Justice for the Injured
Defending the Civil Justice System From the
Corporate “Tort Deform” Movement

Multinational Monitor: What is the tort system?
Joanne Doroshow: The tort system is the aspect of our legal system that allows people who are injured to sue the wrongdoer who caused their injury. It allows them to get compensation and to hold the wrongdoer accountable for causing injuries.
MM: Why is it important?
Doroshow: The tort system is one of the most important ways that people who are wrongly injured can get some kind of monetary compensation. If they’ve been injured and have disabilities, they can get money to help them through their life.

It is also important because it provides a means to deter future misconduct. It is the prospect of financial liability that will deter a corporation or other institution or wrongdoer from future wrongdoing. It gives them the financial incentive to clean up their act. We all benefit as a result.

It is also a means to force corporations and others to disclose information that they may have been concealing about unsafe practices or other kinds of criminal activity or misconduct.

Lastly, it sets the rules for relationships between people; it establishes what is right and what is wrong.

MM: What are examples of how those benefits are obtained in society?
Doroshow: There are many instances where lawsuits led directly to safety improvement or unsafe products being taken off the market.

The Ford Pinto had a gas tank that exploded on impact. As a result of a lawsuit involving a child who was badly burned due to an exploded gas tank, Ford redesigned the Pinto.

Another example is Dalkon Shield and Copper-7 IUDs, which were killing scores of women. As a result of lawsuits, they were either taken off the market, or doctors were instructed to remove these devices from women.

Many other dangerous products, like flammable children’s pajamas, were removed from the market as a result of lawsuits.

You also have in the medical malpractice area cases where lawsuits have improved hospital staffing, anesthesiology procedures and medical practices.

In the tobacco cases, the lawsuits were the principle vehicle for the release of millions of pages of tobacco industry documents. These documents revealed internal communications that the tobacco companies were specifically marketing to kids, and manipulating nicotine levels to increase addiction. One of the most important outcomes of the tobacco litigation, and many other cases, was the disclosure of documents.

MM: The system is frequently alleged to be subject to abuse, leading to outrageous verdicts given to people who weren’t badly injured, as supposedly in the McDonald’s coffee case.
Doroshow: When you actually look into an example like the McDonald’s case, you usually find out that the case has been misreported in the media and is not at all frivolous.

In that case, McDonald’s corporate specifications kept coffee super-heated beyond the recommendations of the restaurant industry. They deliberately did that even though 700 or so people, including many children, had already been sent to the emergency room because of severe scald burns by the time that lawsuit was brought. But McDonald’s refused to reduce the temperature. It was because of that callous conduct that the jury awarded a punitive damage award in that case far beyond what the plaintiff, who was a 79-year-old grandmother, had requested. As a result of that case, McDonald’s coffee temperature, at least in the Albuquerque area where the case was brought, was reduced and probably far fewer people are now being burned by that coffee.

But the media misreporting on the McDonald’s coffee case is an example of the impact of the PR campaign to limit corporations’ liability. They convey the idea that frivolous lawsuits are the norm.
The majority of the cases that flow through the courts typically just involve people trying to get companies to pay their insurance claims.

Statistically, only one in 10 people who are injured in this country even file a claim for compensation, and only 2 percent ultimately file a lawsuit, so it is a very, very small number of people that sue.

And there are many checks and balances in the system. If a case is frivolous, it will get bounced out. Excessive jury awards are almost always reduced.

MM: What about the claim that the system drains resources from the economy, that tons of money are wasted on lawyers, that tons of money are paid out in awards?
Doroshow: In terms of the amount of money that gets expended in the tort system, corporations throw around a lot of wild figures. Usually those figures include the entire cost of the entire insurance industry — including all premiums and the waste and inefficiency in that industry. These of course are bogus numbers.

When you look at what companies are actually spending on liability-related costs, more reliable numbers are provided by an annual study that Ernst and Young puts out along with Risk Insurance Management Society. They find in general that companies spend about five dollars on liability per every thousand dollars of revenue. That includes all their insurance, even their fire insurance, all workers’ compensation costs, all settlements and claims and payouts, jury verdicts, everything. That’s a very low number.

The Consumer Federation of America has done similar kinds of studies. They have looked at the cost of product liability insurance for consumer products. They’ve found that it is about 16 cents for every one hundred dollars value of a product.

Other organizations, such as the Conference Board, that have looked at the impact of financial liability on companies have found that the only significant impact of product liability on companies is to make products safer.

