Liability: The Legal Revolution and its Causes

March 01, 1989  ·  Michael Fumento  ·  The American Spectator

The United States has by far the highest per capita number of lawyers of any nation in the world. But you already know that, more or less. What you probably don’t know is what all those lawyers do; that is, the ones who aren’t parking cars, waiting tables, or trying for the third time to pass the California bar.

Peter Huber thinks that a lot of them are fighting tort lawsuits of very dubious value or with questionable rewards, and he has chosen to write a book about them. A few examples:

  • A contestant in a reftigerator-carrying footrace recovered for injury to his back.
  • Two men who stuffed a hot-air balloon into a commercial laundry dryer, which then exploded, recovered damages from the manufacturer of the machine.
  • The occupant of a telephone booth demolished by a drunk driver collected from the booth manufacturer.

Then there are the grossly destructive or expensive awards:

  • The city of South Tucson, Arizona, had to pay $3 million to a police officer who was shot by a fellow officer — an award that amounted to $400 for every resident of the city.
  • Soldier of Fortune magazine will probably shut down if it loses its appeal over a suit concerning a disguised ad for a contract killer placed in its classified section. (Why couldn’t he have placed the ad in the Nation?)
  • A jury awarded the survivor of a Ford Pinto gas-tank explosion $2.5 million in compensation for injuries and $125 million in punitive damages, even though no malevolent motive had been shown, as was traditionally necessary. (The trial judge cut the punitives to $3.5 million.)

The original purpose of tort law was to keep the king’s peace: disputes were to be resolved in a courtroom proceeding instead of in an open-air free-for-all. Today, of course, that sort of tort law provides afternoon TV drama on People’s Court. The ostensible purpose of modern tort law, however, is to compensate for injury and deter intentional wrongdoing or negligence. But, as Joel Hyatt would say (albeit for a different purpose), "somewhere in all these dusty lawbooks a great idea got lost."

In days of yore (which is to say as recently as twenty years ago), Huber tells us, much of what now comes under tort law came under the law of contracts. Unfortunately, the contracts were sometimes disastrously one-sided and amounted to little more than caveat emptor.

For example, in 1937, the Massengill Company began shipping an early sulfa drug in a raspberry extract and alcohol base that had never been tested in animals for safety. One hundred users promptly died. Massengill was apologetic, but little more; if the users wanted a guarantee of safety, the company conveniently reasoned, they should have demanded one before buying the product.

But as post-World War II America grew increasingly affluent and life expectancies lengthened, individual litigants began contesting such one-sided contracts in the courts. The courts knew injustice when they saw it and tried to redress the situation.

One result was that these companies could no longer be assured of getting away, perhaps literally, with murder. Another was that judges expanded the scope of their jurisdiction and that of the jurors to a point where they were dispensing "justice" with little regard to economic realities or the law.

Peter Huber

An early target was the insurance companies, which found courts rewriting their policies if it turned out the policyholder hadn’t bought enough of the right type of insurance. Courts "discarded virtually every legal rule that had previously allowed insurers to define risk pools with workable precision," writes Huber; the result was that private insurance would inevitably decline.

Intangible injuries, such as unintentional infliction of severe emotional distress, had been traditionally limited for the obvious reason that, if it were carried out to the extreme, practically anyone could be made liable to practically anyone else for practically anything. This wall, too, has been rapidly crumbling, with teachers now collecting damages "for the mental trauma of being exposed to prayers unconstitutionally included in two holiday assemblies."

By far the greatest change in liability, however, has occurred in product safety. At one time "strict liability" (meaning that causation must still be proved but negligence need not) was applied only to keepers of wild animals and persons who engaged in inherently dangerous activities such as dynamiting.

Now manufactured products from dynamite to dominoes fall under the strict-liability rule. Originally, the product needed to be defective in and of itself, but soon it was enough to establish that another manufacturer had a better design of the product, or merely that a better design was feasible. It also became immaterial that a consumer had bought an inherently weaker design in order to save money.

Thus a jury fined Honda $5 million fot its "reckless" act of using lighter materials than those used by other manufacturers that year.

Occasionally, the potential defendants fought back, but success would prove short-lived. For example, companies received a temporary reprieve when they began including express disclaimers of liability with their products or services. But, writes Huber (with a characteristic indulgence of metaphor):

The [reformers) welcomed the arrival of express disclaimers much as a pack of chimpanzees welcomes a python, with much howling and chest pounding and waving of arms and throwing of rocks. The main reaction seemed to be outrage that anyone would dare to block the march of progress quite so brazenly and unapologetically... So there began a lengthy siege of the paper battlements, an arms race of verbal escalation and counterescalation between rival legal battalions. The objective for the reactionaries was to write disclaimers of liability that would stick. The objective for the reformers was to get over, under, or around disclaimers one way or another.

