Rethinking Tort Reform

By: Anne E. Orsi, P.A.

The Subversify team welcomes Anne Orsi who is a freelance writer and member of Almand, Orsi, and Campbell, PLLC, a small law firm in Little Rock, Arkansas. She writes about the law, history, and other topics, all the while maintaining a blog and crusading for her clients. She has two cats, two dogs, and one son, all of which shed their coats wherever they please

A tort is an action taken by one person, either intentionally or negligently, that harms another person. They normally include actions that are not covered by a contract or by any statute. Ever since there was a way to lodge a grievance against one’s neighbor, someone who believes he has been harmed by someone else has been able to sue the wrongdoer for damages caused by the wrongful act. Tort lawsuits make the news most often, even though they are by no means the majority of suits filed.  We can’t help but whistle in amazement when we hear of the multi-million dollar awards that juries allow in the most egregious cases.

 What Do Damages Cover?

Nothing can give back the things these victims of negligence have lost: the diminished income because of time away from work; the unmarred face that existed before an unleashed dog mauled a four year old girl; the mother who was killed by a drunk driver; living without constant pain caused by the injuries in an accident; the cheerful contributions to her family that the coma patient used to make before the doctor ignored the pulmonary thrombosis that led to her vegetative state.

Whether it’s a car accident, a doctor who ignores symptoms, or a vicious dog that attacks a child, the person who is hurt should not have to pay the price for the injury.  They pay for other people’s negligence in ways that sometimes are horrific. The legal system has evolved ways to compensate these people for the difficult changes brought on by being in the wrong place at the wrong time, or by trusting their care to someone who proved to be untrustworthy.

Once liability for wrongdoing is established, the person committing the wrong, known in legal circles as the tortfeasor, must pay for pain and suffering when someone is injured badly enough to merit such a payment. Pain and suffering is impossible to quantify on any objective scale.  Think of damages for pain and suffering to be the price the injured person charges the wrongdoer for what he has gone through. How much money would it take for you to voluntarily suffer from whiplash? How much money would make you willing to suffer brain damage? What is your price for being in a coma for the last twenty years of your life? For losing an arm? For losing your sight?

Tort Reform Equals Medical Malpractice Lawsuit Reform 

Tort reformers like to claim that medical malpractice lawsuits are frivolous, brought by money-hungry lawyers who are so unethical as to sue for any perceived slight, no matter how small, and whose greedy clients are looking to win Legal Lotto. It is no accident that the insurance industry leads the battle charge into tort reform.

Unfortunately, “tort reform” usually means “medical malpractice lawsuit reform.” People think that greedy, pit-bull lawyers are mean to gentle, caring, well-meaning doctors, who are just doing their best to heal people who probably can’t be healed in the first place.

That is not the case.

A Harvard Medical Practice Study published in the New England Journal of Medicine in 1991 concluded that tort litigation claiming medical malpractice only “infrequently compensates patients injured  by medical negligence and rarely identifies, and holds providers  accountable for, substandard care.” To give that statement some perspective, the study reported that “of the 280 patients who had adverse events caused by medical negligence as defined by the study protocol, 8 filed malpractice claims.” Eight claims out of nearly three hundred instances of medical malpractice would not seem to be such an outrageous amount that the court system or even doctors are being overwhelmed by frivolous lawsuits. On the contrary, when only 2.8% of people with valid claims actually make them, one would tend to think that these suits are under-represented in the court system, not overwhelming it.

Frivolous claims?

The situation is not appreciably different now.  The results of a study done by the Harvard School of Public Health in conjunction with the Brigham and Women’s Hospital and the Harvard Risk Management Foundation was published in the prestigious New England Journal of Medicine in 2006.  A team of physicians reviewed a random sample of 1,452 medical malpractice claims to determine whether a medical injury had occurred, and if so, whether it was due to medical error.  A little over one-third of the cases had either no errors or no medical injury at all, according to the reviewing doctors. Of those that had no errors or injuries, damages were paid to the alleged victim in only 16% of the cases. Sixteen percent of the cases approximately one-third of the claims that were non-meritorious means that less than six percent of the total claims that resulted in money paid out by the insurer should not have been. That means that when someone brings a claim that is frivolous or which otherwise does not merit compensation, he is not likely to get anything for his efforts – and neither will his attorney.

What about cases that were meritorious, cases in which there was an identifiable medical injury due to medical error? The study found that of those cases, which were about two thirds of the cases in the random sample, there were 27% fewer claims paid than should have been. The cases err in favor of the insurance companies and contrary to the interests of those who have been injured.

The numbers don’t lie. 16% of non-meritorious claims get paid anyway; 27% of valid claims go unpaid. Twenty seven percent of people who are injured by their doctors’ negligence are not compensated, much less given extravagant awards meant to deter future negligence.

