Tort Reform 2

I'm a big fan of juries when it comes to criminal trials -- when fully informed, juries serve as a check on government power and ensure that verdicts are in line with not only the law, but also with the common conception of justice. Similarly, I think juries are decently equipped to apportion blame in civil trials. What juries are evidently terrible at is awarding damages. Without outside constraints, two different juries often award wildly disparate damages to winning parties in nearly identical cases, and the values of awards are often entirely arbitrary and reflect very little about the harm actually suffered. Why? Because calculating harm and assigning it a monetary value is very difficult to do and generally requires expertise and math skills that few people possess.

Non-uniform awards that don't accurately reflect harm are bad because they make it impossible for anyone to calculate the risks they face by doing business. A hot cup of coffee cost McDonald's $3 million, despite medical bills in the mere thousands, but how was the company expected to know that? When juries hand out random awards, people can't determine which risks are too risky, and which safeguards are most important to implement.

For some good news from the Gulf Coast, read about the recent tort reform in Mississippi. (Tort: "in law, the violation of some duty clearly set by law, not by a specific agreement between two parties, as in breach of contract.") Mississippi was previously ranked worst in the nation for insurance costs and cost of doing business because of the state's reputation as "jackpot justice capital of America".

Prior to the legislation, Mississippi was known as the "jackpot justice capital of America." The American Tort Reform Association had labeled certain jurisdictions "judicial hellholes." A survey of more than 1,200 senior in-house counsels for the U.S. Chamber Commerce ranked Mississippi 50th in virtually every category of judicial system nationwide. Insurance companies were fleeing the state. Others were refusing to write new policies. The medical field was particularly strained: Liability insurance was in many cases unaffordable, and in some cases unavailable. ...

Insurance was becoming less available and less affordable prior to the passage of the tort reform legislation. Now, the opposite is true. Some plaintiff lawyers and some consumer groups still contend that tort reform doesn't work--but it does not take a rocket scientist to understand that when liability exposure is made predictable and governed by reasonable rules, risk can be better assessed, and insurance companies are more likely to offer coverage.

Lawyers aren't bad people, but they respond to incentives just like everyone else. Winning lawyers get around one-third of any award, so they've got a huge incentive to keep bringing lawsuits until they hit the jackpot. Even worse, mass tort suits that combine hundreds or even thousands of small cases can make lawyers millions of dollars even when the plaintiffs themselves only get a few hundred dollars each. So lawyers have an incentive to find people with tiny grievances, lump them together, and then pull the lever. The end result is that the losing parties get mauled, the lawyers get rich, and the people who actually suffered harm get a tiny check. That doesn't sound like justice to me.

This problem is yet another area in which libertarian theory clashes with reality. Libertarians tend to argue that we don't need many government regulations because people can just sue, but anyone who examines our civil legal system should see that laws that precede and reduce harm are often more efficient than lawsuits aimed at correcting harm after the fact.