A System Out Of Control
Huge Awards are driving up insurance rates, but curbing liability lawsuits requires hard-fought reforms.
PATRICIA SMITH
SENIOR EDITOR
It's what many call the "lottery mentality." Huge monetary awards handed out by sympathetic juries hoping to ease a family's anguish, punish big business for careless mistakes, or simply stand up for the perceived underdog by redistributing some wealth. Good intentions or not, the U.S. tort liability system is a system out of control.
In a report issued last spring, the President's Council of Economic Advisors estimated that tort liability claims total some $180 billion a year roughly $650 for every citizen of the U.S. Only about 20% of that actually gets to the injured parties. Attorneys' fees and administrative costs eat up the rest.
Once rare, million-dollar awards have now become almost commonplace. Some blame jurors who have been desensitized to large sums of money by quiz shows and lotteries that regularly hand out seven-figure prizes. "If you can answer 15 questions and win a million dollars, why not give a million dollars to a grieving widow?" a fleet manager recently pointed out.
Even more disturbing is the ridiculous nature of some claims. There's the New York maintenance worker who is suing fast food restaurants because their ads led him to eat his way to obesity and a bad heart. And of course there's the famous case of the 79-year-old Albuquerque woman who suffered extensive burns when she spilled coffee on herself while attempting to open a cup she was holding between her legs. A jury ordered McDonald's to pay $2.7 million in punitive damages because its coffee was too hot. The award was later reduced and the suit was subsequently settled quietly out of court.
In trucking, the most talked-about case these days involved a CFI truck that was parked on the side of the road when it was struck from behind by a car carrying two women. The passenger was killed. The automobile driver admitted that they'd been out drinking, that they had been up for an extended period of time, and that she had fallen asleep at the wheel. She also admitted that she had seen the truck and it posed no danger. The passenger's family sued CFI and was awarded $8 million in actual damages and $10 million in punitive damages.
Then there's the case that plagued Jim Park for seven years. The former owner-operator, now managing editor of Canada's HighwayStar magazine, was having his truck washed at a facility in Chicago when an attendant climbed on the tanker carrying a metal pole. He accidentally touched some electrical wires 22 feet in the air and was killed. Park said he was vaguely aware of the wires but there were well above his truck's 14-foot clearance so not a reason for concern. The wash facility, not Park, had provided the metal pole. When the accident happened Park was inside a building some 100 feet away.
The attendant's family received workers' compensation benefits, but they also sued Park. After plenty of legal wrangling, time off work and trips to Chicago, his insurance company agreed to settle out of court for $100,000 plus costs. The plaintiff's attorneys "exploited the misery of that family," he said. "It was a sickening experience."
It's not fair to paint all attorneys as ambulance chasers but even a casual cruise around the Internet makes it hard not to jump on that bandwagon. "Truck accident" on any search engine yields lawyers from around the country willing and ready to sue truckers. An Atlanta firm urges quick action following any accident involving a truck since drivers "commonly violate hours-of-service rules" and motor carriers "can legally destroy their logbooks after six months." A Nashville law firm kindly points out that "not all truck drivers are unsafe or violate the law," but "many do."
But the problem isn't unique to trucking. "My sense is that plaintiffs will sue whomever they can, whenever they can," said Creed Tucker of Tucker, Bower, Robin & Romanek, a Chicago law firm that defends liability suits. "There are a lot of people in this world who have a low regard for the concept of personal responsibility. They think that any time they're injured, or even could have been injured, it has to be somebody's fault other than their own."
The result of these irresponsible attitudes: higher insurance premiums and, ultimately, higher prices for goods and services.
One State At A Time
What can be done? For the most part, reform has to be tackled one state at a time. According to the American Tort Reform Assn. (ATRA), there has been some progress.
Some 35 states have modified the rule of joint and several liability, which basically says that a defendant who is only nominally responsible may have to pay the entire award. Consequently, lawsuits often turn into a search for the party with the "deepest pockets."
Twenty states have modified or abolished the collateral source rule, which bars evidence showing that a plaintiff's losses have been compensated from other sources, such as their own insurance or workers' compensation. According to ATRA, 35% of total payments to medical malpractice claimants are for expenses already paid from other sources. Proponents for change want that compensation to be presented in the case and deducted from any awards.
Punitive damage laws have been reformed in 32 states. These "punishment" awards, meant to deter similar conduct, have become larger and more common in recent years. Reformers would like to see laws that require clear and convincing evidence of actual malice, plus guidelines or limits to help assure that the punishment fits the offense. Many states have or are considering laws to cap punitive damage awards.
Thirteen states have modified rules for non-economic damages covering impossible-to-measure complaints such as pain and suffering and emotional distress. Because it's so difficult for juries to assign a dollar value, and because they're often given broad discretion with little guidance, awards are erratic and often excessive.
There are also movements to reform product liability. The laws are meant to compensate persons injured by defective products and to deter manufacturers from marketing such products, but liability suits often hold manufactures or marketers liable when they couldn't have known there was a risk.
Class action suits, meant to save court time and costs by aggregating cases with similar facts and complaints, have become what ATRA calls a "means of defendant extortion." The awards can be huge but the victimized consumers often end up with little money or, in some cases, nothing more than coupons.
And, of course, there's the contingency fee system, in which plaintiffs pursue lawsuits with no financial risk to themselves. The attorneys pick up all expenses and are paid out of any money awarded. The fact that they walk away empty handed from losing lawsuits should weed out most frivolous claims. Unfortunately, it doesn't.
"There's always someone out there who will take anything, recognizing that on any given day, depending on the jury, he may hit," said Tucker. Also, lawyers will sometimes take a case that has little merit just to earn a repeat client when there is something worthwhile to pursue.