The Insurance Angle

Any insurance salesman will tell us that insurance is necessary; it is no longer an option. Insurance preys on our fears of the future combined with our experience of Murphy’s Law. Whatever can go wrong will, at the worst possible time, and will cost more money than we can ever hope to have on hand.  Our insurance companies tell us that they are there to make sure that we are not bankrupted by our own negligent conduct toward someone else. Our insurance company is supposed to pay for the actual harm done: the damage to property, the medical bills incurred by someone injured by our actions, the time the person had to be off work and could not contribute to his family’s support, and similar quantifiable amounts.

Truthfully, though, no insurance company is in the business of paying claims. Instead, they look for any and every way possible not to pay claims. And no insurance company is in danger of going bankrupt because it has paid more claims than it has collected in premiums.

Medical malpractice litigation is especially contentious. The medical profession and its insurers have successfully lobbied in several states for shorter statutes of limitations, special notice filings required before litigation may be brought, and additional proof submitted with new filings to substantiate claims. Tighter restrictions and more requirements make filing medical malpractice claims less likely and more costly. Victims have a more difficult time getting into court in the first place.

For example, in 2003 Texas’s Governor Rick Perry spearheaded medical malpractice tort reform that capped non-economic damages at $250,000 per defendant, or up to $750,000 per incident. There is no cap on quantifiable economic damages, such as lost wages or cost of present and future medical care. In an Op-Ed piece last summer in the Washington Examiner Perry declared that malpractice insurance rates in Texas had declined as much as 27% in Texas after these reforms were put into place.

Premiums fall, and doctors are happier. No one likes to pay insurance premiums. Health insurance premiums, and their affordability, are at the heart of the current health care reform being debated so hotly in congress.

Damages as Punishment

Despite the difficulty of quantifying pain and suffering, the damages this article has so far described are compensatory in nature. They compensate the victim for something. The money replaces his car, pays for the surgery to remove the hemostats left in his abdomen by the last surgeon, fixes his broken jaw, reimburses him for lost wages for the time he was off work, pays the value of life that was lost when someone was negligently killed.  These damages are meant to make the victim of the tort whole again, not to enrich him. They are intended to put him in the place he was before the tort occurred, and to allow him to go forward without harm to his finances, to heal him both literally and financially.

Tort reform does not address compensatory damages. Tort reform is primarily aimed at capping what its proponents see as excessive jury awards in particularly awful cases. Such awards are not compensatory in nature, but punitive. Punitive damages don’t reimburse someone for money they are out. That is the province of compensatory damages. Instead, punitive damages are intended as punishment – hence, the name “punitive.” Such punishment is levied when there is gross negligence or something beyond simple inattention or carelessness. The bigger and more preventable the screw-up, the more likely punitive damages are to be awarded.

Why Punish a Mistake?

Why would someone require punishment for a screw-up? Think about how we decide how and whether to punish our children for negligence. Let’s say that Susie and Jenny are at a birthday party for one of their classmates and its cake and ice cream time. Susie gets excited explaining something and throws her arms wide, knocking over Jenny’s glass of punch, spilling it on her and ruining her party dress. Of course, Susie has to apologize to Jenny, and she has to get Jenny another glass of punch. She has to help clean up the mess, and if Jenny’s party dress is expensive Susie’s mom might offer to pay for it to be cleaned. These actions are compensatory in nature. They compensate Jenny for the loss of her glass of punch, her clean and dry dress, and her hurt feelings.

If Susie knocks the punch over because she was dancing on the table, though, Susie will be punished. Punitive action will be taken to ensure she doesn’t dance on the table and spill someone’s punch again.  Maybe we put Susie in time-out. Maybe Susie gets a spanking. Maybe Susie is grounded from her Barbies, or she is not allowed to go to any parties for the next month. The point is not that Susie is being punished for doing something intentionally. She did not. She did spill the punch while being grossly negligent, though. She should have known that if she danced on the table where Jenny’s punch sat, the punch would spill.

Punitive damages are intended to stop gross negligence. They are not appropriate where there is no gross negligence – where the punch spills accidentally due to something unforeseen or where the negligence was minor. Punitive damages are for those egregious cases, for instance those in which the doctor ignored clear warning signs of his patient’s impending doom and did nothing.

Punitive damages are not awarded lightly by any jury. If a jury awards an amount in the millions, it is because the defendant in that lawsuit has the resources to pay such an amount, even if it hurts. Punishment is not intended to kill, and punitive damages that bankrupt a company or a doctor are never appropriate. Punitive damages are supposed to hurt, though – just like being grounded from birthday parties hurts. And just like Susie, the idea is that punitive damages will hurt for a little while, but the defendant will get over it – hopefully to go forth more carefully in the future.

How Punitive Damages are Determined

The idea behind tort reform is that without caps on punitive damages set by law, the sky is the limit.  Any lawyer who wants to collect the award his client has been given by the jury knows that is not true. Punitive damages cannot bankrupt the tortfeasor. If the tortfeasor is bankrupt, the punitive damage award gets discharged and will never be paid.