And the reformers won again. They always did. But each time they left a loser in their path, and ultimately, the biggest loser would be the consumer. For each plaintiff who won $1 million in the tort liability lottery, there were 100,000 consumers surrendering $10. Call it the tort liability tax. It’s levied on virtually everything we buy, sell, and use, accounting for 30 percent of the price of a stepladder or small airplane and over 95 percent of the price of childhood vaccines. Because of this tax, writes Huber,

you cannot use a sled in Denver city parks or a diving board in New York City schools. You cannot buy an American Motors "CJ" Jeep.... The tax has curtailed Little League and fireworks displays, evening concerts, sail-board races, and the use of public beaches and ice-skating rinks. And as is the case with most of the taxes paid to the federal government, we don’t get our money’s worth here either.

In theory, this shifting of money deters unsafe activities. But, despite some incredibly high awards, on the whole the little man is not much more protected than he was before. Huber quotes a victorious plaintiff as saying that his lawsuit was like playing Wheel of Fortune, and points out that this is exactly what tort litigation is — a game of chance. Most wrongs, for whatever reason, never get to court. And when they do, they still often go unredressed.

What we need is a system that helps prevent those wrongs without forcing a spin of the wheel. Unfortunately, while there’s no doubt that deterrence is taking place, the tort liability method is so utterly haphazard that what it deters has no relation to what the potential cause of harm is. Liability law from the beginning was meant to compensate, and however well it may or may not do so, the aims of compensation and deterrence are simply too disparate. Indeed, says Huber, they may be opposing:

Effective deterrence requires a clear point of responsibility, but generous compensation depends on a broad tax base to sweep in at least one or two deep pockets. Deterrence requires swift, well-timed justice; compensation requires looking as far forward or backward in time as may be necessary to find funds. Deterrence depends on solid proof of cause and effect; broad compensation depends on ignoring the same as much as possible.

Effective deterrence means "the buck must stop somewhere certain, definite and predictable," adds Huber. "Effective compensation depends on simply sending the bill somewhere or other, here or there, as may be convenient for securing funds in the particular case."

Huber gives one especially chilling instance of deterrence run amok: "According to the [then] director of the National Cancer Institute, many physicians refuse to prescribe potentially curative doses of cancer chemotherapy for fear of litigation over side effects, and thousands of patients may die needlessly each year as a result. . . ."

"In its search for witches," says Huber, "the modern tort system has undoubtedly found a few and reduced them to ashes. But too many wonder drugs have also been gathered into the flames."

But what to do? The basic answer, says Huber,

is not to abandon contracts, as the [reformers] did so briskly and casually, but to modernize it. The time-tested legal tools that promote informed private or public choice about risk and safety, and the use of direct insurance against the hazards tha remain, promise far better than the liability spiral we are riding today. Private contract can be resurrected in new forms tha channel incentives toward more care by providers and better insurance against accidents.

The rebirth of contract, Huber writes "can reconcile the generous and protective impulses of an affluent moder society with the venerable legal principles of cooperation and consent."

Among the examples he cites of this rebirth is a first-party insurance policy offered through high schools to their athletes. According to this plan, when serious accident occurs the injured athlete is immediately offered compensation for all medical expenses and modest but certain disability benefit; in return the student agrees not to sue the school. The system appears to work remarkably well, and has now been adopted by two-thirds of all school districts.

What is needed, ultimately, is the complete uncoupling of deterence from compensation. Tort law cannot serve two masters. But for now, legislatures can begin putting back power into contract, and judge recognize it.

Huber is realistic. His solutions are neither comprehensive nor utopian. Indeed, utopianism, he says, is the underlying fatal flaw that runs like a crack through the middle of liability law reform. But Huber’s solutions are nevertheless practical. States will continue to try to solve the liability problem in foolish ways, as with California’s Proposition 103, which reduces auto insurance minimums but does nothing to the underlying problem of why those rates are so high in a competitive market.

So don’t be surprised to see Huber’s ideas eventually being implemented — ever so slowly, to be sure, but implemented nonetheless. Until then, we can keep ourselves occupied watching Peoples Court, telling lawyer jokes, and chuckling over lawyer cartoons. "A jellyfish, eh?" says the thoughtful lawyer, eyeing his client. "That’s a tough one. But maybe we can sue Jacques Cousteau."