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The Economics of the Tort Liability Crisis
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15663 |
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MODERN THOUGHT
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2 / 1989 |
6,201 Words |
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Thomas S. Ulen
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Many people believe that there is a crisis afflicting the tort liability system, that part of the legal system that determines who will bear the cost of losses arising from accidents. As evidence, these critics point to some dramatic anomalies that have arisen in recent tort litigation. For example, the largest and most profitable asbestos manufacturing company in the United States, the Johns-Manville Corporation, was forced to seek the protection of bankruptcy law when the company's anticipated liability for harm attributable to asbestos exposure over the last fifty years exceeded $2 billion, which was then the value of all the company's assets. In another case, a teenager, who was sneaking across a school's roof late at night in order to burglarize the school, fell through a skylight and was paralyzed. He threatened to sue the school district. The district's insurance company, fearing an adverse judgment if the suit ever got to trial, settled with the teenager for $260,000 plus $1,500 per month for the reminder of the boy's life. The G.D. Searle Company, alarmed by the bankruptcy of the A.H. Robins Company (a bankruptcy attributable to adverse judgments against that company for harm caused by Robins' Dalkon Shield, an intrauterine birth control device), decided to halt production of its own intrauterine device, even though Planned Parenthood and other experts believed the Searle product to be the safest IUD on the market.
Vaccines for such devastating childhood diseases as polio and whooping cough are in short supply because manufacturers, fearful of adverse tort judgements, have quit producing them. Some doctors have become so fearful of medical malpractice suits that they have changed their specialties, moving from highrisk areas such as obstetrics and gynecology to lower-risk areas such as internal medicine. In my hometown, volunteer youth soccer coaches receive an orientation session from the Park Department's lawyer about their liability exposure for injuries to their players. Among other things, we were instructed not to take injured young athletes to the hospital in our cars because this might expose us and the Park Department to liability for aggravating the injury.
The perceived crisis in the tort liability system has given rise to a secondary crisis in the liability insurance industry. Because of the widening scope of tort liability, insurers have had to increase their premiums dramatically and rapidly. A surgeon practicing in a major metropolitan area pays $100,000 per year in medical malpractice insurance premiums. In some instances, insurance companies have quit underwriting liability policies altogether, forcing those exposed to risk of liability either to self-insure or to cease operation. For example, some municipal park departments have cited the unavailability or high cost of liability insurance as the cause of their discontinuing summer sports programs for youth and for their dismantling public play structures such as slides and swing sets.
There is other evidence of a recent, dramatic change in the tort liability system and the liability insurance industry. Over the past decade or so, there has been a tenfold increase in the number of tort cases filed in the United States. And with this increase there has been a dramatic rise in the amount of money that courts have awarded successful plaintiffs. While it is not yet routine, a million-dollar judgment in a tort case is no longer surprising. These increases in the number of tort liability actions and in the size of judgments have imposed tremendous costs on the economy. According to one recent study, in 1985 the
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