A Status Report on Tort Reform
 
April 14, 2003
 

In the mid-1980s the term “tort reform” entered the legal lexicon as interest groups on both sides of the “vs.” line organized to use the political process to change or preserve the manner in which juries awarded damages and the amounts awarded. Then, as now, the mainstream press was awash in stories reporting that juries had returned verdicts that appeared out of proportion to similar awards, or large awards for “wrongs” that appeared trivial, ridiculous or both.

Insurance carriers took out full-page ads in multiple cities castigating ever-increasing awards of intangible damages (e.g., pain and suffering) and ever more frequent awards of punitive damages in tort actions for mass-produced products. Hardly a year passed without at least one state’s legislature or governor declaring a crisis in medical liability, workers’ compensation or product liability.

Various state legislatures and the federal government responded to the call with numerous initiatives to address the issues deemed most odious: the collateral source rule, joint and several liability, intangible damages and punitive damages. Several states passed statutes that sought to restrain jury awards, adopted schemes to allocate damages proportionate to the degree of fault and to limit punitive damages to their traditional (and limited) roots. Congressional attempts to federalize product liability law were repeatedly launched but none ever became law.

The Effect of the Popular Press

In 1994, the tort reform movement got a huge boost from the now (in)famous “McDonald’s Coffee Case.” A New Mexico jury awarded a 79–year-old woman $200,000.00 in compensatory damages (to be reduced by her 20% fault) and $2.7 million dollars in punitive damages (reduced by the judge to $480,000.00) when a hot cup of McDonald’s coffee spilled into her lap as she removed the lid to add cream and sugar, inflicting third-degree burns on six percent of her body.

The outcry from the general public and interest groups was deafening. To this day, attorneys selecting juries mention the case, if for no other reason than to intimate that the case the jurors may be selected for is/is not “like the McDonald’s Coffee case” or to make the point that juries can and do make good decisions and that jury service is an honorable calling.

State Activity

Nationally, the American Tort Reform Association claims that a total of 33 states have modified the law of joint and several liability, 30 states have modified the law of punitive damages, 17 states have addressed limits on noneconomic damages and 21 states have modified the collateral source rule. Holland & Knight LLP has offices in 12 states and the District of Columbia.¹ Each of those states has adopted tort reform of some type since 1986, and several states have enacted repeated reforms in certain areas, as summarized on the next page.

Of the states where Holland & Knight has offices, 11 have enacted joint and several liability limitations. Nine have addressed punitive damages. Of the seven states that attempted to limit noneconomic damages, courts have ruled the statute unconstitutional in four. Six states have acted against the collateral source rule, but Georgia courts found it unconstitutional. Only one of the 12 states in which Holland & Knight has offices are expected to seriously address tort reform in this year’s legislative agenda. Florida is trying again at medical malpractice reform, establishing a cap of $250,000 on noneconomic damages, abolishing joint and several liability for all damages and proposing the same contingent fee schedule as HR5, the federal bill.

Federal Activity

Efforts to further limit jury awards continues apace. The full House of Representatives passed HR 5² on March 13, 2003, a bill that will federalize medical malpractice liability, including nursing homes and medical devices. The lobbying has been and will remain fierce until the vote in both houses. While temporarily lost in the furor over the election itself, the terrorist attacks in September 2001, and a complex war in Iraq, one of President Bush’s major campaign issues was tort reform.

One of the key features of the bill is a cap of $250,000.00 in noneconomic damages. Additionally, the act limits punitive damages to $250,000.00 (or twice the economic damages, whichever is larger), requires “clear and convincing” evidence of conduct justifying punitive damages, and provides setoff for collateral sources.

In the interest of insuring that the awards go to the claimants, court supervision of payouts, whether by verdict or settlement, is imposed and contingent fees strictly limited by a schedule. A medical device approved by the FDA as safe and effective prevents the imposition of punitive damages except under certain restricted circumstances. A health care provider who prescribes a medical device found safe and effective by the FDA is immune from medical liability for that prescription. Joint and several liability is eliminated for all damages such that a liable person pays only their percentage of the fault assessed against them.

Real Purposes of Tort Reform

The stated purposes of tort reform include predictability, allocation of liability to all potential tortfeasors and the reduction of jury awards. In the federal system, each state is a “laboratory of democracy” in which the particular reforms are subject to the vagaries of individual state legislatures and the lobbying forces brought to bear by the interest groups that descend on the legislative chambers at the start of a session. Compromise and anomalous results are not surprising.³ After “Big Tobacco” settled its liability issues with various states, a proliferation of tort reform statutes passed in 12 states to limit the amount of a supersedeas bond a defendant had to post to pursue an appeal.

Whether those reforms were enacted to protect a state’s annual stream of payments by tobacco companies or to ease the burden on all defendants remains to be established. Likewise, some states have reformed punitive damages rules to require the payment of a percentage of any punitive damages award to the state’s general revenue fund.

