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Friday, September 18, 2009

Guest Blogger Tony Sebok on Health Insurance Reform and Tort Reform - Part II

As promised, I want to explore the debate over tort reform from a systematic perspective.  The President’s embrace of tort reform in medical malpractice—tepid as it may be—shows that the issue has moved to the mainstream. 

 

The significance of the President’s endorsement of “demonstration projects in individual states” that had been first proposed during the Bush Administration is not because the proposals are so radical.  In fact, if all the President intends to support are, for example, pilot projects establishing some “health courts” in a limited number of states, it is not clear why these reforms could not have been adopted by individual states without any help from the federal government.  (Kaiser Permanente has already secured a much more radical reform simply by forcing all of its insured to waive the right to sue and to agree to binding arbitration).

 

The significance is rhetorical, and in politics, rhetoric counts for a lot.  The first Democratic president who was willing to entertain tort reform on a national level was Bill Clinton.  His administration championed a Y2K immunity bill that would have limited the liability of computer and software companies sued if it turned out that the feared “Y2K bug” destroyed data, shut down equipment, etc., when the clocks turned to midnight on New Year’s Eve—a tort nightmare that never happened.  But Clinton’s support for immunity for the high-tech industry could be explained as a product of pure electoral politics—Silicon Valley formed a significant base of support for the “New Democratic” wing of the party.

 

Obama’s support for tort reform might be equally cynical—after all, he may simply be willing to throw the American Alliance of Justice under a bus to get a healthcare reform bill passed.  But I suspect that the President’s willingness to entertain tort reform is not based on pure cynicism.  It is worth remembering that Obama, when he was at the University of Chicago, was on very good terms with Cass Sunstein, who he has brought to Washington as his “regulatory czar.”  It is ironic that the right-wing has decided to target Sunstein, since I would wager that one does not have to look much further than Sunstein’s views of the tort system to understand where Obama’s tepid embrace of the tort system comes from.

 

Sunstein’s credentials as a liberal are unassailable, in my opinion.  His classic article, "Lochner's Legacy," reflects a full and robust defense of the administrative state’s power—even obligation—to promote the specific values in a liberal society.  The question is which values should be promoted?

 

Sunstein probably would be tolerant of a wide range of values, but he is not shy about expressing his preferences.  When it comes to civil litigation, he believes that private litigation should promote social welfare.  In this he joins an honorable tradition of progressive welfare maximizers such as Guido Calabresi and Steve Sugarman.  What makes Sunstein different from most progressive welfare maximizers is that he has put  some effort—and some scientific rigor—into his critique of the current tort system.

 

The best example of Sunstein’s approach to tort law, for example, is his treatment of punitive damages.  In a Yale article co-authored with Daniel Kahneman and David Schkade, and then later in a book co-authored with a number of scholars, Sunstein made the argument that punitive damages should be radically restricted and reformed.

 

The basis of the argument made by Sunstein was that there was positive evidence—gathered by him and his co-authors—that lay jurors could not produce punitive damages judgments that would promote rational deterrence among future defendants.  The mock-jury studies organized by Sunstein and his co-authors (and paid for, it would later turn out—as noted by the Supreme Court—by Exxon) showed that jurors probably could not figure the right level of penalty to deter rational wrongdoers to save their lives.  In some cases, mock jurors irrationally underpunished actors who needed to be deterred, where in other cases the mock jurors placed irrationally high penalties on actors who were simply trying to apply the Hand Test.

 

From these results, Sunstein and his co-authors concluded that the practice of awarding punitive damages in tort litigation was utterly unconnected to the goals of welfare maximization.  They therefore further concluded that there was no reason to defer to the historic practice of allowing juries to award punitive damages (other than quaint artifacts like the Seventh Amendment).  The practice of letting juries award punitive damages was an empty ornament affixed to the tort system.  Sunstein and his allies were like the Bauhaus school of architecture who looked at Europe’s tradition of Beaux Art ornamentation and said, “Who needs all that form that serves no function?”

 

Sunstein’s discovery that lay people are bad at promoting efficient deterrence would surprise and disturb only those who thought that it was the primary goal of tort law to promote social welfare.  When I read Sunstein’s results, I did not think they were incorrect as a matter of fact, but I did think they were irrelevant as a matter of tort theory.  Juries may be bad at determining the right penalty to deter rational wrongdoers.  In fact, I agree with Sunstein that a committee of Ph.Ds. in penology could do a better job.  But even if they are bad at law and economics, lay jurors might still be good at figuring out the right response, from the perspective of corrective justice, to a wrongdoer’s action, whether that act is intentional or negligent.  And that, traditionally, is all we have ever asked lay jurors to do.

 

Of course, Sunstein’s point of view would lead a policy-maker to treat the tort system as nothing more than a mechanism for incentivizing rational actors to act safely or in ways that promote welfare.  If one suspected that the medical malpractice system was like the punitive damages system—that is, utterly and radically disconnected from the task of rationally incentivizing action—then it would be easy to trade it away for other political goals, no matter how speculative.  It would be like a modern architect tearing down an ornate molding to improve the wiring for some lights. 

 

And that, in my opinion, explains why President Obama is so willing to entertain tort reform in the context of his healthcare bill.  Given how little I suspect the President and his inner circle value tort law as a system of corrective justice, I would not be surprised if they would be willing to trade the right to sue in tort law for other policy goals in the future.

 

 

Tony Sebok

Professor of Law

Benjamin N. Cardozo School of Law

 

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