| HOT TOPICS & INSURANCE ISSUES |
Liability System
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THE TOPIC JUNE 2004 The American civil liability system costs twice as much as that of most other industrialized nations. U.S. consumers pay for the high cost of going to court directly in higher liability insurance premiums because liability insurance rates reflect what insurance companies pay out for their policyholders' legal defense and any judgments against them. And they pay indirectly in higher prices for goods and services since businesses pass on to consumers the expenses they incur in protecting themselves against lawsuits, including the cost of commercial liability insurance. Beginning in the 1980s, in an effort to reduce litigation costs, business groups and others mounted a campaign to reform tort law. Tort law is the basis for the U.S. liability system. Most reforms have taken place on the state level and during the last decade all but a handful of states passed significant tort law reforms. However, some have been overturned by the courts. | |
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KEY FACTS
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CURRENT DEVELOPMENTS A Societal Problem: Litigation has become a major societal problem in the United States, costing about $230 billion a year in direct costs and many billions more in indirect costs. As more professional, corporate and public entities are forced into wasteful and excessive litigation, the price of goods and services rises, including the price of commercial insurance. A growing number of consumers are being hurt by this situation, particularly in the area of medical services. Treatment in some medical specialties is difficult to obtain because doctors practicing in risky areas such as obstetrics and neurosurgery are closing up shop rather than absorb or pass on to consumers the high price of medical malpractice insurance. Punitive Damages: Over half the states have laws restricting the imposition of punitive damages such as limiting the type of case in which they may be imposed or capping monetary amounts. One reform that may be gaining ground is the requirement that some part of the award be paid to the state. In May 2004 California Governor Arnold Schwarzenegger proposed that his state take most of the money that courts award to the plaintiffs in lawsuits against large companies. Under the proposal California would receive 75 percent of punitive damages while the remainder and compensatory damages would go to plaintiffs and their lawyers, whose fees would be approved by a judge. At least eight states take a percentage of punitive damage awards, but only Indiana’s plan gives as much to the state as the one proposed by Governor Schwarzenegger. Over the years, the U.S. Supreme Court has issued rulings designed to guide lower courts in their imposition of punitive damages. The business community has long maintained that there is currently little relationship between compensatory damages, which compensate for actual damages, and punitive damages, which are imposed to serve as a deterrent to reprehensible corporate behavior. An important ruling in this area was the court’s decision overturning a $145 million punitive damage award (145 times the compensatory damage verdict) imposed by a Utah jury on State Farm Insurance Cos., in the case State Farm v. Campbell. The court ruled that juries should generally not be allowed to consider a defendant’s wealth when setting a punitive damage award. This was the first time that the high court had addressed this common but controversial practice directly in a majority opinion. The court also characterized the ratio of the compensatory damages to the punitive damages as unreasonable. In the State Farm case, the high court elaborated on an earlier decision in BMW of North America, Inc. v. Gore (See Background). Increasingly, state courts are reacting to this ruling. Among the most recent verdicts is one by a circuit judge in Montgomery, Alabama, who reduced a punitive damages verdict against Exxon Mobil Corp. to $3.5 billion from $11.8 billion in a case that found the oil company guilty of fraud in cheating the state out of royalties from natural gas wells. The judge said that he was convinced of the company’s guilt, but reduced the award to follow U.S. Supreme Court guidelines. Medical Malpractice Liability: Congress has been wrestling with medical malpractice reform, but has yet to pass meaningful legislation in spite of mounting evidence that the cost, frequency and severity of claims continue to rise. A study by Aon Risk Services, released at the beginning of 2004, found that medical malpractice claims costs have increased at a steady 9.7 percent since 2000 and are likely to rise at the same rate in 2004. Frequency, or the number, of claims is growing at 3 percent a year; claim severity (the dollar amount) is increasing 6.5 percent annually. And an analysis of data from the National Practitioner Data Bank and the Physician Insurers Association of America Data Sharing Project found that total payments to plaintiffs shot up over 30 percent from $3.69 billion in 1999 to $4.9 billion in 2003. The American Medical Association now identifies 19 states where medical liability has reached crisis proportions because of high malpractice insurance rates, the low number of insurers that operate in the state and the effect those issues have on the availability of certain high risk medical specialties. While federal legislation is bogged down, a number of states have passed medical malpractice reform packages including Florida, Mississippi, Pennsylvania, Texas, and most recently New Jersey. (See