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Tort Reform: Suggestions From Front-Line Combatants


I just read "How to fix the tort system" (Special Report, Mar. 14) and wanted to commend you for a job well done. Other than perhaps being too skeptical about the cost that hyper-litigiousness exacts from our economy, I think your evenhanded piece provides a considerable service. I hope your four reform recommendations spark serious debate among policymakers. Follow-up coverage that may further compare our regulatory system to those of Japan, Germany, or other sclerotic, stagnating nations of Old Europe might be enhanced with brief mentions of their abysmal economic growth and unemployment rates. Socialist regulatory states are dying on the vine, and we ought not be looking to emulate them.

Darren McKinney

National Association of Manufacturers

Washington

Your Special Report should be required reading in law schools, law firms, and courtrooms, and, with crossed fingers, in the halls of Congress. I must warn you that this subject, usually presented in the first semester of law school, caught my attention when the-then Tort God, Professor William Prosser, began his tome with the catchy phrase, "No one can really define a tort." He then spent 1,600 pages doing so.

Thomas R. Napton, Esq.

Merritt Island, Fla.

We were surprised and disheartened to see our tort-cost estimates characterized as "misleading" ("In this debate, it's war by anecdote," Special Report, Mar. 14). Tillinghast Towers Perrin's tort-cost study is a respected, independent, and objective source of information. Our goal is to provide accurate data that informs the policy debate, not to take a position on the pros or cons of tort reform. We have not changed our methodology in the 20 years we have published the study, nor do we accept any outside funding for the study.

We do not believe that it's possible to get a complete picture of the cost of the tort system by looking solely at data from the courts. Our study accumulates all of the costs of damages awarded to injured parties as a result of the negligence of others, including the costs that are embedded in the liability-insurance system and the claims that are settled out of court.

We agree that an accurate segregation of costs between legitimate claims vs. "junk lawsuits," class-action abuses, or runaway jury awards, would be critically important to the policy debate. However, we have found no way to accomplish this segregation with available data.

Stephen Lowe

Managing Director

Towers Perrin

Weatogue, Conn.

One of your proposals is problematic: Punishing lawyers who file frivolous lawsuits cannot work absent an objective definition of "frivolous." Wait until some judge dismisses your lawsuit because the judge favors the opposing attorney as a local regular. A judge in Arlington, Va., was caught not even opening 12 to 15 pleadings from their envelopes. To a defendant intent on cheating you out of your money, your lawsuit is "frivolous."

Such a proposal must also punish frivolous defenses. Refusing to pay you, your ex-employer has its attorney file bogus and deceitful defenses rather than pay what is owed you. A frivolous defense drives up litigation costs just as surely.

Jonathon Moseley

Executive Director

Legal Affairs Council

Ashburn, Va.

Your article "How to fix the tort system" is excellent. I agree with much, but not everything, you propose. In particular, I do not think you're justified in taking some cases out of the court system. Absent a far more compelling case, we must keep the courthouse doors open -- and preserve access to justice -- for all. We don't pledge allegiance to liberty and justice "for some."

I was also struck by three ways in which you strayed from your otherwise scrupulously evenhanded approach. First, you correctly noted that the debate over our court system is a "war by anecdote" where almost every figure used is "misleading" because "there aren't any good numbers to go on," but sometimes you made this mistake yourselves. Second, you often focused on one side of the adversary system and not the other.

Finally, you failed to take into account the different incentives in place for plaintiffs' lawyers paid on a contingency basis (i.e., only if they win) and corporate defense lawyers paid by the hour. Both logic and basic economic theory suggest that the former will be far less likely to waste their and the courts' time on frivolous matters than the latter.

Arthur Bryant

Executive Director

Trial Lawyers for Public Justice

Washington

As president (now retired) of a small business with sales of less than $1 million, we were sued three times, and each time we settled out of court. Even though our lawyer said we could win if we went to trial, in each case it would have cost us a minimum of $20,000. From my experiences and those of others in similar situations, a very large number of cases are settled out of court -- at close to the cost of going to trial. That is a large drain on a small business.