Federal Reform
For years, the Truck Renting & Leasing Assn. (TRALA) has been whittling away at state vicarious liability laws, which hold lease/rental companies liable for the negligence of their customers. Only five states and the District of Columbia now have such laws and TRALA met this summer with White House representatives to ask for federal preemption.
"If there's any noose around the jugular that's absolutely unfair, it's this issue," said TRALA President and CEO Peter Vroom. "It could put a leasing company out of business for an accident that was out of their control."
TRALA did manage to get federal preemption into a liability reform bill passed by Congress several years ago, but President Clinton vetoed the measure. Vroom thinks they have a good shot at success this time because vicarious liability is so "blatantly unfair" and because preemption would only affect a handful of states.
Broader reform is a different matter. President Bush has asked Congress for a tort reform bill by late fall. His proposal, aimed at curbing medical malpractice suits, would cap non-economic damages, limit punitive damages, impose a statute of limitations on medical malpractice cases, and require physicians to pay only the portion of damages for which they are personally responsible. The plan is similar to bills already in the House and Senate.
Those and similar reform proposals at both the federal and state level will continue to face stiff opposition from trial lawyers and consumer groups who say it's the insurance industry, not the legal system, that needs a good housecleaning.
Calling tort reform efforts "horribly misguided," The Americans for Insurance Reform, a coalition of consumer groups, is lobbying instead for insurance reforms such as a freeze on medical malpractice and homeowner insurance premiums, an investigation of the insurance industry and price regulation.
Opponents also argue that reform doesn't bring about one of the key objectives: lower insurance rates. The Center for Justice and Democracy, another consumer group that says it's not affiliated with any trial lawyer organizations, cites its 1999 study that concluded loss costs -- i.e. the costs that drive insurance premiums -- rose in states that enacted tort reform and went down in those that didn't.
Public Sentiment
Judging from the progress made so far, change depends largely on public sentiment. Consider, for instance, reforms in Pennsylvania. Under the state's previous joint and several liability law, a defendant in a civil lawsuit found to be only 1% at fault could still be held responsible for 100% of damages. A new law, signed by the governor last June, eliminates joint liability for civil defendants found to be less than 60% liable.
The Pennsylvania Motor Truck Assn. was part of the business coalition that helped move the measure along, and PMTA President Jim Runk said public sentiment had a lot to do with its success. Reform actually started with changes affecting medical malpractice, spurred by statistics showing that Pennsylvania was losing doctors to other states. Subsequent changes to the joint and several liability law got a boost from public concern over rising insurance rates.
"In a free market it's pretty hard to tell insurance companies they can't raise their rates," he said, "But you can look at reform that will help insurance companies lower their costs."
Tucker said he believes that, with a few outlandish and well-publicized suits like the McDonald's scalding coffee case, the system might right itself. "I had a definite sense after that case that juries were more conservative for a number of years," he said. "It wasn't the ridiculous suit that caused the trend, it was the public ridicule of the jurors who made the award. For a while, it seemed to give other jurors pause."
Defamation Fears
As our Web search indicated, lawyers are quick to start digging through driver records for liability suit fodder. Unfortunately, it's what fleet managers don't know that might hurt them.
"We need more teeth in the CDL," said Randy Cornell, vice president of safety for CFI. "It was supposed to be true reciprocity between the states but we find it's not accurate. You can't run an MVR where the driver is licensed today and be sure you've got all the information. You have to run one in every state where the driver has been licensed, but drivers don't tell you about the states where they had problems."
The Federal Motor Carrier Safety Administration is hoping to rectify that with changes in CDL rules that, among other things, require better and faster reporting by states.
Congress has mandated criminal background checks for any CDL applicant seeking a hazardous materials endorsement, but many carriers would like to do criminal background checks on all driver applicants. Without access to the federal database, that's expensive and often unreliable. One fleet manager confided that one of their best screening devices right now is to send a driver to Canada. "Border officials have access to the national criminal background database," he explained, "and they won't admit convicted felons."
Getting drug test information is another problem. Federal regulations say carriers must query previous employers to find out if a driver has failed or refused a drug or alcohol test in the previous two years. Fearing lawsuits, many carriers won't respond.
As Cornell noted, carriers are paranoid about providing any information that might get them involved in a defamation suit. "It totally circumvents all of our goals," he said. "If I want to hire a driver who used to work for you and you won't tell me anything about that driver, I'm doing nothing more than putting a driver back on the road that you know is a problem."
The Safety Defense
No matter what happens with tort reform, a carrier's best hope for avoiding expensive lawsuits is to remain alert and aware.
Tucker advises a thorough investigation as quickly as possible after an accident. Often, he explained, plaintiff attorneys delay filing suit because "witnesses get lost and memories fade." Therefore it's important to get witness names, addresses and statements. Drivers should be trained to observe and make notes of everything that happened. He also recommends that every vehicle carry a single-use camera so drivers can take pictures of accident scenes.
Plaintiff attorneys will dig through safety records to find breaks in compliance that might be used against a carrier. An exemplary safety program may not be useful as a defense, but it eliminates noncompliance as an issue, said Tucker.
Park said his attorney actually warned him that a jury might hold him to a higher standard of responsibility because of his clean record and professional attitude. Still, he advises his readers to strictly follow all rules. "The only way to protect yourself is to simply do everything right," he said.
And despite the frustrations, management has to remain committed. "If a driver has an accident I ask myself "What did I not tell the driver that I should have? What did I not provide that I should have?'" said Cornell. "That's not necessarily because I can do everything in the world. I can't be there to watch every driver 100% of the time. But you have to have that mentality. If you don't, you really don't care."
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