LIABILITY LIES by Peter Huber Forbes, March 13, 1995 at Pg. 144 Copyright 1995 by Peter Huber. Electronic copies of this document may be distributed freely, provided that this notice accompanies all copies. ----------------- Congress is considering some fairly significant reform of our liability laws. The people who earn their living spinning facts to juries are not happy. Herewith a list of irrelevant, misleading or simply false reasons they are now spinning to the public to prove that no reform is needed. Fewer cases are being filed in federal courts. Most auto, product, medical malpractice and other routine liability cases are brought in state courts. The federal case-load numbers are meaningless. Fewer cases are being tried in state courts. Most claims settle before any legal papers are filed; the vast majority settle before trial. A court is just a very expensive machine for finding out who's going to win, and how much. When the rules are clear, people don't go to court; they settle quickly and save the money they'd otherwise pay lawyers. Case loads measure only the opacity and volatility of the underlying legal rules. They tell you nothing about how many claims are made and paid. Lots of valid claims don't get filed. Lots of invalid ones do. That's what's most wrong with the system -- it doesn't reliably connect true wrongdoers and the truly wronged. The real crisis is the accident crisis. There is no accident crisis. By every objective measure cars, planes, doctors, football helmets, drinking water -- and practically everything else -- are getting safer year by year. Americans are living safer and longer than ever before. But prompted by lawyers, we just sue more and more about less and less. There is no accident crisis because lawyers saved us. America ranks smack in the middle of major industrialized countries on all objective measures of health and safety. Our legions of lawyers have had no measurable impact at all on the hard statistics of injury rates and life expectancy. Plaintiffs are losing more often. Plaintiffs are winning more often, too, as the volume of claims balloons. Yesterday, one plaintiff won and one lost. Today, two win and three lose. When my 6-year-old plays baseball, she gets to swing until she connects; the umpire just counts runs scored. Liability works that way, too. Insurance rates are based on total payouts, not batting averages. Overall, more plaintiffs are collecting more money through the liability system than ever before. Median awards are falling. The "median" is what half of all awards exceed. But the average is what counts. If nine claimants win nothing but the tenth wins a million, the median payout is $ 0; the average is $ 100,000. The average, multiplied by how often it is likely to be paid, is what determines the price of an insurance policy. That product has been rising. Punitive damages are rare. Lightning is rare too, but it still clears the golf course during a storm. Liability insurance is a tiny cost of doing business. Choose a big enough denominator and you can make anything look tiny. Lots of general practitioners dispense aspirin and cold medicine; it's the obstetricians and neurosurgeons who get hammered. Manufacturers of contraceptives and small planes get sued all the time; manufacturers of toothpaste and paper clips don't. Lumping them all together -- total liability premiums as a percentage of gross national product -- is statistical nonsense. Insurance companies are profitable. Some are, some aren't. The mutual insurance companies that insure many doctors are owned by the policyholders themselves. In any event it proves nothing that liability insurers prosper when liability expands. Litigation is what sells their product. Profit comes from assessing the risk and then covering it. Big risks require more insurance. Nobody has any reliable numbers. The reliable, bottom-line measure of how much the liability system costs is what people pay to insure against it. These are hard numbers. For several decades total expenditures on virtually every class of liability insurance have risen much faster than inflation. The federal government, states and municipalities insure themselves, and they know they've been paying more. Government runs various special purpose insurance programs -- for vaccines, federal employees and so on; expenditures on these are rising inexorably. The cost of workers' compensation insurance (currently about $ 70 billion a year) has risen far faster than workers' salaries. As of 1992, total private spending on other forms of liability insurance and self-insurance amounted to about $ 132 billion a year. The figures get soft only when you try to assess the additional, indirect cost of laying paper trails, engaging in defensive medicine and not building small planes. Estimates of these costs are inevitably imprecise. But no one denies they exist and can be large. If you're pregnant and suffer from morning sickness, go see your lawyer. Your doctor has nothing left to prescribe.
Visit Peter Huber's web page
Back to Overlawyered.com articles library / to top page
Reprinted by author's permission. All rights reserved.
Original contents of site © 1999 and other years The Overlawyered Group.
Technical questions: Email Webmaster