Richard Kahle

Arlington, Tex.

As a professor of business law, I routinely discuss the tort system in America by using articles from various publications, yours included. In most articles I fail to see any real discussion of the rights of legitimate victims. The vast majority of tort cases are valid. Juries are generally too smart to award millions to undeserving plaintiffs, and attorneys cannot make a living handling trivial or losing lawsuits. Check out the percentage of winning plaintiffs in medical-malpractice cases in Georgia. You will find that it is only about 5%. Legislatures should be wary of severely limiting the rights of deserving victims in an attempt to root out a few bad apples.

S. Alan Schlact

Kennesaw State University

Kennesaw, Ga.

Thank you for a rare rational discussion of tort reform. Aside from the multibillion-dollar addition to the cost of health care, the insurance problem is a lack of predictability, particularly at the high end, which is needed to accurately set premiums. Actuaries can fairly accurately forecast claims frequency. They are also pretty good with actual damages.

They cannot, however, accurately predict noneconomic damages, which are not awarded consistently. The higher the award, the less predictable it becomes. The actuarial trend line for cases up to $500,000 is pretty straight. At $1 million it is more jagged and steeper. At $2 million it is spiky and steeper yet. To be able to pay claims, an insurer must set premiums high enough and carry enough capital to cover these peaks. Caps modulate these spikes and improve predictability, allowing for lower premiums. Your suggestion of a fixed schedule for various types of injuries, as in Europe, would also improve predictability and is worth investigating.

G. Richard Geier, M.D.

Chairman

Midwest Medical Insurance Co.

Rochester, Minn.

One major flaw in our legal system's approach to medical malpractice is its inability to distinguish bad outcomes that occur because of substandard medical care from ones that occur despite good care. A landmark Harvard study found that only 20% of patients who won malpractice suits had suffered injuries as a result of negligence. While you are dismissive of special health courts with "dedicated judges, a panel of neutral experts, and medically trained staff," changes of this sort are necessary for the sake of justice.

Dory Altmann

East Brunswick, N.J.

As an OB/GYN in Pittsburgh for the past 20 years I have witnessed firsthand the change in my specialty wrought by the medical-malpractice crisis. Once physicians would discuss difficult or rewarding cases. Now all we ever talk about is liability reform and who has left the state for a better working environment. With only 4% of the physicians in private practice in Pennsylvania under age 35, I worry for the people of our commonwealth once the baby boomer physicians start to retire.

Mike France's piece on the tort system is the best piece of reporting I have seen. Traditionally, physicians were never as politically active as attorneys, giving much less to political action committees. But we are starting to learn how to play the game. Many states, such as Indiana and California, have already adopted reform with good results. I welcome a national debate on the subject, devoid of hyperbole. Sadly, that is unlikely to happen.

John Fisch M.D.

Monroeville, Pa.

As an Australian tort lawyer with more than 30 years' experience who is just returning from a U.S. legal conference, your "How to fix the tort system" caused me to purchase a copy, read the article, and now express some views. The tort reform issue has been topical in Australia over the past couple of years, primarily resulting from the recent insolvency of one of the nation's largest general insurers.

The Australian system eliminates private-enterprise insurers in the motor vehicle and workers' compensation/industrial accident liability arena, other than as claims managers, with the concurrent expansion of no-fault benefits in such schemes and a reduction of the availability of common law damages. There has also been a genuine commitment to rehabilitation of the injured person and to risk management through media advertising and enforcement through occupational health-and-safety authorities. "No win, no fee" agreements between plaintiffs' lawyers and plaintiffs have the general effect of permitting a regulated "success fee" beyond the normal recoverable costs upon successful litigation based on a percentage of fees, not a percentage of damages. And the costs-indemnity rule, in the usual course of any litigation in this country, orders the unsuccessful party, whether plaintiff or defendant, to pay the costs of the successful party.