It is impossible to reconcile legislation that seeks to reduce punitive damages with making the government that passed the bill in the first place a beneficiary of a punitive damage award. If the hope of such a sharing arrangement is to deter claims for punitive damages by citizens, it could have the opposite effect by encouraging larger awards, since a party who recovers punitive damages must surrender a portion to the state. ⁴ It is certainly possible for a jury to look at a punitive award against a private company as a “painless” way to increase government revenue in lieu of a tax increase.

Has Tort Reform Reduced Jury Verdicts?

Despite the high degree of activity in multiple states, tort reform has not had a significant impact on the size of jury verdicts from 1994 to 2000 as shown in the chart below.

As demonstrated by the recent Tillinghast-Towers Perrin 2002 Update of U. S. Tort Costs, the costs of the civil justice system are taking an increasing portion of GDP (Gross Domestic Product) at a rate that exceeds prior years’ and in excess of the rate of inflation as measured by the CPI (Consumer Price Index.)

While there are many factors that may account for the projected increases, including juror anger at recent disclosures of alleged corporate malfeasance (or worse) and a stock market “bubble” that decimated personal investments of many people, the reforms should be “influence neutral” in that they should have a uniform effect regardless of the “climate” at the time a particular verdict is returned.⁵

In analyzing jury verdicts and the impact of tort reforms upon them, there are a number of reasons why tort reform does not appear to have had the desired effect. Specifically, the reforms addressed in most states have a limited ability to affect verdicts. More states have addressed the issue of joint and several liability than any other. That particular reform impacts WHO pays, not how much.

Punitive damages have had a degree of interest and attention paid to them that far outweighs their impact on many litigated cases. The Rand Institute for Civil Justice has repeatedly pointed out that punitive damage awards are not that common, and are frequently reduced or eliminated in post trial proceedings. Because no state has attempted to limit economic damages, the use of economists and other professionals to show substantial amounts of economic losses is now fairly ubiquitous.

It is clear that the primary area of damages that allows juries to return large verdicts in many cases is that of noneconomic damages. In most states there are no standards,⁶ and only a few states have addressed the issue, with limited amounts of success. Many of the 17 states that have taken action have limited it to medical negligence cases, exempted certain types of noneconomic damages from the law, or are small states not considered to be litigious in the first place. As indicated above, only seven states in which Holland & Knight has offices have attempted to limit noneconomic damages in civil cases. Courts in four of those states have declared such limits an unconstitutional infringement on access to the court system. As a result, states with more than 45% of the U.S. population, either have not enacted limits on noneconomic damages, or the courts have found them unconstitutional. The states considered most litigious: New York, California, Texas and Florida, representing 33% of the U.S. population, do not currently limit noneconomic damages except for California in medical negligence cases. It should be no surprise that in the states with the biggest populations, biggest urban centers and largest number of attorneys, efforts to curb jury awards of noneconomic damages have fared poorly.

Predictions

Few predictions can be made on the ultimate course of state-level tort reform. Recent steps by the federal government have sought not only to federalize medical negligence, but have elevated the debate to a national agenda. What is certain is that the competing tension between the courts, which are slow to develop and modify rules, and legislatures, which are increasingly responsive to interest groups that seek to implement change faster and more to their liking, will continue.

For more information, call Thomas M. Burke, toll free, at 1-888-688-8500.

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[1]California, Florida, Georgia, Illinois, Massachusetts, Maryland, New York, Oregon, Rhode Island, Texas, Virginia, Washington, D.C., and Washington state.

[2] As is the current fashion, HR 5 has the “user-friendly” title: “Help Efficient, Accessible, Low-Cost, Timely Healthcare (HEALTH) Act of 2003.”

[3] In 1986, when Florida’s first tort reform bill was passed at 4 A.M. on the last day of the session, a rider to another bill repealed the long-standing, 12-year statute of repose.

[4] When Florida followed the contributory negligence rule, juries routinely found for plaintiffs but awarded smaller verdicts for the injuries sustained, effectively adopting comparative negligence before the Supreme Court made it the standard.

[5] Punitive damage schemes that have absolute limits on awards achieve that goal, while schemes that limit punitive damage awards to a percentage of the compensatory damages are highly variable and thus subject to juror biases and prejudices outside the evidence presented.

[6] Many states including Florida, instruct juries that in making an award of damages for bodily injury, and any resulting pain and suffering, disability or physical impairment, disfigurement, mental anguish, inconvenience, loss of capacity for the enjoyment of life, past and future that: “…There is no exact standard for measuring such damage. The amount should be fair and just in the light of the evidence.” Fla. Standard Jury Instruction 6.2(a) (2002.) With this instruction, not only is there no exact standard, there is no inexact standard, either.