Medical Malpractice paper). Securities Liability: After several years of escalating class action filings and rising settlement figures, the number of securities class action cases seems to have stabilized. In May 2004 Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research published a new study that showed that 175 securities class actions were filed last year, compared with 225 filed in 2002. An average of 192 such cases have been filed for each year between 1996 and 2002. The study confirms a recent report in The Wall Street Journal showing that the total dollar value of settlements that companies paid on securities class action lawsuits declined last year. In 2001 more than 300 lawsuits were filed alleging fraud in the process of initial public offerings, in 2002 the major class actions were based on allegations of bias in research, and last year a number of cases involving market timed trading in the mutual fund industry were brought to court. While the size and number of class action settlements are dropping, at the beginning of 2004 more than 1,000 cases remained unresolved and none of the high value cases, including one involving the collapse of Enron, had been settled. In addition, more institutional investors are filing individual claims against defendant companies, which in total will cost more than class actions. The potential cost of securities litigation is forcing insurers to raise prices (according to survey by Tillinghast, U.S. Tort Cost Trends: 2003 Update, directors and officers liability insurance premium increases between 2002 and 2003 averaged 33 percent) and cut coverage. Increasingly, policyholders are being asked to take on some of the risk above their deductibles in the belief that companies that share some liability with their insurance company will better manage their risks. Liability for Gunshot Injuries: A federal bill, approved by the House in April 2003, would have protected gunmakers from liability for the harm done by their products, but Democratic opposition in the Senate caused the bill to fail. The bill would have undermined much of the litigation by cities and victims of gun violence against the industry by making gun manufacturers and dealers immune to lawsuits seeking damages caused by the misuse of firearms. Since the bill’s failure, state courts have offered sometimes contradictory decisions on the subject. One high-profile case is New York City’s lawsuit against the gun industry, which contends that the industry’s marketing and distribution practices constitute a public nuisance. On May 19, 2004 a judge in Federal Court in Brooklyn ruled that New York City had the right to federal data tracing the origin of guns used by criminals. The decision, which overruled objections from the Justice Department, is expected to strengthen the city’s case in its lawsuit. The Bush Administration has resisted releasing the data, which could be widely used to support civil litigation against the gun industry. Firearm manufacturers have lobbied Congress and appealed to the Supreme Court to prevent the government from releasing data tracing the guns used in crimes. Tobacco Liability: In May 2004 bipartisan Congressional leaders introduced identical bills in the House and the Senate that would greatly increase the authority of the Food and Drug Administration (FDA) to regulate tobacco products. The proposed legislation would allow the agency to prohibit harmful additives in cigarettes. The bill is also the first to win the support of industry leader Phillip Morris as well as antismoking groups. Investigations are proceeding in at least 10 states over whether manufacturers’ marketing claims that “reduced exposure” cigarettes are less addictive than regular cigarettes are deceptive. These so-called “safer smokes” have been launched over the past two years to capture the market consisting of people who want to stop smoking. Among questions being asked by state attorneys general are whether there is enough scientific evidence to back up manufacturers’ claims and what may be the long term health effects of these products, some of which use genetically altered tobacco. Obesity: Although the first lawsuit attempting to hold a food company (McDonald’s) liable for obesity was thrown out of court in 2002, plaintiffs’ lawyers are now working on strategies to hold the food industry responsible for some of the health problems of consumers. Litigation against the food industry is gaining momentum after a federal report declared obesity as an epidemic, citing statistics indicating that the increasing problem was second only to smoking as a cause of death in the U.S. In response to the increased threat of litigation, in March 2004 the House passed a bill entitled the Personal Responsibility in Food Consumption Act, which limits civil lawsuits based on consumer allegations that restaurants and food producers made them fat, but sponsors of the legislation say that that the Senate is unlikely to pass the bill this year. The food industry is supporting similar measures in the legislatures of 19 states. In May 2004 Colorado became the most recent state to sign into law legislation that bans people from suing fast food companies on the grounds that they are the cause of their obesity or illness. According to the National Conference of State Legislatures, Colorado is the eighth state to enact such legislation. Trends in Filings and Awards: New research shows that jury awards are stabilizing and fewer cases are going to trial, nevertheless, nearly one out of every six jury awards now tallies $1 million or more. Jury Verdict Research data found that in 2002 (most recent data available) the median