Insurance Makes Reform of Tort Law Now Possible, Abraham Argues

October 9, 2002
Kenneth S. Abraham
Professor Kenneth S. Abraham said tort law is just a part of the personal injury and illness compensation universe.

The characteristics of our compensation system for personal injury and illness "were not given to Moses on Mount Sinai" and should be subject to fundamental change, argued law professor Kenneth S. Abraham in an Oct. 1 speech inaugurating the newly established Robert B. Scott Distinguished Professorship in Law, which Abraham is the first to hold. Insurance mechanisms offer more flexible and tailored solutions to many personal injury cases and should be used more as alternatives to conventional tort law approaches, he said.

Requiring a course in torts in law students' first year has made law schools "tort-centric," he said, and blinded us from other avenues for resolving personal injury claims. "Tort is just a piece, and not a principal piece, of the personal injury and illness compensation universe.

"As lawyers we tend to overrate the importance of tort, both as a method of deterring unsafe conduct and as a source of compensation and to underrate other sources," he said.

The tort system cost $180 billion in 2000, a nearly 100-fold increase over 1950 when it cost the nation about $2 billion. Of that, about 45 percent went to victims and the rest to lawyers and insurance companies, according to Abraham. That rate of growth is three times the growth in the national economy over the same period.

"This small percentage is paid to victims because we spend a great deal on individualized fact finding about negligence and on computing damages in order to achieve 'corrective justice' and on tailoring monetary awards to the evidence of each plaintiff's past and future losses," he said.

But outside the tort system are other sources of money for injury compensation, such as Workman's Compensation ($45 billion in payments in 2000), health insurance coverage for illness and injury ($1.1 trillion in payments for the same year—not to mention the roughly $300 billion paid by patients themselves), and life and disability insurance (about $390 billion in 2000), Abraham said.

"Ordinarily we don't think of these as one system," he said, "especially not torts, which we think of as compensating victims of wrongfully caused injuries and illness." But about a third of the money paid to tort victims actually comes from insurance sources.

Abraham said any compensation system would have three components: the triggering event, the financing mechanism, and a measure of compensation. Events can have three bases: fault, cause, or loss. Financing can be third-party (liability insurance), first-party, or out of government tax revenues (Medicare). The amount of compensation can also be determined several ways.

"In tort we pay full, 'make whole' damages and we attempt always to individualize fully," Abraham said. "By contrast in workman's compensations case we pay almost full out-of-pocket or economic damages, but only modest sums for non-economic damages. We do not individualize the latter.

"We could use this categorical approach in a different way, with pre-established awards. We do not have to decide on a case-by-case basis," he suggested.

Abraham called the different approaches to compensation "highly contingent" — some are less a matter of design and more a result of historical factors — and pointed out that combinations that are not now used are in fact plausible.

"When there was little life insurance and no health insurance it made sense to ignore these sources of compensation in fixing tort awards. So the collateral source rule developed and ruled out any consideration of life and health insurance in calculating tort damages. Today, however, life and health insurance payments to a tort victim are likely to be very substantial. Yet most states still have rule that requires ignoring these payments. This whole issue should be revisited."

Abraham noted that compensation for victims of the World Trade Center attack provided for an absolute offset of collateral source payments against the sum a 9/11 claimant would otherwise receive. The decision is controversial and draws the issue "front and center, which is where it should be," he said.

Along with the triggering event, the financing mechanism, and the compensation measure, Abraham said consideration of two additional variables allows a new compensation system to be envisioned: first would be the forum for resolving disputes and second would be the method for making the system change.

Jury trial, bench trials, expert review panels, binding arbitration, and administrative boards could all play specific roles in an improved system. "There is much to be said for the ability of juries to find empirical facts when they are in dispute," he said. "There is less to be said for the ability of juries to decide like cases alike when the issue is whether the defendant's behavior was negligent. Repeat player decision-makers have a much better chance of doing that than juries that see only one case in their lives."

As for how the change could happen, courts and legislatures would have to make them, but they need not be mandatory in every instance, Abraham pointed out. "My colleague Jeffrey O'Connell has pioneered thinking about how choice of this sort could be afforded to potential tort victims, so that they could select in advance whether to be compensated in tort or on a no-fault basis in a variety of injury settings. We could provide a larger array of choices that would not require one size of tort rights to fit all potential victims."

Abraham said a lack of imagination, particularly in law schools, and the partisan politics of plaintiffs' lawyers and technical issues related to shifting the basis of compensation are inhibiting tort reform from happening.
"Most importantly, our own values stand in the way," he said. "Jury trials and the individualization of damages are a central feature of American populism. Furthermore, we believe not only in compensation and deterrence, but also in corrective justice.

"As a matter of political faith we adhere to a tort system that gives people their day in court. No other developed nation in the world still has juries in civil cases… Here, an ordinary citizen can put authority on trial, without relying on the government and without going through a bureaucracy. This is a great strength of our system of justice. But the price we pay for this strength is our difficulty in breaking free from tort law in the situations where we should break free. The populist ideal exercises a strong gravitational pull and therefore great political thrust will be required to escape the gravity of the tort system.

"We can easily imagine a system in which tort is a major player. But justice can also be done when tort law is a minor player or no player at all. Insurance gives us the luxury of considering a lesser role for tort," Abraham said.

Abraham extended personal compliments and praise to law professor Robert Scott, his colleague and friend for nearly 20 years, who was on hand for the speech. "For me, holding the chair that bears Bob's name is more than an honor," he said. "It is one of the high points of my professional career."

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