Plaintiffs' lawyers are more realistic in choosing which claims to pursue. Plaintiffs' lawyers have an ethical and legal obligation to advise their clients as to the risks of failure and the potential for an adverse-costs order. This tends to eliminate the vast majority of frivolous claims.

Our system basically works well, with the vast majority of cases resolved between the parties with costs being far less than would be the case if litigated. Curiously, defendants/insurers, particularly in medical-malpractice cases in this state, choose and prefer trial by jury by reason of the reasonableness of verdicts. Finally, the issue of punitive damages is not a major one in this country.

Philip Rowell

Brighton, Australia

I have resided in Germany for more than seven years. Because of a minor traffic collision two years ago, for which I am a defendant in an injury lawsuit, I have some direct experience with the German legal system. My firsthand experience so far is that it resembles very closely the American system. My (private, not state) insurance company and I are being sued for medical expenses, lost wages, and a substantial sum for pain and suffering claimed by the plaintiff. The fact that the local court processed and registered his lawsuit about 15 months after the plaintiff and his attorney filed it suggests that the caseload in the local court system in this part of Germany is not exactly light. The trial date is supposed to be at the end of 2005, if it goes to trial.

Probably the most significant difference between the American and German legal systems that I can see is how the plaintiffs' attorney will be paid. Many German residents, including myself (and most likely the gentleman suing me) purchase and retain law insurance policies, which are separate and different from liability insurance. Such insurance policies pay all attorney fees and legal expenses, subject to a deductible and maximum cap, for any situation where you are sued or if you need to sue someone else. Both plaintiffs and defendants must pay their respective attorneys either from this insurance or out of their own pockets, regardless of who wins or loses the case. Multimillion-dollar or euro awards in personal-injury cases are rare here.

As for the lawyer population in Germany, one look in a phonebook or walk down any major commercial street in any city or town will show there is no shortage of lawyers. I see no difference between Germany and the U.S. in that aspect.

David Beale

Langenhagen, Germany

Everyone is ignorant, just about different things. One of the things I am ignorant of is the French language. In "How to fix the tort system," the table "A tale of two systems" uses the French phrase "Qu'est-ce que c'est?" in the Europe entry on contingent fees. I had to Google it to discover its meaning. Perhaps the author may be encouraged to pick up Fowler's Modern English Usage to see what it has to say about the use of French words in English writing.

Keith McKinley

Lakeland, Fla.

"A MAJOR STEP BACKWARDS"

Most of the public debate over problems with the U.S. tort system is fueled by myth. Contrary to the notion that juries are being duped by scheming plaintiffs into awarding unjustified, outrageous sums of money, the most recent data available from the U.S. Department of Justice (2001) show that the median jury verdict in all tort suits filed in state courts was only $37,000 -- down from $62,000 in 1991. Also, despite the complaints from corporate and medical industry lobbyists about runaway jury awards, the median punitive damage award in 2001 was only $50,000. In addition, claims that obstetricians and other physicians are abandoning their practices are not substantiated by state medical licensing records.

While it may be politically expedient to criticize lawyers' contingency fees, this system affords less-than-wealthy victims of negligence equal access to our justice system. Contingent fees help assure the availability of counsel and a fair hearing of civil claims for all our residents regardless of wealth or social status. However, if someone files a frivolous lawsuit, a judge can, and will, dismiss it, and there are sanctions available to punish parties and attorneys who bring such cases.

The right to seek redress of wrongs in court is precious and should not be restricted or abridged, based on myths. The American people need to recognize tort reform for what it is -- not reform, but a major step backwards for a society that since its inception has cherished justice, compassion, and equality under the law.

Kenneth G. Standard

Chappaqua, N.Y.

Editor's note: The writer is president of the New York State Bar Assn.

PLAINTIFFS WILL THINK TWICE

The article did not identify the key differentiator between the U.S. legal system and that in most of the rest of the world -- the American rule of attorneys' fees. In the U.S., a plaintiff who sues a defendant and loses bears no responsibility to reimburse the defendant for his attorneys' fees. As a result, a plaintiff gets a "free shot" at the defendant, and the defendant is forced to choose between spending money to defend himself or simply settling with the plaintiff for some amount he estimates would be less than his cost of defense. In most other nations, a losing plaintiff bears some responsibility to reimburse a winning defendant.