award for all plaintiffs’ verdicts combined fell to $30,000 from almost $43,000 in 2001 and $45,000 in 2000. The highest award in 2002 also dropped to just over $100 million from $131.7 million in 2001. These data also suggest that juries are becoming responsive to criticism that an out-of-control tort system needs to reigned in. One disturbing trend, which can be gleaned from an analysis of Jury Verdict Research’s 2002 data on medical malpractice awards, is that while median jury awards have stabilized at about $1 million over the three years (2000-2002), the low number in the award range skyrocketed to $11,000 in 2002, almost double the amount the previous year. One explanation is that higher medical costs are driving up even the smallest awards, with the result that the average award in 2002 hit $6.25 million, up from $3.91 million in 2001. A study of the federal court system prepared for the American Bar Association shows that the percentage of all civil cases filed in federal courts that go to trial declined from 11.5 percent in 1962 to 1.8 percent in 2002. Despite the fact that fives times more lawsuits are being filed today, the number of civil trials is actually falling, having reached a peak of 12,529 in 1985. In 2002 a total of 4,569 civil cases were tried in federal courts. Some experts say that the study shows the growing opposition to trials among lawyers and judges, who consider them costly and risky and prefer negotiated settlements and pretrial determinations by judges. Class Actions: An April 2004 survey by the Insurance Research Council's Public Attitude Monitor (PAM) found that most Americans back measures to reform the U.S. civil justice system, particularly supporting reforms to the personal injury and class action systems. Respondents strongly agreed that the number and size of personal injury and class action lawsuits have grown in recent years—and that the incidence of these lawsuits and the magnitude of their awards have become excessive. Eight in ten respondents (80 percent) believe that people today are more likely to sue for personal injury than in the past, while three-quarters of respondents (77 percent) agreed that the size of damages awarded in personal injury lawsuits is larger than in the past. Similarly, more than half of respondents said that the number and size of class action lawsuits have increased in the past few years. However, a March 2004 study by two law professors, Theodore Eisenberg and Geoffrey P. Miller, published in the Journal of Empirical Legal Studies, found that the average cost of settling class action lawsuits and the average fees paid to lawyers who file them have remained generally unchanged over the last decade, with the exception of a couple of years when very high awards skewed the average trend. The study “Attorney Fees in Class Action Settlements: An Empirical Study,” is the broadest survey yet of class action cases, involving everything from civil rights violations to securities fraud. However, it does not cover the number of class action cases, which is hard to document in part because insufficient data exists on state class actions. State filings represent the bulk of class actions. In March 2004 the U.S. Chamber of Commerce’s Institute for Legal Reform released its latest lists of the nation’s 10 “friendliest” and “least friendly” states regarding their courts’ attitudes toward business interests. The top three friendliest states are Delaware, Nebraska and Virginia; the three least friendly states are Mississippi, West Virginia and Alabama. The American Tort Reform Association (ATRA) has also published a new list of “judicial hellholes,” jurisdictions that are seen as overly favorable to plaintiffs’ lawyers’ arguments. The rankings are based on exorbitant awards, easy certification of class action suits and procedures that force out-of-court settlements by defendants who fear the courts' bias toward plaintiffs’ claims. In 2003 the 13 jurisdictions most frequently named by ATRA's members and supported by ATRA's study were: Madison County, Illinois; Jefferson County (Beaumont), Texas; Mississippi's 22nd Judicial Circuit (Copiah, Claiborne and Jefferson Counties); Hidalgo County, Texas; Orleans Parish, Louisiana; Kanawha County, West Virginia; Nueces County, Texas; Los Angeles County, California; Philadelphia Court of Common Pleas, Pennsylvania; Miami-Dade County, Florida; the City of St. Louis, Missouri; and Holmes and Hinds Counties, Mississippi. A federal bill to confront the problem of out-of-control lawsuits, The Class Action Fairness Act (H.R. 1115), was approved by the House in July 2003. It would allow defendants or plaintiffs to have large multistate class action suits initially filed in state courts moved to federal court so long as one-third or more of plaintiffs were from different states and the amount of the damages requested in the suit was at least $5 million. The Senate failed to move on the bill in October 2003 and no action has been taken since. The proposal to transfer jurisdiction over some class actions to federal courts, which experts say are better able to handle complex issues and at the same time protect defendants’ rights, is supported by a broad business coalition including insurers. In a study on class action lawsuits, “Class Action Dilemmas: Pursuing Public Goals for Private Gain,” the Rand Institute for Civil Justice lends its support to the legislation's major goal of limiting forum shopping. But the study's authors also say that the key to improving outcomes and limiting abuse in class action litigation over money damages is increased regulation of settlements and fee awards by judges. Judges should reward