Tort costs

Figure 1.9 US tort cost escalation compared with GNP growth (Sturgis, 1992)...

Sturgis, R. W. 1992 Tort Cost Trends An International Perspective. Seattle Tillinghast Corporation. 

The relevant question, of course, is whether the tort system s additional benefits (e.g., damages that are prevented) exceed its additional costs. Danzon (1988,118) estimates that medical malpractice torts cost 40 percent more than simple first-party insurance. She argues that if approximately one injury of comparable severity is prevented for every injury compensated, then the tort system pays for itself. 

Delays to contracts can be costly to both client and contractor, and, in some cases, suppliers. There has been a tendency in the past few years for an injured party to sue for damages under the contract, and where there is no contract, in tort. Since the case of Harden v. Esso Petroleum... 

Later, 1 examine efficiency issues in information markets. The common-law tort system, which exists to reduce the costs of managing damages from remote risks, is the subject of great scholarly and political dispute. I review the controversies, in general and in the context of chemicals. 

Torts induce efficient behavior in the presence of transaction costs only if they imitate the outcomes of contracts in the absence of transaction costs. If damage awards to victims are to substitute for the outcomes of an explicit risk-information market that does not exist because of transaction costs, then the damage awards must be based on data that reflect the willingness of people to accept known risks, such as wage premiums found in risky occupations. Instead, damage awards are usually based on an injured person s actual lost income, a figure that is lower than the wages people demand to accept known risks (Dewees 1986). 

Evaluating torts as a response to transaction costs in the case of chemicals involves two tasks comparing the characteristics of chemicals with each liability rule s requirements and weighing the trade-offs that apply to liability rules in general. 

I will construct such an argument, which has both efficiency and equity components. The efficiency portion asks whether information markets and torts could achieve similar results at lower costs. The equity portion asks why regulations are used instead of contracts to force costs on some for the benefit of others. 

What role can torts play when damages are collectively consumed Simple torts are prone to the same free-rider problems that groups face when purchasing emissions rights. If a neighbor successfully sues a company to reduce its emissions, all those who consume the air or water will benefit regardless of whether they contributed to the lawsuit costs. Class-action suits partially remedy the free-rider problem by allowing one suit to represent the diffuse interests of all the beneficiaries. ... 

See Huber (1988b, 220) for questionable strict-Uability decisions, including one in which a jury awarded 986,000 to a woman who lost her psychic powers after a CAT scan. But Henderson and Eisenberg (1990), who examined the universe of product-liability cases from 1984 to 1987, conclude that recent tort decisions equate costs and benefits better than Huber (1988a, 1988b), Priest (1988), and Abraham (1988) claim. 

In 1993, the Clinton administration proposed an 8.1 billion tax on insurance and chemical companies to pay for the cleanup of the 1,300 worst Superfund sites. In return, the government would have ended attempts to recover the cleanup costs through tort suits, but only for those sites. A.M. Best, an insurance rating company, estimated that the 8.1 billion was only a downpayment on a total environmental liability of 255 billion. In contrast, the total capital of the property and casualty industry was only 180 billion. Republican opposition prevented passage in both the House and the Senate (Quint 1994). 

The VICP largely replaces traditional tort law for deciding vaccine-related injuries and was designed to stabilize the vaccine market by decreasing liability costs of manufacturers and health care providers and to ease reward recovery by eligible claimants... 

Where such standards or practices exist, the industry operates as a collective unit in the double sense of stablizing the production costs of safety features and in establishing an industry-wide custom which influences, but does not conclusively determine, the applicable standard of care. See Prosser, Law pf Torts 33 at 166-68 (4th ed. 

Product liability has become one of the fastest-growing, and perhaps the most economically significant, applications of tort law. Pharmaceutical companies have been defendants in some of the most widely publicized and costly product liability lawsuits in the USA and Europe, prompting many companies to lobby vigorously for tort reform and prepare years in advance for the possibility of litigation (Nace et al, 1997). The liability burden of pharmaceutical companies has been described as extremely disproportionate to their sales when compared with other manufacturing industries (The Progress and Freedom Foundation 1996,... 

This definition does not require that reasonably ascertainable information be readily available it only requires that the information be of a sort that similarly situated people or entities might be expected to have or know. Costs and burdens of finding information, the nature of the PMN substance, anticipated manufacturing quantities, anticipated profits, and the size of the entity submitting the PMN are factors that can be considered in determining whether information is reasonably ascertainable. Because these are all subjective criteria, there is no definition of reasonably ascertainable that is appHcable in all situations. As a practical matter, the potential risks to a submitter are sufficiently high in terms of tort liability, TSCA penalties and adverse pubHcity, that the most dihgent search possible is warranted. 

A word about tort liability and the increased cost of fertile women in the workplace is perhaps necessary. One of the dissenting judges in this case expressed concern about an onployer s tort liability and concluded that liability for a potential injury to a fetus is a social cost that Title VII does not require a company to ignore. 886 F.2d, at 904-905. It is correct to say that Title VII does not prevent... 

If state tort law furthers discrimination in the workplace and prevents employers from hiring women who are capable of manufacturing the product as efficiently as men, then it will impede the accomplishment of Congress goals in enacting Title VII. Because Johnson Controls has not argued that it faces any costs from tort liability, not to mention crippling ones, the pre-emption question is not before us. We therefore say no more than that the concurrence s speculation appears unfounded as well as premature. 

On the contrary, a fetal-protection policy would be justified under the terms of the statute if, for example, an employer could show that exclusion of women from certain jobs was reasonably necessary to avoid substantial tort liability. Common sense tells us that it is part of the normal operation of business concerns to avoid causing injury to third parties, as well as to employees, if for no other reason than to avoid 213 tort liability and its substantial costs. This possibility of tort liability is not hypothetical every State currently allows children bom alive to recover in tort for prenatal injuries caused by 1211 third parties, see W. Keeton, D. Dobbs, R. Keeton, D. Owen, Prosser and Keeton on Law of Torts 55, p. 368 (5th ed. 1984), and an increasing number of courts have recognized a right to recover even for prenatal injuries caused by torts committed prior to conception, see 3 F. Harper, F. James, O. Gray, Law of Torts 18.3, pp. 677-678, n. 15 (2d ed. 1986). 

The civil court is concerned with liability and the extent of that liability rather than guilt or non-guilt. Therefore, the level of proof required is based on the balance of probability , which is a lower level of certainty than that of beyond reasonable doubt required by the criminal court. If a defendant is found to be liable, the court would normally order him to pay compensation and possibly costs to the plaintiff. However, the lower the balance of probability, the lower the level of compensation awarded. In extreme cases, where the balance of probability is just over 50%, the plaintiff may win his case but lose financially because costs may not be awarded and the level of compensation low. The level of compensation may also be reduced through the defence of contributory negligence, which is discussed later under Common Torts and Duties . 

The process of narrowing trade union immunities against tort actions continued with the 1982 Employment Act which redefined the term trade dispute to restrict the scope of immunity. Instead of being merely concerned with matter such as terms of employment, a trade dispute now had to relate wholly or mainly to such matters to be lawful a dispute must be limited to one between workers and their own employer. The blanket immnnity from legal action previously enjoyed by the unions was repealed. There were limits on the damages that could be awarded, but several unions found themselves liable to pnnitive damages and costs. 

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