The net worth of the tortfeasor is always an issue. In July 2000, when that Florida jury awarded$144.8 billion in class action lawsuit brought against cigarette manufacturers, the wealth of the cigarette manufacturers was an issue along with their intentional actions that caused the harm complained of. The press was aghast at the size of the award, wondering if the tobacco companies could possibly pay that amount. Ten years later the tobacco companies are still in business and still selling cigarettes. They may even still claim that smoking doesn’t really cause cancer.  Were they punished enough to correct their behavior?

Twenty years ago conventional wisdom placed the amount of pain and suffering at three times the amount of compensatory damages. Juries’ awards for pain and suffering, as well as for punitive damages, are all over the map. There is no consistency to them. The argument of the lawyers seems to be the determining factor. The more silver-tongued the lawyer, the higher the award, which results in the erratic awards we see today. There are extremely high awards and awards that aren’t so high. Sometimes punitive damages are not awarded at all.  Other times the award seems astronomical.  One aspect of the tort reform movement proposes rules by which punitive damages might be awarded.

Damages by Formula

In his article, “How Should Punitive Damages Work?” Harvard educated law professor Dan Markel of the Florida State University College of Law proposes that juries be instructed in how to assess “extra compensatory” damages. He divides punitive damages into three categories, all of which should be considered. One amount should accomplish “retributory justice,” and should be assessed against tortfeasors whose conduct is found by the jury to be malicious or reckless. If the conduct that caused the harm was neither malicious nor reckless, retributive damages would not be appropriate. In Markel’s proposal, juries would have a “chart of reprehensibility” to establish these damages meant for retributive justice. They would decide on a scale of one to twenty just how malicious or reckless the behavior was, and award damages according to a state-mandated chart. A portion of the damages would go to the injured person and a portion of the punitive damages would go to the state. The purpose of these damages would be to make the defendant tortfeasor worse off than if the harmful action had not occurred.

Next, Markel says, the jury should consider the harm to the victim’s personal dignity. Injuries to personal dignity that would qualify for this type of money would occur only when the tortfeasor’s malicious conduct was directly aimed at diminishing the victim’s dignity. Cases involving slander come to mind immediately. Even corporations can engage in this behavior: think of the employer who makes the employee so miserable that he quits, but not before his professional reputation is ruined and he lands in a psychiatrist’s office because of the way he has been treated at work.

Markel’s third aspect of punitive damages is an amount intended to deter future similar conduct by the tortfeasor. He gives a formula based on how likely the tortfeasor was to escape liability for his reprehensible action. The more likely the tortfeaasor was to get away with what it did, the higher the damage award. For instance, a company fires an employee for failing a drug test which the employee never took, then fabricates evidence to claim that the employee not only took the drug test but failed it. The tortfeasor took steps to avoid liability, and to deter it from trying to cover up such lapses in the future, deterrence damages are awarded.

State Reforms

Different states have different standards for punitive damages. Forty-three states and the District of Columbia allow punitive damages in medical malpractice cases. Some have caps on the punitive damage award and some do not.  Only five states prohibit all punitive damages, no matter how egregious the tortfeasor’s conduct.

As noted above, Texas has already capped damages at $350,000, no matter the wealth of the tortfeasor. South Carolina’s legislature is currently in session considering whether caps on punitive damages ought to be put in place. H3489 would limit punitive damages to three times the compensatory damages or $350,000, whichever is less. While this seems like a lot of money, would it serve to deter a tort done by Microsoft, the tobacco companies, or a hospital with plenty of insurance coverage?  Alabama allows three times the amount of the compensatory damages, or $500,000, whichever is greater, with larger amounts for certain cases and caps of 10% of a small business’s net worth.

Case law in Connecticut has limited punitive damages to the actual cost of the litigation, including the attorney’s fee. This is the so-called “English Rule,” which means that the loser of a lawsuit pays the entire attorney’s fees and costs of litigation. The English Rule is intended to deter frivolous suits and litigation that is more expensive than whatever is recovered.

Kentucky has no limits at all on damages, and § 54 of its Constitution states unequivocally: “The General Assembly shall have no power to limit the amount to be recovered for injuries resulting in death or for injuries to person or property.”

What’s the Answer?

Punitive damages serve a purpose. Erratic awards are indeed a fact of litigation. But some conduct is so reprehensible that it needs to be punished and punished severely. Punitive damages are not intended to compensate the victim, even though the victim will receive all or a part of the award. They are intended for the purpose the name implies: punishment.

Used the right way, punitive damages in all cases, not just medical malpractice cases, are intended to punish and deter future bad behavior. Caps on punishment without regard for the wealth of the tortfeasor or its ability to pay cannot be effective punishment because just like with children, the punishment needs to be tailored to fit both the offense and the wrongdoer. Punitive damages of $350,000 against a small boutique will drive it out of business; the same amount awarded to a victim to be paid by Wal-Mart will never be missed by such a huge company.

Punitive damages are meant to punish. Artificial caps on awards do not take into account the ability of the tortfeasor to pay, and their deterrent effect can be extinguished by awards that are too small.  Tort Reform must proceed carefully and with these precepts in mind, or the entire purpose of punitive damages will be negated and bad behavior will go unpunished.