class action attorneys only for lawsuits that actually accomplish something of value to class members and society. State Tort Reform: A three-year pilot program conducted by the California Judicial Council for the National Center for State Courts has found that “substantial improvement” in managing complex mass tort litigation can be achieved from “early and active judicial involvement.” The program, which encouraged judges to be proactive in the development and oversight of case management plans, definitions and clarifications of disputed issues, resulted in significantly more partial settlements and partial summary judgments and moved cases through the various phases of litigation faster, compared to nonpilot program cases. This alternative is being touted by some experts as a better solution to the tort litigation crisis than the U.S. Senate’s proposal to move classes of cases from state courts to a federal administrative forum. Individual states continue to pass tort reform legislation. Most recently, in March 2004 Oklahoma passed sweeping reforms that would limit attorneys’ fees in class-action suits, limit attorneys’ contingency fees to no more than 20 percent of net judgments and allow medical malpractice liability suits to be filed only in the county where the action arose, among other things. In Missouri, however, for the second year in a row, Governor Bob Holden vetoed a bill that would have reduced the caps on punitive damages in Missouri and somewhat restricted venue shopping. Asbestos Liability: In April 2004 Senate Majority Leader Bill Frist introduced a revised version of the Fairness in Asbestos Injury Resolution Bill to establish a fund to compensate asbestos claimants and relieve the nation’s courts of the huge volume of asbestos litigation but it did not receive the necessary votes to be debated by the full Senate. Frist has asked Edward R. Becker, a senior judge on the federal appeals court in Philadelphia, to continue coordinating negotiations between insurers and business leaders, who will be required to contribute to the fund, and labor unions representing claimants. The Senate leaders of both parties have agreed to participate in the negotiations. Documenting the ongoing impact of asbestos on people’s health, The Environmental Working Group, a nonprofit think tank, has released a report predicting that between now and 2014 some 100,000 Americans will die from asbestos related illnesses. Its impact on the insurance industry has been confirmed by a report that paints a disturbing picture of the insurance industry’s future asbestos risk. In October 2003 A.M. Best Co. released “Asbestos Wave Rises; Crest Yet to Come,” which found that while insurers’ unfunded asbestos exposure (potential claims for which reserves have not been set aside) dropped from $28 billion in 2001 to $20 billion the following year, new waves of litigation are forcing insurers to continually increase reserves. (See Asbestos Liability paper.) New Areas of Liability: The boom in new home building in recent years has been accompanied by an explosion in lawsuits over faulty construction and mold. Among repercussions of the increase in construction defects, and the lawsuits that often ensue, are higher rates for homeowners insurance and builders and subcontractors liability insurance. In response, some states (15 in all, including 11 within the past year or so) have passed “right to cure” laws that give builders the time to correct construction defects before lawsuits can be filed. One potential new area of litigation of growing concern to the business community is silicosis and mixed dust injuries. Plaintiffs’ lawyers involved in asbestos litigation have been filing an increasing number of lawsuits based on claims that their clients are suffering from exposure to silica, up to over 15,000 in 2003 from only 93 in 1997. Silica is widely used to make glass, fiberglass, paints, ceramics, and foundry castings and the potential number of targets for the new wave of lawsuits is great. An estimated 1 million American workers are exposed to the substance annually and more than 250 die from this exposure each year. Insurance companies, concerned about the potential costs of silicosis lawsuits, argue that lawyers are automatically filing silicosis claims for people who have filed asbestosis claims (whether impaired or not). | |
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BACKGROUND Developments in liability insurance reflect what is going on in the tort system. (Tort law is the body of law governing negligence, intentional interference and other wrongful acts which result in injury or damage for which a civil action can be brought, with the exception of breach of contract which is covered by contract law.) Liability insurance distributes the costs of the liability system, which, in turn, reflects societal values. Society, through the courts and the legislative process, decides what injuries should be compensated, in what circumstances and in what amounts. Liability insurance pays for amounts paid to the claimant as compensation for injury and for the costs of defending the policyholder in court. There are signs that we have reached the limit of what people believe we can afford to pay for compensation, not only in terms of the number and cost of awards but also in terms of the overall impact of excessive litigation. Many legal experts believe the American civil justice system is in need of reform. Such critics cite the number of lawsuits, the size of some awards and the rise in the number of class action lawsuits. Lawsuits represent only a small portion of total liability claims, however. Only 2 percent of such