In my home state of Georgia, the legislature recently passed into law a provision that would allow a defendant to shift his attorneys' fees onto the plaintiff if the plaintiff refused a settlement offer and ultimately recovered less than the amount of the offer. Georgia is now only the fifth state in the U.S. to have such a fee-shifting offer-of-judgment rule. Congress could adopt a similar policy.

Jonathan B. Wilson

Vice-President & General Counsel

Interland Inc.

Atlanta

Editor's note: The writer has a forthcoming book, Out of Balance: Prescriptions for Reforming the American Litigation System.

HOW TO DEFINE FRIVILOUS

From my perspective as an attorney, your four-point proposal has good merit, with one strong exception. The legal system already has, and frequently used, numerous mechanisms for disposing of meritless lawsuits. Most of my winning lawsuits have, at some point, been deemed frivolous by opposing counsel. This is nothing more than professional "trash talk."

Penalties are built into the system. When I lose a contingency case on a summary judgment motion, it means I have invested hundreds of hours of work for which I will never get paid. Losing does not automatically mean the action was frivolous. However, we would surely agree that losing is a minimum requirement before a case can be labeled frivolous. Using that guideline, I challenge you to name three frivolous lawsuits.

David L. Hagan

Pismo Beach, Calif.

LIES ON BOTH THE LEFT AND RIGHT

Once again, BusinessWeek provides pragmatic solutions to our nation's problems, this time with tort reform. I am tired of the rhetoric on both sides, and you dodged the spin to deliver us the facts. My one wish is that more journalists were as willing to point out the lies on both the left and the right as you are. Perhaps after seeing enough of "Bush misled the American people again today" and "Democrats still full of it," our leaders will get the message.

Clay Amerault

Brooklyn, N.Y.

A DANGEROUS MISUNDERSTANDING

Mike France's endorsement of congressionally determined payout limits is troublesome. This approach would place a cap on the damages assessed against negligent companies squarely in the hands of the branch of government most vulnerable to corporate lobbying efforts -- rather than in the hands of the judicial branch, which not only enjoys greater protection from undue influence but also hears the specific facts and circumstances associated with each individual case.

France's suggested legislative reforms reflect a dangerous misunderstanding of the role of the legislature in our system of checks and balances. Perhaps the judicial branch needs to take some self-correcting measures, but Congress needs to stay out of the courtroom.

Jeffrey T. Gaffney

Arlington Va.

PENNIES ADD UP TO BIG BUCKS

you repeat the canard that class-action lawyers get multimillion-dollar paychecks while clients get pennies, unfairly dismissing lawyers who recover tens and hundreds of millions of dollars for consumers in aggregate. Surely we can recognize that wrongful conduct can and does occur on both sides of the decimal point. Working to force the return of wrongfully obtained funds is the right thing to do.

Harley Schnall

New York

Editor's note: The writer is an attorney who specializes in consumer class actions.

A FATAL FLAW IN THE BUSH PLAN

Your tort-reform report ignores the fatal flaw in the Bush Administration's proposal to cap noneconomic damages. Instead of attacking frivolous lawsuits, the Administration attacks meritorious lawsuits. Moreover, under the Bush plan a disabled chief executive officer could win 1,000 times the damages of a poor paraplegic victim of medical malpractice.

In medical malpractice cases, the 80% plaintiff loss rate in court-tried cases is evidence of grossly excessive litigation. Because of the many plaintiff-favoring aspects of U.S. civil justice, plaintiffs should win at least half their cases. The so-called American Rule, which gives plaintiffs a free shot at defendants with no risk of paying their legal bills, is merely one of the many plaintiff-favoring aspects of American civil law. Civil cases, moreover, are much easier to win than criminal cases: They require only a preponderance of evidence vs. virtual certainty for criminal convictions.

