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Useful Notes / Tort Reform

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When dealing with the American legal system, there are times when punitive damages seem too punitive.

So you're watching a legal drama where a Frivolous Lawsuit comes up from a Ambulance Chaser. There Should Be a Law to keep them from getting a big cash settlement, right?

Maybe. Some folks think so and want to do tort reform. The idea is that frivolous lawsuits are big bucks. The US media tends to treat huge multimillion-dollar settlements as the norm. A combination of laws enacted some time ago combined with an increase of the awareness of frivolous lawsuits has led to a decrease in the actual amount of damages.

In U.S. courts, there are two types of damages: compensatory damages and punitive damages. Compensatory damages have a large amount of rules on them, and include all the physically concrete damages you can establish (hospital bills, lost wages and so forth); and pain and suffering. "Pain and suffering" is a loose term, but is usually linked to the physical damages you can establish and designed to compensate for the emotional damages. It also has the effect to make sure the bills for actual damages get paid after a lawyer's cut of the physical damages. Emotional damages have quite a lot of rules that vary from place to place, with rules on who can recover and for what. In Malpractice case limits exist in many states to cap the damages, no matter how horrific. In California, a cap of $250,000 has existed for 40 years on damages with no increase in that time.


Punitive damages are not designed to compensate a person for losses caused by the other side, but to punish socially reckless or intentional behavior considered wrong by society. Punitive damages are much harder to get because of the requirement for reckless or intentional harm, rather than merely careless behavior, but can be much higher against companies deemed to do wrong.

Since they are designed to punish, a jury may look at many things and set the punishment at something they think will hurt the company. That's where $250 million verdicts come from — the behavior of the company was so bad as to need punishment. And for sufficiently large companies (Microsoft comes to mind), any amount of punitive damage that doesn't look ridiculously large is gonna be a slap on the wrist.

Those awards seldom stay that high. A $250 million verdict against insurance companies for denying claims may be reduced to $25 million by the judge at trial and to $2 million on appeal. The Supreme Court has ruled that excessive punitive damages are an unconstitutional violation of due process, and criteria for assessing punitive damages include the reprehensibility of the defendant's conduct, the other civil or criminal penalties they would face for similar conduct, and a comparison of the punitive damages awarded to the actual damages (with anything greater than nine times the actual damages requiring a particularly strong showing).


Interestingly, some tort scholars have advocated the imposition of floors on punitive, pain-and-suffering, and similarly nebulous forms of damages. The idea behind this is that by setting a cap on damages, you disproportionately benefit those who have suffered the least: people who have actually suffered severe injury get the same amount as those who have merely seen a setback. A damage floor means that those whose injury is less and thus can bear not to see every penny of the unmodified award (e.g. your run-of-the-mill slip-and-fall or low-speed car accident cases) will only be compensated for relatively concrete damages (e.g. projected hospital bills), while those who really have suffered (e.g. someone mauled by a captive bear), or who were on the receiving end of something particularly appalling (e.g. a severely battered spouse), would be able to recover more. Another creative means for ensuring that punitive damages do their job without giving obscene quantities of cash to injured parties is establishing an upper limit on the amount the plaintiff can recover in punitive damages, but then requiring that the defendant pay the balance to a special fund run by the state. Several jurisdictions (such as Indiana) operate on such a scheme.

Oddly enough, the most radical kind of tort reform occurred not in the United States but in New Zealand, where the establishment of the Accident Compensation Corporation (a government fund based on the workers' compensation model) resulted in the more or less complete abolition of the tort action in negligence. These reforms were based on the ideas expressed in the book Atiyah's Accidents, Compensation and the Law (1970) by Patrick Atiyah. (Although in The Damages Lottery (1997) Atiyah abandoned his previous ideas in favor of a private individual insurance based on the mandatory insurance for cars model and Accidents is now edited by Peter Cane.)

Subtrope of There Should Be a Law and counter-trope to Ambulance Chaser.


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