claims are settled by verdict and only one third of claims become lawsuits. Nevertheless, lawsuit verdicts are important because they influence the damage amount sought by plaintiffs and the size of out of court settlements. The law is constantly changing in response to societal needs and perceptions of justice. New legal theories or modifications of existing tort law are continually being developed. Fifty years ago reformers worked to rectify what they believed was a bias in the tort system toward defendants and business interests, making it easier for plaintiffs to receive compensation for their injuries. Now reformers are working to reduce what appears to many to be abuse of the tort system by those representing plaintiffs. Supporters of tort reform were successful in the 1980s and early 1990s in getting major legislation enacted in many states. They also set in motion a more conservative attitude toward jury awards among the public. Bills continue to be introduced in those states where major tort reform legislation was never approved and to correct specific situations in many others. However, critics of tort reform are overturning caps on damages and other legislative provisions, frequently on the basis of their constitutionality. Scores of court decisions have nullified liability laws enacted since the early 1980s to curb excessive awards and frivolous suits. While many provisions have also been upheld, industry observers say more of the significant new liability laws are being struck down. Changes in Legal Doctrine and Other Trends: In most states prior to the 1960s, an injured person would be compensated only if the defendant was wholly responsible for the plaintiff's injuries. As societal values changed, the doctrine of contributory negligence, under which plaintiffs' claims would be denied if they contributed to the injury through their own actions, gave way to the doctrine of comparative negligence, which requires damages to be apportioned based on the degree of fault. This change gradually occurred in all but a handful of states. According to the American Tort Reform Association, four states and the District of Columbia still have contributory negligence doctrines in effect — Alabama, Maryland, North Carolina and Virginia. There are two major categories of comparative negligence: pure and modified. Under the pure form, damages are reduced by the amount of the plaintiff's negligence. The modified form is divided into three types: the "less than" rule or 49 percent, i.e., plaintiffs may receive damages if their negligence is not as great as the defendant's; the "not greater than" rule or 50 percent system, i.e., recovery is barred if the plaintiff's negligence is greater than the defendant's; and the "slight versus gross" system where the plaintiff may receive damages if the plaintiff's negligence was slight in comparison to the defendant's negligence. Changes in the area of municipal liability brought about a large increase in the number of suits. Prior to the 1960s in all but a few states, public entities were not liable for civil wrongs, and were protected against personal injury actions by a common law doctrine known as sovereign or governmental immunity. However, as state and local governments began to provide a growing array of services that were also available in the private sector, from paving roads to managing recreational programs, the idea that governments were not subject to the same legal standards as private citizens and corporations carrying out the same activities offended the public's sense of justice. Today government entities can be sued for false arrest, failure to arrest, and failure to meet certain standards of care in almost every aspect of governmental activity. Class Actions: Class actions settle in a single lawsuit the rights and liabilities of people who have similar claims. In order for claims to be consolidated in a single suit, the court must certify that the case meets Federal Rule of Civil Procedure 23, which sets out the requirements for claims to be eligible for class action status. Several factors distinguish class actions from other kinds of lawsuits such as automobile accident cases. There are a large numbers of claimants who have suffered a common set of injuries incurred in the same or similar circumstances and most plaintiffs are represented by a small number of law firms, each of which may represent hundreds or thousands of claimants. There are many different types of class actions including shareholder and civil rights suits. In the 1980s and 1990s, lawyers began to use the class action lawsuit to settle what became known as "mass torts" — personal injury cases involving medical devices, toxic substances such as asbestos, and new pharmaceutical products where many people sustained injuries from the same product. Although class actions have been certified in many personal injury cases, the lawyers and judges who wrote the federal class action rule adopted in 1966 said that a "mass accident" is ordinarily not appropriate for a class action because of the conflicts among state laws and the differences in the claimants' injuries. Nevertheless, they said, a class action may be brought if the legal and factual issues in common outweigh the differences. As a practical matter, some judges certify mass torts because the individual cases would overwhelm the courts. Although this kind of litigation is not new, the number of class actions appears to have grown in recent years. It is difficult to ascertain the number of cases because state courts, where the majority are filed, publish little data on this subject. From the viewpoint of the claimant, class actions have