U.S. malpractice litigation is proportionally four times England's rate. The English Rule forces losers to pay winning defendants' legal fees. This deters English plaintiffs from filing frivolous suits designed to force defendants into harassment-avoiding settlements.

C.W. Griffin

Phoenix

THERE IS NO LITIGATION CRISIS

As a plaintiff class action lawyer, I was hoping for something more thoughtful. Instead it was the same old tired, anti-lawyer myths, and biased, unsupported claims that are so often bandied about by lobbyists for those powerful interests who want to take advantage of the consumer with impunity. Many sources report that total civil filings of lawsuits is down nationwide by an eye-popping 50% in the past decade or so. Most of this decrease was in tort filings. As a result of the popularity of arbitration, and ever-more-stingy jury verdicts, case backlogs in most state courts have declined, along with jury verdicts, throughout the past decade.

Despite the cries of the insurance industry lobbyists and other powerful interests often sued for their malfeasance, there is clearly no litigation "crisis." This contention is corroborated by the report in your story from the Bureau of Economic Analysis that legal services accounted for less than 1.5% of the gross domestic product in 2003, a lower share than in 1990. The number of tort actions filed has not materially increased for well over a decade, even though the amount of business activity has probably trebled in this time frame.

Class actions work. Before we strip ourselves of our most effective remedy against mass fraud, we had better decide if we want a system where crooks can steal relatively small amounts of money from millions of citizens with impunity.

Robert W. Mills

San Rafael, Calif.

A LITMUS TEST FOR SOCIETY

It was Jerry Seinfeld (in his pre-icon days) who first pointed out, in reference to soap commercials, that if blood stains on your clothing were an ongoing issue for you, than selecting the optimal laundry detergent to remove them was probably the least of your concerns. Same with tort reform! As a lawyer (and former legal instructor with the University of Toronto), I remind you that tort law doesn't exist merely to compensate.

It is also a litmus test, a barometer on where society "is" in relation to respecting the rights of others. If our tort system is out of control then, most likely, so are we.

Robert Appel

Thornhill, Ont.

RETHINKING CONTINGENCY FEES

You missed a big "fix": The current contingency fee system encourages the filing of lawsuits, discourages timely discovery and negotiations, and drives down the ultimate award to injured parties. The only winners in this system are plaintiffs' and defense lawyers. Our brand of contingency fee system is a key reason our tort costs as a percentage of gross domestic product are more than double those of Western Europe, Japan, and Canada. It's equivalent to a $845 tort tax for each individual in the U.S. (2004 Tower Perrins Tillinghast Study).

We need to rethink and change our contingency fee system. Plaintiffs' attorneys need to produce discovery documents and consider reasonable settlement offers in a timely manner. Defendants need an incentive to make timely and reasonable offers. A good start would be to require the losing party to pay for attorney fees and costs incurred for the period following the defendant's settlement offer.

Mark C. Russell

Dublin, Ohio

THE TROUBLE WITH ASBESTOS

Two huge problems make limiting asbestos liability problematic. First, the latency period between breathing asbestos fibers and the observable onset of asbestosis is typically 15 years or more. Second, the threats to our health by asbestos are not in the past. Not only do millions of buildings contain asbestos insulation, the U.S. is one of the few wealthy nations that allows asbestos products (in vehicle brakes, for example) to be imported.

Inarguably, many asbestos suits are brought by nonvictims, and some defendant companies are not culpable of any crime. But to create a finite victim compensation fund, when we have no idea how many victims exist today or will in 20 years, is no solution. Such action could help some innocent companies, but it also would reward the corporations guilty of endangering workers and the public at the expense of countless victims.

Jeff Milchen

Director

ReclaimDemocracy.org

Bozeman, Mont.

THE ROLE OF PUNITIVE DAMAGES

It was disappointing that your article skirted right by the issue of punitive damages. For reasons that are not clear to me, and in contrast with European law, U.S. laws provide that punitive damages may be awarded in a lawsuit "as a punishment and example to others for malicious, evil. or particularly fraudulent acts." If, in fact, the defendant has committed malicious, evil, or fraudulent acts, do we not have laws against them, and should not such acts be pursued by the state as it pursues any other fraudulent act? And should not any assessed fines flow to the state, not to the defendant?

