Time For Change?

Major Proposals

So what would tort reform look like? Following are some proposals and how they could affect small business:

  • Eliminate joint- and several-liability. Under the legal doctrine of joint- and several-liability, if two parties are both judged to be substantially responsible for the plaintiff's injury and one can't afford to pay, the other party may be held responsible for the entire amount of damages. Under this deep-pocket rule, defendants are often named in lawsuits because of the assets they possess rather than the harm they may have caused. Numerous tort reform proposals call for abolishing joint- and several-liability so each party pays only as much as its share of the fault.
  • Cap noneconomic damages. If someone is injured because a bottle explodes, it's basically a matter of figuring out such economic damages as medical expenses and lost income. But how should a jury determine to compensate for pain and suffering? That's where damage awards can steeply mount. Some tort reform proposals would limit noneconomic damages to, say, three times the economic damages.
  • Cap punitive damages. While compensatory damages seek to compensate the plaintiff for the injury, punitive damages (allowed in most states) are intended to punish the company found responsible for the injury. As in the Whirlpool case, however, punitive damages sometimes spiral out of control, with no relation to the actual damages.

Nicholas Wittner, assistant general counsel for Nissan North America in Torrance, California, and co-chair of an American Bar Association committee on products liability, says putting a lid on punitive damages--such as an amount equal to no more than three times the actual damages--would be most helpful to small businesses. "In most states, you can't get insurance for punitive damages," he says. "It's the threat of these damages that often leads small manufacturers to settle a case that's not meritorious because they can't take the risk."

On the other hand, some cases do involve outrageous circumstances, where a company is willfully negligent toward safety. One sensible option is to raise the standard of liability so punitive damages may only be awarded if the defendant's conduct showed conscious, flagrant indifference to public safety.

  • Establish statutes of repose. Under a statute of repose, plaintiffs may not sue a manufacturer over accidents that occur a given number of years after a product was manufactured.
  • Abolish the collateral source rule. In most states, a jury deliberating damage awards isn't allowed to know if the injured party has already been compensated by an insurance company or some other party. In many cases, the jury isn't thinking about whether the plaintiffs deserve compensation but rather, how much they need. Knowing that plaintiffs have already been paid hundreds of thousands of dollars would help juries propose a reasonable award.
  • Make the loser pay. To curb frivolous lawsuits, some proposals adopt the English system, in which the losing party has to pay the winner's legal fees. That's likely to discourage people from suing companies on flimsy evidence. But that door swings both ways, because losing in a lawsuit doesn't mean you were wrong. Critics of the English system worry about denying access to civil justice for people with a genuine injury who can't risk losing and having to pay the company's defense costs.
  • Establish sanctions for nuisance lawsuits. Many states have laws on the books allowing judges to penalize plaintiffs and their attorneys who file groundless lawsuits. Unfortunately, because our justice system is founded on the concept of access for all citizens to the courts, judges are hesitant to do so.

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This article was originally published in the August 1999 print edition of Entrepreneur with the headline: Time For Change?.

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