some advantages. First, they prevent the defendant's assets from being depleted by the first judgment so that little remains for any subsequent claimant. Second, they allow a group of injured citizens to obtain redress without incurring huge legal fees. However, some public policy observers believe that the publicity surrounding class actions is beginning to lead to abuse of the legal system. At their worst, critics say, class actions can amount to legalized blackmail for defendants; a sell-out for claimants who may receive little compensation for their injuries; and a get-rich scheme for lawyers who receive a percentage of the total settlement. The latest form of class action are the cases brought by state attorneys general against private industries, claiming compensation for the cost of injuries caused by their products to the state. Examples include the cost of treating diseases caused by smoking tobacco, mental retardation among children resulting from ingestion of lead, primarily lead paint, and medical care for victims of gun injuries. In such cases, trial lawyers are hired at no cost to the state because they work on a contingency fee basis but because there is no expenditure of taxpayer monies there is also no legislative oversight. The lawyers may be hired with little or no competitive bidding or public scrutiny. Some public policy observers go beyond criticizing the contracting process. They see these class actions as a subversion of the tort system, a form of regulation through litigation in that attorneys general not only seek payments for government programs that help those who have been injured but also seek changes in the business practices of the industries being sued. In 1998, forty-six states agreed to settle lawsuits against tobacco companies over public-health costs linked to smoking. The $246 billion deal, which eliminated the uncertainty of settling the lawsuits state by state, was the largest civil settlement in U.S. history. Restoring the Balance between Plaintiffs and Defendants: Over time there have been swings in the balance between plaintiffs' and defendants' rights. It became increasingly apparent in the 1980s that in the attempt to make up for past imbalances the law had swung too far in favor of plaintiffs. For example, in most states, under the doctrine of joint and several liability, if two or more persons have a part in causing a plaintiff's injury, they are joint wrongdoers and are jointly and severally liable. They are, therefore, responsible for the whole amount a plaintiff may recover for his or her injuries, regardless of each defendant's share of fault. The change to comparative negligence in the 1960s and 1970s greatly affected the equity of the joint and several liability rule. It meant that a plaintiff who was 45 percent at fault may collect the whole award payment from a defendant much less to blame for the accident than the plaintiff himself. In such cases, defendants with "deep pockets" — corporations and municipalities seen as having an almost unlimited power to raise money through taxes — often ended up footing the bill. In the mid-1980s states began to modify this rule to make the tort system more equitable. Some abolished joint liability altogether, making each party responsible for its share of blame. Some abolished it for defendants 50 percent or less liable or restricted its application. There is also the issue of punitive damages. People who bring suits may ask for punitive damages in addition to compensation. Intended to "punish" a defendant's outrageous conduct, punitive damages can amount to millions of dollars although many initially large awards are significantly reduced on appeal. Many believe that the prospect of receiving a big "bonus" brings into court cases that otherwise could be settled without a judge or jury, especially where the dispute is relatively minor. Some argue that if serious wrongs have been committed as opposed to common negligence, wrongdoers should be punished by criminal, not civil, courts. Others believe that punitive damages belong within the domain of civil law, but that the fully compensated winning party should not be the beneficiary (the punitive award should go to the state or to charity) and the size of punitive damages should bear some relationship to the award for compensatory damages. (Since the 1980s a small minority of states have passed legislation that sets aside a percentage of punitive damage awards for the state but in a few states these laws have been repealed.) And in product liability suits, a single defendant should not be "punished" over and over again for the same defect each time a new case goes to trial. One problem caused by multiple punitive damage awards is that the first few plaintiffs to bring suit may receive large punitive damage awards, leaving the defendant with barely sufficient funds to pay subsequent plaintiffs' out-of-pocket expenses. Fear of using up all available funds to pay punitive damage awards was one of the reasons Manville Corporation, the asbestos manufacturer, A.H. Robins, maker of the Dalkon Shield contraceptive device, and Dow Corning, maker of silicone breast implants filed for bankruptcy. The issue of punitive damages and their constitutionality has been brought before the U.S. Supreme Court. The Court has now moved closer to determining when punitive damages may be excessive with its most recent guidelines in the State Farm case involving a bad faith award. The ruling was handed down in April 2003. However, the high court has yet to rule in a case that involves physical harm. In the first case on excessive punitive damage awards, Pacific Mutual Life Insurance