A true path to tort reform

America struggles with tort reform, but neither Democrats nor Republicans seem to have got it right

A true path to tort reform

By Quentin Langley

Dateline 13 March 2005

That America is in need of tort reform seems to be doubted by no-one except trial lawyers. But to find a path of true reform requires more than this bland assertion.

Liberal commentators tend to distrust Republican proposals on the grounds that doctors, manufacturers and insurance companies all fund the Republican Party. Conservatives point to the even larger donations that trial lawyers make to the Democrats as reason for doubting Democrat sincerity on the issue of reform.

In practice Republicans tend to support limits on the size of awards. This is certainly convenient for defendants and their insurers, as a finite risk is easier to manage than an infinite risk. But is it just? If, through negligence, I cause $10 million worth of damage, should I not be liable for it all?

In practice the limits normally apply to non-economic and punitive damages. This means that if I destroy property of yours worth $10 million I would be liable for that economic loss, but there would be limits to amount of sentimental value you could claim on top of this. If, through my negligence, you were injured, you could claim for loss of earnings, but there would be limits on the additional amount you could claim for pain and suffering. Even this approach is open to challenge, but at least has the merit of being simple. The serious damage caused to the US economy by lawsuit abuse would be limited.

But there is a further problem with the Republican approach. Even strident critics of lawsuit abuse such the Cato Institute doubt that some Republican proposals are consistent with the principle of federalism enshrined in the US Constitution. Can Congress institute meaningful tort reform, or would any change Congress makes in the law be limited to the federal courts? Since most lawsuits are initiated in the state courts, genuine reform might require legislation in each of the 50 states. Supporters of reform respond that this is absurd. Lawsuit abuse is a significant restraint on American commerce, and Congressís power to regulate interstate commerce therefore includes the power to limit such damage. The interstate commerce clause is the most notoriously abused clause in the constitution, but it is surely true that tort reform falls more neatly within it than much other legislation already adopted.

But limiting the economic damage caused by lawsuit abuse is only one aspect of reform. Surely the key thing is to ensure justice. This means ensuring appropriate compensation for genuine cases and dismissing bogus cases. While placing a financial cap on non-economic damages has some sense, the real issue is to address the scandal of punitive damages. The Supreme Court has gone some way towards this. In the recent State Farm case it struck down punitive damages 145 times the level of compensatory damages and indicated that the multiple should normally be a single figure. But in affirming the existence of punitive damages, the Supreme Court has breached both the fifth and fourteenth amendments. Punitive damages are not awarded by due process of law.

To understand why this is the case it is necessary to distinguish between criminal and civil law. The purpose of civil law is to arbitrate disputes between individuals, and the civil courts, quite properly, adjudicate on the basis of the balance of evidence. It is criminal courts which have the role of punishing wrong-doers, but only when the case is proven beyond reasonable doubt. To compensate someone for actual loss or damage is a civil matter, but punishing someone is a criminal matter. These need to be judged to different standards and by different courts.

Not only is the standard of proof for civil cases inappropriate to punishment, but the courts themselves are ill-equipped to the task. The judges and trial lawyers have been trained in the wrong traditions. They assess evidence in the wrong way and deny defendants the presumption of innocence. The simplest solution to runaway punitive damages is for the Supreme Court to rule that all such awards are in breach of the fifth and fourteenth amendments. If the defendant in a civil case has also committed a criminal act, then it is a matter for the criminal courts to judge. Civil courts should be restricted to awarding compensation for civil wrongs.

Such a decision would abolish the worst excesses of lawsuit abuse in a way that is clearly within the purview of the constitution, and without the need to place arbitrary limits on actual damages.

Copyright © Quentin Langley 13 March 2005

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