Why We Need to Readjust the Tort System

America's personal injury law needs to narrow its focus and follow the example of other countries.



American tort law (personal injury law) tries to do too many things, and does most of them poorly. Some particulars:

    · Many injured people are either over-compensated by the tort system, or are not compensated at all. Moreover, the amount we award for pain and suffering dwarfs what other wealthy nations provide, and yet loads of wrongdoers are either never identified or don't have insurance and are thus unable to pay for the harm they do.

    · Injured victims almost never obtain individual justice from their actual wrongdoer because insurance companies or other third parties pay awards, not people. And besides, these days virtually all cases are settled behind closed doors by lawyers rather then being decided by juries.

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    · To the extent that safety is the goal, there are still all too many careless doctors, defective products, dangerous drivers, and the like causing untold havoc across the land. At the same time, over-reaction to the threat of tort claims imposes on the public both extra costs (like "defensive medicine") and lost opportunities to enjoy useful products (like closed school yards and playgrounds).

    · While personal injury law does internalize accident costs into certain activities it does so at an extravagant price that mainly benefits lawyers and insurance companies, with the administrative costs of the personal injury law system drawing off as much money as is paid out in benefits to victims.

We could do better. The right place to start is to look beyond our borders. The most sweeping change would be to follow New Zealand, where no one injured in an accident can sue in court, but everyone is compensated from a sensible social insurance plan. An appropriate U.S. version would:

    · pay for medical expenses not otherwise covered by health insurance;

    · replace actually lost income up to a maximum of, say, three times the average American monthly wage; and

    · provide moderate sums for pain and suffering to those with serious injuries.

A narrower strategy would have two parts. First,

    · All personal injury claims for auto accidents would be taken out of the lawsuit system and replaced with a simple comprehensive insurance plan like in Israel.

    · For the U.S., where we have way too many uninsured motorists, the simplest solution would be to fund the compensation plan "at the pump." Drivers would pay, say, 50 cents a gallon when they fill-up, but responsible car owners would save more than that in reduced auto insurance premiums.

    · Because the marginal cost of driving would vividly increase, this strategy would at the same time reduce pollution, highway congestion, and our dependence on foreign fuel.

Second, for the rest of personal injury law, the scope of monetary recovery would be dramatically altered:

    · Pain and suffering awards would be reduced to levels found in places like Canada, where the most seriously injured can receive up to around $400,000 (not many millions as in most U.S. states today) and the less seriously injured recover proportionately less, with judges and juries drawing on information about award levels in prior cases (unlike our present scheme where every case is decided in ignorance of previous awards).

    · As in New South Wales, Australia, minor injuries would not attract awards for pain and suffering, in contrast to the U.S.'s present system in which "claiming mills" are able to extract $1,000 or so for virtually any personal injury claim because it would otherwise cost the insurance company more to get rid of the case.

    · Recovery for lost income would be limited so that super-high earners, who already have or should have disability-income insurance, would no longer be able to win gigantic recoveries that now raise the price of goods and services bought by ordinary Americans.

    · Personal injury law would become "secondary" and no longer pay for losses that are already compensated by work-based plans like health insurance, Social Security, or workers' compensation.

    · As in places like Germany, the legal fees of successful claimants would be paid for by insurers on top of the victim's award (instead of coming out of the victim's recovery as in the U.S. today). But the fee structure would change from the typical 33 percent fee that American plaintiff's lawyers now charge. Lawyers acting on behalf of the injured would be paid 10 percent of amounts that are offered within a few months after the accident, and 40 percent of any additional amounts they are able to win for their clients. This would push insurers to promptly make reasonable settlement offers so as to sharply limit their obligation to pay legal fees.

To help reduce accidental injuries and deaths in America, new safety-promoting mechanisms should be relied upon instead of personal injury law:

    · With respect to products that are defectively designed or contain inadequate warnings, we should generously reward "whistleblowers" who report these harmful products to the appropriate federal agency before the manufacturer itself has come forward and admitted the problem.

    · With respect to auto safety, we should increase the penalties for drivers who carelessly cause injuries in the way that many states have upped the fines for drunk driving. At the same time, new cars should come with either higher taxes or tax credits depending on which of the cutting-edge safety features they do or do not contain--like side air bags, roll-over prevention mechanisms, and traction control.

    · With respect to medical injuries (where nowadays only a tiny fraction of the medical malpractice that harms people leads to lawsuits), a new "performance based" system should be tried for hospitals. Simply put, hospitals with good safety records would receive bonuses from health insurers and Medicare/Medicaid, and hospitals with bad safety records would, on the other side, be substantially fined (or have their insurance reimbursements substantially reduced). This could not only promote better supervision of inept doctors, but also help fight the epidemics of hospital-based infections and drug mishaps (wrong medicine or wrong doses) from which patients are now dying in large numbers every year.

These sorts of changes would help the U.S. catch up with innovations already in place in other countries and would sensibly separate out the "compensation" function from the "accident prevention" function that personal injury law fruitlessly seeks simultaneously to pursue. As for individual justice, we could leave in place the right of victims to sue for moderate amounts of "punitive damages" in those fortunately rare instances in which outrageous injurers have truly engaged in despicable conduct carried on with a willful and conscious disregard for the rights or safety of others.