Co. vs. Haslip in 1991, the court ruled that the punitive damages awarded did not violate due process. The court stated that the judicial procedures, designed to ensure that punitive damages were not egregiously out of proportion to compensatory damages, were followed in the case. Punitive damages were four times greater than compensatory damages, which the court acknowledged were high, but they did not cross the line into the area of constitutional impropriety, it said. In May 1996 the U.S. Supreme Court took another step toward defining limits on punitive damage awards. In an Alabama case, Gore vs. BMW of North America, it struck down a $2 million punitive damages award (reduced from $4 million by the state's Supreme Court), on the grounds that it was so grossly excessive as to violate the 14th Amendment Due Process Clause. And while the court once again refused to draw a "bright line" marking the parameters of what it considered constitutionally acceptable, it did set out guidelines for lower courts to evaluate the reasonableness of such awards. Justice John Paul Stevens, writing for the majority, described the three-part fairness test: the degree of reprehensibility of the defendants' conduct; the ratio of punitive to compensatory damages or actual harm to the plaintiff; and the difference between the award and comparable penalties under the law. Applying these precepts to the BMW case, Justice Stevens said that BMW had not acted in bad faith and had caused only minor economic loss (as opposed to personal injury); that the ratio of punitive damages to actual harm was 500 to 1; and that under Alabama's Deceptive Trade Practices Act, the defendant would have paid a $2,000 penalty, a tiny fraction of the award, and lesser amounts in some other states. In 2001 U.S. Supreme Court said that appellate courts must more carefully analyze the evidence used to determine the amount of an award for punitive damages, rather than rely on the judgment of the trial court, to ensure that the rights of both individuals and corporations are protected. The ruling stemmed from an appeal in the case, Cooper Industries vs. Leatherman Tool Group, in which the trial court awarded Leatherman $50,000 in compensatory damages and $4.5 million in punitive damages. While punitive damages are awarded nationally to a small percentage of plaintiffs, about 4 percent according to a 2002 study by Cornell University professors, in some jurisdictions the percentage of punitive damage awards can be exceedingly high. A 1997 study conducted by Cornell University and the National Center for State Courts found that in one Georgia court punitive damages were awarded in 25.8 percent of cases in which plaintiffs prevailed. Because without clear limits there can be dramatic exceptions to the norm, fear of an irrational punitive damages award still influences settlements, tort reform advocates note. Scientific Evidence: The U.S. Supreme Court ruled in 1993 on the admissibility of scientific theories as evidence in federal courts. The decision in the case, Daubert vs. Merrell Dow Pharmaceuticals Inc., focused on the use of "junk science" in personal injury trials. A federal district court upheld a ruling that the evidence the plaintiffs used was "sub-standard" — it had never been published, nor had it gone through a "normal peer-review process." The federal court ruled that such a process was necessary to prove the general acceptance rule of evidence. In the past, federal courts had relied on two measures of acceptancy for scientific evidence. The first, used in this case, is known as the Frye rule after a 1923 case in which the judge refused to allow the results of an early lie detector on the grounds that the results of lie detector tests were not generally accepted by scientists and others in the field as reliable. A less stringent rule was adopted in 1975 by Congress as one of the Federal Rules of Evidence. That rule (702) says that experts who are qualified in their field may present their ideas as evidence to a jury, even if their ideas do not represent a consensus of their colleagues, as long as the evidence is relevant to the case and may help a jury to reach a verdict. In a unanimous decision, the Supreme Court said that the newer rule should be used to determine the admissibility of evidence. In addition, the high court said that federal judges must act as gatekeepers, excluding testimony that is not relevant or reliable. Writing for the majority, Justice Harry A. Blackmun said that federal judges possess the capacity to determine whether the reasoning or methodology underlying the testimony is scientifically valid and to decide what evidence the jury should hear. In December 1997 further defining its 1993 decision in Daubert vs. Dow, the U.S. Supreme Court ruled that trial judges may not only act as gatekeepers to ensure scientific testimony is relevant and reliable, as it ruled in 1993, but also that their decisions should be upheld unless found to be manifestly erroneous. Then, in March 1999, broadening the scope of the 1993 ruling, the high court said in the case of Kumho Tire Co. vs. Carmichael that a judge's gatekeeping powers were not limited to scientific matters. The Kumho case, which involved the failure of a minivan tire on a cross country trip, centered on the testimony of a mechanical engineer who had worked in the field of tire design for 10 years. The American Association for the Advancement of Science has initiated a five-year demonstration project, starting in May 1999 to make available to judges independent scientists who would educate the court, testify at trial and assess the litigants' cases. Growth in Delays: Compounding