Sentence First, Verdict Afterwards

“When all is said and done, the modem rules [respecting tort liability] do not deter risk: they deter behavior that [...]

March 1 1989 by Lawrence G. Blackmon

“When all is said and done, the modem rules [respecting tort liability] do not deter risk: they deter behavior that gets people sued, which is not at all the same thing. The good thing about suing the wealthy is that they can afford to pay. The bad thing about suing the wealthy is that people and corporations often become wealthy, not because they do things that are wicked and dangerous, but because they do things that are valuable and necessary.”

Peter Huber has a way with words. This is his story of the revolution in tort liability law. It has occurred over the last 20 years and has benefited almost no one but the lawyers who run it. Huber, himself a lawyer, feels passionately that urgently needed reforms must take place. Huber says, “Perhaps a simple account of a great revolution that has done much harm can help in setting things right.”

Anyone who has not heard a horror story of some idiotic jury verdict must surely be living in a cave. I will quote one example just to identify the genre for purposes of understanding. “In 1981 the Hawaii Supreme Court upheld a $1,000 award to Mr. and Mrs. Rex Campbell and three of their four children for emotional distress they suffered when their dog Princess, a nine-year-old female boxer, died in the municipal Animal Quarantine Station.”

Huber wants us to know how such verdicts have come about. First, a few legal ABC’s. The subject is civil, not criminal, law. We are dealing with tort law and with contract law. Tort law is the law of accidents and personal injury (were a personal injury not accidental, it would be subject to criminal law) and in essence is what is applied when there is no contract. Contract law is the law of agreements, promises to do or forbear. The origin of each is common law, though their application may be modified by legislative act. In earlier times, these civil differences between persons were resolved in court by examination of the conracts which existed between the parties or, in the absence of contracts, by looking for the wrong, the tort, the fault. In either case, the law was addressing itself to the persons involved, not to a product or a third party.

Now let us see where things have come unglued. A visionary group of (no doubt) well-meaning legal theorists, notably Guido Calabresi (now Dean of the Yale Law School) and Richard Posner, of the University of Chicago Law School (now a federal judge on the Seventh Circuit Court of Appeals), were joined over time by other judges, lawyers and economists in the conclusion that the overriding question that the old law asked, “How did the parties agree to allocate the costs of the accident?,” was irrelevant or worse. The real question to ask was, “How can society best allocate the cost of accidents to minimize those costs (and the cost of guarding against them), and to provide potential victims with the accident insurance that not all of them buy?” The answer was to make producers of goods and services pay the costs of accidents.

It took about 20 years to effect a transformation of the common law which had been in place for centuries. Contract law was repudiated and emasculated. Where parties formerly recognized-in advance -a probability of accident or failure and provided indemnity by prior contract, the courts have found ways to ignore or void.

The intention of the tort theorists-Huber glibly calls them the Founders-was compassion for the victim. The consequences have been quite different from the expectations. Remember, these changes are not the product of legislative action, but of judicial decisions, thousands of them, each reinforcing that which came before or staking out new territory. Much has been heard about so-called “activist” judges, particularly since the Bork massacre. This tort revolution is one of the end results of judicial activism. The manufacturer who finds that he either cannot get liability insurance for his new widget, or cannot absorb the insurance cost in his selling price, will, of necessity, stop making and selling his widget. Good-bye, football helmets! Good-bye, vaccines! Goodbye, new, relatively risky, untried products (which would otherwise contribute to improved health and safety!) Compare Red Grange’s vintage helmet with a 1988 model! Do new vaccines save lives? The Founders did not anticipate that makers of products would choose not to make them as a means of self-preservation. They knew that the “best” producer could not make and sell a “perfect” product, but theorized that such a champion would set a new, high standard which others would attempt to emulate. Naively, they did not anticipate that a best producer of even one less-thanperfect product was bait fish for an eager-beaver, contingency fee lawyer, a sympathetic jury and an acquiescing judge.

Peter Huber says: “No wonder the strong temptation today is to leave well enough alone in the hope that somehow the courts will, too. The pattern is consistent: a shift in the jury’s focus from negligence to design defects; a legal obsession with perfectly phrased and endlessly detailed warnings; a rigid demand for universal, special-purpose accident insurance; the use of remedial efforts in the aftermath of an accident to indict whatever came before; and no effective time limit on litigation, so that even the normal pace of technological evolution becomes legally dangerous to the technologists. No one could have brought together five elements better calculated to entrench the status quo and scare off innovators of every description.”

What the hell is a poor sucker of a CEO to do? Quite a bit, as a matter of fact and under two headings: “Self-protection” under existing conditions and “relief” through change in the law or the way it is currently administered. As a matter of self-protection, some of Huber’s advice to CEOs includes, paying more, if necessary, for needed coverage and recovering it in the selling price, if possible, and, if sued, going to court and fighting.

Read Huber’s well-written book, either to dispel ignorance on the subject of tort liability or, in the absence of ignorance, to get you p—-d off enough to join the fight.

Lawrence G. Blackmon is former president and CEO of Microdot, Inc.