Making products safer saves costs in terms of injuries, health care expenses and lost wages. So when you look at the cost of the tort system, you always have to look at the offsetting savings: How much would we be spending as a society to deal with the increased injuries that the tort system deters and prevents.

MM: What about the idea that the system makes people or companies over-cautious?
Doroshow: Look at the argument in the medical malpractice area. Opponents of the tort system say that doctors are spending money on defensive medicine, not because procedures are necessary but because they are trying to protect themselves from lawsuits.

But when you think about the way managed care operates in this country, it is clear this argument is baseless. If you found a doctor who was actually practicing unnecessary defensive medicine, they wouldn’t be allowed to practice under their HMO. The alleged problem simply doesn’t exist.

If you’re talking about things like warning labels, which are sometimes ridiculed, we have all kinds of examples where the lack of a warning label led to catastrophic injury or death, and where proper labeling — usually as a result of a lawsuit — prevented future injuries.

MM: One claim that seems to be objectively true is that insurance industry prices are rapidly escalating, at least in some areas. Is that true, and if so, to what extent is that due to the functioning or malfunctioning of the tort system?
Doroshow: We’re seeing insurance prices going up, not across the board, but certainly in some areas right now. We’re hearing a lot about it with regard to doctors.

Rising rates are exclusively a function of the economic cycle of the insurance companies. It has nothing to do with lawsuits or the tort system.

We’ve seen this exact scenario at least twice before in the last 30 years. In the mid-1970s, in the mid-1980s and now today, insurance rates have skyrocketed, at least for certain policy holders. What prompts this is dropping interest rates and the scramble by insurance companies to make up for years of under-pricing during the years before.

When they’re making lots of money off of their investments, they’ll do anything just to get premium dollars to invest. In fact, in the 1980s, the insurance companies insured the MGM Grand hotel, which had a big fire in its lobby — after the fire. They were so desperate to get premium dollars to invest, that even when they knew they were going to pay a claim, they were making so much money off their investment that it was worth it.

That’s how the cycle works with insurance. When rates start going up, it’s usually because interest rates are dropping. In medical malpractice, the insurers invest about 80 percent in bonds, so they are very sensitive to interest rates.

This is happening now not just in a particular state, or even just in the United States. Australia has had a big crisis for insurance for doctors. Australia barely has a jury system. In Canada, a country that by a court decision essentially capped non-economic damages at $250,000 and where they also barely have a jury system, Ontario doctors are seeing rates start to skyrocket. Rates are going up in France, where they barely have a tort system. This is a global problem, even in countries that already have tort-reformed their entire system.

We’re also seeing the problem in various kinds of insurance policies besides medical malpractice. We’re seeing the same thing in homeowner’s policies, auto insurance, even health insurance. The reason is always the same, and it is the same as it was during previous price spikes: the insurance companies are reacting to their own economic cycle.

We’re in a hard market part of the cycle; rates always go up during this part of the cycle. The only way to solve that is by trying to increase rate regulation, so these sharp ups-and-downs don’t happen, and to increase public oversight over the insurance industry (as California has done), and to remove the special privileges that the insurance industry has.

Particularly important is the industry’s exemption from antitrust laws, which they have at the federal level and in most states. At the federal level it’s called the McCarran-Ferguson Act. It’s not so much a problem during the soft market, when there’s a lot of competition in the market. But when there’s a hard market, as we’re in right now, these companies tend to raise their rates together, fix prices and reduce coverage in concert — the kinds of things that would be illegal in almost any other industry.

MM: What legislative changes is the insurance industry pushing for the tort system?
Doroshow: The insurance industry has been very much behind the push for tort reform since it began in the 1970s and then picked up steam in the 1980s.

Back then, they were putting ads in the newspapers on behalf of specific insurance companies complaining about lawsuits and asking for people to support tort reform. Today, they are very much behind the push for medical malpractice tort reform, and are working in concert with the American Medical Association.

They obviously have the same goal, which is to limit the liability of doctors and hospitals. But the doctors are being really duped by the insurance companies into believing that the insurance companies are actually going to reduce rates just by enacting tort reform. On the other hand, I think that the doctors’ groups are so committed to getting their liability limited that the insurance issue for them becomes secondary.

MM: What other forces are pushing for changes to the tort system?
Doroshow: The Chamber of Commerce all over the country is very much behind this push for tort reform, as well as every single major Fortune 500 company. Virtually all of them are members of the American Tort Reform Association, including a number of insurance companies and tobacco companies.