the problem of growth in the volume of lawsuits is growth in the time it takes to move a case through the trial process, resulting in backlog and delay. Just a few decades ago, the protracted lawsuit was a rarity. Today, as a result of budget cuts and a system not designed to handle so many cases, their disposition may take months and even years. In 1950, only 20 civil trials in federal courts lasted longer than 20 days. By 1981 the number of comparably lengthy trials had multiplied ninefold. The National Center for State Courts, in the most comprehensive study of court delay ever undertaken, found that median processing time in 1989 for all tort cases in the 25 urban trial courts studied was 441 days. Median times for tort cases varied greatly, ranging from 215 days in Wichita to 953 days in Boston. Median times in civil cases disposed of by jury trial ranged from 356 days in Fairfax, Virginia, to almost five years in Providence. The study also found that there is no statistical correlation between the size of a judge's caseload and case processing time. Data from Jury Verdict Research suggest that the delays continue to plague the system. In 2001, it still took about 39 months from the time of the incident for a trial to begin in vehicular accidents, about the same as in 1994 (and three months longer than in 2000) and 51 months in medical malpractice cases, compared with 58 months in 1995. One avenue being explored to lessen delay is known as alternative dispute resolution mechanism (ADR), which includes arbitration, where disputants agree to be bound by the decision of an independent third party, and mediation, where a third party is used to try to arrange a settlement between the contending parties. ADR is being used successfully by some insurance companies to resolve disagreements among parties to auto accidents and by many businesses although it has yet to gain universal acceptance. In 1994, 21 insurance companies agreed to solve their inter-company disputes with an ADR program. Property insurers may also use ADR to resolve disagreements between claimants and their insurers about catastrophe damage claims. Meanwhile, both lawyers and organizations that use ADR are investigating ways of qualifying mediators and setting other guidelines to govern the legal process, including class action suits. State Reform Measures: The large number and size of awards, the belief that the pendulum has swung too far in favor of plaintiffs, and the realization that the costs of the civil justice system are borne by individuals in the form of higher insurance premiums, directly or indirectly, has led to a ground swell of support for civil justice reforms. Tort reform advocates believe changes are necessary in four key areas to help restore fairness to the civil justice system: modification of the joint and several liability rule, revision of the collateral source rule, a cap on noneconomic damages, restrictions on punitive damage awards, and reinstatement of the state-of-the-art defense. Since the tort reform effort began in earnest in the mid-1980s, hundreds of reform measures have been passed, some challenged and about 90 overturned. Among the five areas targeted, joint and several liability rules have been subject to the most legislative activity. Joint and several liability is a rule under which defendants only minimally responsible for injury may be required to pay the full amount of the damages. Reform measures may completely abolish this rule or modify it by limiting its application. For example, many states now forbid application of the rule to noneconomic damages, such as pain and suffering. The measure may apply to all tort actions or only one specific type such as medical malpractice, or may exclude one or more key areas in which joint and several liability is frequently applied, such as auto, pollution and medical malpractice cases. Two thirds of states modified the rule. The collateral source rule refers to a rule of evidence that bars the introduction of any information indicating a person has been compensated or reimbursed by any source other than the defendant. Approaches taken by modifying legislation include: permitting consideration of compensation or payments received from some or all collateral sources; and requiring that any award be offset by the amount of collateral source payments. About one third of states approved laws that would significantly change this rule. The concept of capping noneconomic damages was endorsed by a dozen more states. In some states, laws now limit the liability of defendants in liability suits in one of several ways: by limiting recovery of a particular type of damages (usually noneconomic damages, such as pain and suffering); by limiting the total amount of damages recoverable; or by placing an absolute cap on liability as in wrongful death cases. Reform measures may apply to all tort suits or only to specific types, such as medical malpractice. Originally designed to punish defendants who showed a wanton disregard for safety, punitive damage awards no longer are limited to such cases and may substantially exceed the amount of compensatory damages awarded. More than half the states have passed laws that limits the imposition of such damages. Reform measures may require punitive damage awards to be paid to the state; set limits on the amount that may be awarded in total or relative to compensatory damages; limit the type of case in which they may be awarded; or require hearings to establish a case for punitive damages before they may be sought in court. Some states have never had provisions for punitive damages. | |
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