Although this commentary may seem a little self-serving, since I focus my practice in Personal Injury law helping injured people deal with insurance companies to get fair compensation, I have strong feelings about so-called “Tort Reform.”  Specifically, I am convinced that “Tort Reform” is a product of lobbying power from insurance companies and large corporations and, when implemented, results in a transfer of wealth away from a class of underprivileged people (the catastrophically injured) and to wealthy individuals, corporate giants and insurance companies.  To me, this seems to be a curious policy for any government to consider if the true role of government is to protect the people.  In particular, I want to discuss three areas:  Frivolous Lawsuits, Loser Pays and Damage Caps.

Frivolous Lawsuits

A desire to rid the country of “Frivolous Lawsuits” (or Former President W’s nickname “Junk Lawsuits”) has become the mantra of many politicians.  I have news for you - 99.9% of all attorneys will not consider bringing a frivolous lawsuit for two reasons.  Number One:  it’s bad for business.  They won’t win the case and they won’t get paid for their work.  It will also give them a bad reputation with clients, colleagues and judges.  Number Two:  bringing a frivolous lawsuit is dangerous.  The state and federal courts have strict rules against filing suits that have no merit.  Doing so can result in fines or ethical violations which can potentially lead to punishment, including disbarment.

So, although occasionally you may hear news stories about “frivolous” cases, often you do not hear the full story (i.e. the McDonald’s coffee case was far from frivolous, and, if you don’t believe me, email me and I’ll send you an article about the facts of that case) and the other 99.9% of meritorious lawsuits never receive any media coverage.

Loser Pays

I often hear complaints that, in the American legal system, each litigant has to hire (and pay) its own attorney, and, even when they win a case, the other side does not have to pay for the legal fees.  The British system is quite different.  In their litigation, the loser has to pay both attorney bills.

In my view, in the area of Personal Injury cases at least, attorneys representing injured people would welcome a loser pays system, but insurance companies would not.  When cases have to go to trial (over 90% settle before a trial), it is often because there is a dispute over what is fair compensation for the injuries and damages.  If there was a loser pays system, the insurance companies would have to evaluate the value of cases more carefully, because failing to settle before trial would result in a much higher attorney fee bill at the end of the trial.

Damage Caps

Another so-called tort reform that is in vogue politically is Damage Caps.  Because there is no way to go back in time to prevent an accident from happening and eliminate the injuries and damages which have resulted, the American legal system provides that money compensation must be paid by the person who caused the injury to the injured person to attempt to make up for the injuries and losses.

When a person is injured in an accident in Pennsylvania, for example, there are two types of damages available to attempt to compensate the victim:  Economic Damages and Non-Economic Damages.  Economic Damages are for medical bills, lost wages and other specific expenses resulting from the injury.  Non-Economic Damages are monies owed to try to make up for the human losses like the pain and suffering, emotional distress, embarrassment and negative impact on the quality of life caused by the injury.

Damage Caps typically target Non-Economic Damages and place an artificial ceiling on what compensation a jury can award to an injured person.  At first blush, this might seem sensible to prevent runaway jury verdicts, increased insurance costs and increased prices to consumers.  However, consider this.  For a person catastrophically injured, paralyzed or horrifically burned, is it fair to take the decision of what would be fair compensation out of the hands of the jury that hears this specific case and put the decision with the legislature?

In my view, Damage Caps result in a transfer of wealth from the disadvantaged to rich people, large corporations and insurance companies.  The truth is that when catastrophic injuries occur due to the negligence of a person or corporation, the damages are paid (almost always) by the offending party’s insurance company - not from personal assets.  Insurance is (or should be) purchased to protect from risk and to pay the full value of losses.  Wealthy people or large companies should make a choice to buy enough insurance so that, if they cause an accident, the insurance will fully compensate the injured person.  If they do not, they are being irresponsible.

What Damage Caps do is allow wealthy people and large corporations to purchase less insurance.  This may sound good, but the downside is that the catastrophically injured pay the price.  Although disabled or disfigured for life, under a Damage Cap system, the legislature will decide what compensation they will get, not a jury or their peers.  Who reaps the benefit?  The wealthy person, large corporations and insurance companies.  Their risk is capped and they get away with paying less than the true damages which they were responsible for causing.

So, when it comes to “Tort Reform,” be careful what you wish (and vote) for.

This entry was posted on Friday, July 31st, 2009 at 9:46 am and is filed under Tort Reform Commentary. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site. Your comments will appear immediately, but I reserve the right to delete innapropriate comments.