They are on a mission to do two things: reduce the power of juries, which they don’t like because they can’t control them, and elect pro-business judges. I think they’re looking at this as gaining control over the third branch of government, by taking control over juries and judges. Sometimes when these insurance issues hit, specific aspects of the tort reform movement, such as the medical societies presently, take a leadership position. But ultimately, this is what all of them want. Any corporation or profession that is in the position of potentially being sued wants immunity.

MM: If the amount of money involved isn’t that big as a portion of their overall expenses, why are they so concerned about lawsuits?
Doroshow: Nobody wants to be sued. I think that’s basically the way they look at it.
There is also the risk that they are going to have to pay out a large amount of money in a particular case, if there’s been a lot of damage done.

The third thing, which may be the most important, particularly for corporations and doctors and hospitals, is that lawsuits force them to disclose information publicly that they would prefer not to have revealed. It ruins reputations, it can be embarrassing. Almost more than the money itself, the public disclosure element of the tort system is threatening to a lot of institutions that are pushing for tort reform.

MM: The top issue on the so-called reform agenda right now is medical malpractice. What are the changes that the doctors and the insurance industry are trying to push?
Doroshow: The main thing they are trying to push right now is a $250,000 cap on non-economic damages. Non-economic damages compensate for things you can’t get a receipt for — loss of fertility, mutilation, permanent disfigurement, trauma, and pain and suffering. What the cap does, is say to the most catastrophically injured — because those are the only kinds of people whose damages even reach the level of $250,000 — that they can’t be properly compensated, and the insurance companies should be sitting on that money rather than the injured person. Capping damages can have a devastating impact, particularly on children who need a lifetime of care, and seniors in nursing homes who get abused. Those kind of damages tend to be largely non-economic in nature. The cap is most unfair to those kinds of people who are most injured.

They are also pushing structured settlements and repealing the collateral source rule.

Structured settlements means that, if a jury decides that you are injured and need a certain amount of money, you have to accept that money over a period of years instead of as a lump sum. Meanwhile, the insurance company gets to sit on the money. It’s particularly unfair to victims who need money up front for transportation and housing adjustments and that kind of thing.

Repeal of the collateral source rule means that any kind of collateral sources of injury-related income — such as life insurance or pensions or government benefits that you might be entitled to, typically because you’ve paid for them already — are deducted from a judgment that a jury awards. It basically means that the wrongdoers have to pay less money to you than the jury decided they should.

Another common provision in these bills is to limit the contingency fees that a plaintiff’s, patient’s or consumer’s lawyer is allowed to charge. That means that a lawyer who has a very difficult and complicated case is less likely to be willing to put up front the thousands and thousands of dollars that they may need to bring the case to trial. This means that certain classes of people are not going to be able to get lawyers. These provisions are very unfair to the plaintiff and very one-sided — you never see the defense lawyers getting fees capped. Because they bill by the hour, they actually have an incentive to drag out cases.

MM: What are some of the key provisions sought outside the area of medical malpractice?
Doroshow: They are similar. Usually corporations look for limits on punitive damages. Punitive damages are very rare in medical malpractice cases, but in cases of corporate misconduct they tend to be a little bit more common, though still rare. So corporations complain about punitive damages a lot and they like to see those capped. Sometimes they set the cap at $250,000, or sometimes they tie it in to the amount of compensatory damages.

Punitives have a certain function, which is to punish a company and have an impact on them so that they reform their practices. The only way you’re going to have an impact on a company is if you basically tie the damage award to their revenues or their assets. If you cap the damages just based on the compensatory damages, which has no relationship whatsoever to the financial condition of the company, then you’re very likely not to have any impact at all on the bottom line of the company and you’re not going to be able to provide any financial incentive to them to act more safely in the future.

MM: There seems to be a trend for particular industries to get special protections for themselves from the tort system.
Doroshow: There is definitely a trend of industries coming in for their own little immunity law. Particular industries have figured out that the easiest way to move Congress is to chip away at the tort law at the federal level rather than trying to win an entirely new product liability law. They got the biomaterials industry protected in 1998. Following 9/11, the insurance company threatened the economic collapse of the country unless they got a bailout in case of terrorism. There is nowhere near enough scrutiny of those particular kinds of threats.

When there's a hard market, as we're in right now, the insurance companies tend to raise their rates together, fix prices and reduce coverage in concert -- the kinds of things that would be illegal in almost any other industry.