H. Michael Hayes

Westminster, Colo.

If a plaintiff is already receiving compensation for actual damages, as well as for pain and suffering, why should that plaintiff also receive what the defendant is ordered to pay in punitive damages? Punitive damages are meted out on society's behalf and the proceeds rightfully belong to the community at large.

Murray A. Bloom

Fairfax, Va.

Might I suggest that punitive damages be subject to a maximum legal fee of the lesser of 5% or $250,000 and the balance paid to some quasi-public entity to be used for the general welfare of everyone? In an era of giant companies, effective punitive damages must be very substantial to be effective as punishment. The idea of a plaintiff and his lawyer pocketing all the punitive damages that are intended to economically regulate industry is offensive and may actually act as a limiting factor on damages for egregious behavior by a huge company that warrants substantial punishment.

John G. Slater

Naples, Fla.

EYEING THE INSURANCE INDUSTRY

I am neither a lawyer, business executive, or a physician, but rather a lowly claims professional who has been fighting in the "tort trenches" for 18 years. I applaud your writers for suggesting some common sense solutions to fix the very unpredictable and somewhat arbitrary way America goes about compensating tort "victims." The problem is, how do you efficiently distribute reasonable compensation to parties truly injured by another's negligence. No-fault programs (i.e. workers' compensation) do not work, as they are fraught with their own inefficiencies, governmental ineptitude, and outright fraud.

Unfettered "civil" justice simply does not work because of corrupt judges and lawyers and sometimes unsophisticated juries who award mindless verdicts. The only way to inject some fairness and certainty (which is required for insurance markets to work) is to mandate limitations on attorneys' fees and injury awards. Further, states need to continue to strengthen their regulatory oversight of insurance companies to prevent the bankruptcies and other chaos that has recently transpired within this industry.

Chris Gentile

Franklin, Tenn.

THE SYSTEM FAVORS BILLING HOURS

I worked as a paralegal for five years in a law firm that defended a former asbestos manufacturer. I attended law school and worked as an attorney for a state government agency for 10 years. I'm now in private practice working for plaintiffs and defendants. My question is, what's the pay-for-performance plan for the defense bar?

Plaintiffs' attorneys are getting all the press, but the high cost of the tort system is a double-headed monster. The city of Philadelphia has a $1.16 million dollar bill from a private law firm for representation in 484 workers' compensation cases in which claimants are getting about $70,000. To make sure that a worker hurt on the job got $1,000, $16,580 was spent.

Defense attorneys are ethically bound to work only in their client's favor (just as plaintiffs' attorneys are ethically bound not to abuse to judicial system), but the economics favor billing hours, not necessarily getting results.

Rodney N. Warner

Yardley, Pa.

I enjoyed with particular interest "Rewiring the body" (Cover Story, Mar. 7). I was a study patient in Cyberonics' investigational clinical trial of vagus nerve stimulation and depression. I testified at the Food & Drug Administration's Medical Devices Panel meeting. Vagus nerve stimulation completely changed my life -- from severely and chronically depressed to a completely normal life.

I am ever so grateful.

Charles E. Donovan III

St. Louis

Editor's note: The writer is the author of Out of the Black Hole: The Patient's Guide to Vagus Nerve Stimulation & Depression.

We're happy that Robert Barker enjoyed the '70s sounds of Carole King and Brothers Johnson ("instead of Muzak") at Whole Foods Market ("What could take a bite out of Whole Foods," The Barker Portfolio, Mar. 14). Barker may be surprised to learn that the music that made him feel so good is in fact supplied by Muzak. We create Audio Architecture experiences for hundreds of leading retail, food-service, and hospitality brands. The program he was listening to was '70s Hits, designed by Smitty, one of our more popular Muzak Audio Architects.

Sumter Cox

Muzak

Fort Mill, S.C.

Editor's note: We regret the error.


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