may help explain the political process of legal change. Building on the

segmentation offered by Kroszner and Strahan (1999), private interest or economic

theory (Stigler, 1971; Becker, 1983; Peltzman, 1989) describes the legislative process as

one of competition among interest groups, where well-organized industrial and

professional interests capture rents at the expense of more dispersed groups such as

consumers. In the case of tort reform, lawyers, physicians, the insurance industry, and

businesses are all interest groups to be considered. The public interest theory (Joskow

and Noll, 1981) features a benevolent legislature with a primary concern of social

welfare. In this view, lawmakers identify failures in the current civil justice system

and attempt to correct them. A third group of theories emphasize the impact of

political-institutional factors in the legislative process such as Republican versus

Democratic control (Dixit, 1996; Irwin and Kroszner, 1999), or the nature of state

government ideology (Poole and Rosenthal, 1997; Berry et al., 1998). A fourth group

emphasizes the impact of legislative outcomes in nearby polities, seeking to explain

the diffusion of law across borders as being facilitated by, for example, the availability

of ideas or templates for reform.

2

It is important to recognize that these theoretical approaches are by no means

diametrically opposed, despite some attempts in the literature to cast them as such. To

take but one example, one could imagine interest group lobbying reinforcing a push

for reform in the “public interest” that was inspired by legislation in neighboring

states and consistent with the ideology of the state legislators. This article recognizes

that the factors identified by these theories may work in concert to influence tort

reform enactments. To investigate what drives reform enactment, we use a discrete-

time proportional hazard model to explain the timing of tort reform adoption. We

incorporate proxies for the size of various interest groups, the extent of and costs

associated with litigation, political-institutional factors, the liability climate, state

insurance regulation, economic conditions, the presence of reforms in nearby states,

and regional effects.

1

An important exception is Harrington (1994), who studies the adoption of automobile

insurance no-fault laws in the early 1970s.

2

This diffusion literature is notably diffuse. See Twining (2005) for a review.

960 THE JOURNAL OF RISK AND INSURANCE

TABLE 1

Initial State General Liability Tort Reform Legislation, by Decade

Reform

States Passing

Reform in 1970s

States Passing

Reform in 1980s

States Passing

Reform in 1990s

States Passing

Reform in 2000s

States Passing

No Tort Reforms

Caps on noneconomic

damages

— AL, AK, CO, FL,

HI, ID, KS, MD,

MN, OR, WA

IL MS AZ, AR, CA, CT, DE, GA, IN,

IA, KY, LA, ME, MA, MI, MO,

MT, NE, NV, NH, NJ, NM, NY,

NC, ND, OH, OK, PA, RI, SC,

SD, TN, TX, UT, VT, VA, WV,

WI, WY

Caps on punitive

damages

— AL, CO, FL, GA,

KS, MT, NV, NH,

TX, VA

AK, IL, IN, LA, NJ,

NC, ND, OH, OK,

ID, MS AZ, AR, CA, CT, DE, HI, IA,

KY, ME, MA, MN, MO, NM,

NY, OR, PA, RI, SC, SD, TN,

UT, VT, WV, WI, WY

Collateral source rule

change

FL, ND AL, AK, CO, CT,

GA, HI, IL, IN,

IA, KY, MI, MN,

MT, OH, OR

ID – AZ, AR, CA, DE, KS, LA, ME,

MA, MS, MO, NE, NV, NH,

NM, NY, NC, OK, PA, RI, SC,

SD, TN, TX, UT, VT, VA, WV,

WA, WI, WY

Joint and several

liability

FL, KS, NV, OK,

OR

AL, AK, AZ, CA,

CO, CT, GA, HI,

ID, IL, IN, IA,

KY, LA, MI, MN,

MS, MO, MT, NJ,

NM, NY, ND, TX,

UT, WA, WY

NE, NH, OH, TX, WI, AR, PA DE, ME, MD, MA, NC, RI, SC

Note: MI, NE, and WA enacted caps on punitive damages before 1970s; SD and VT enacted joint and several liability before 1970s.

WHAT DRIVES TORT REFORM LEGISLATION? 961