Tort Reform & Torts vs. Regulation

[magickyleo101]

There's been a lot of interesting back and forth across various blogs regarding the benefits of a tort-based system vs. the benefits of a regulatory/agency system, especially in the context of the recent oil spill in the gulf.

For those of you unfamiliar with the issues, the debate is essentially about how society can best balance the potential risks and benefits of a proposed course of action given ex ante uncertainty.

A tort based system essentially works on lawsuits. Companies shy away from overly risky behavior because if what they do hurts lots of people they'll have to pay a lot through lawsuits. Conversely, a regulation based system relies on a government agency to promulgate rules saying which activities are too risky to take and which activities are acceptable.

To illustrate with an example, say big-company A is designing a new airplane and has the option of including or leaving out safety-feature S. S will slightly reduce the chance of a mid-flight explosion but also costs a significant amount. How does society determine whether including safety feature S should be the norm?

In a tort based system, each company would look at its own potential risks from not having S on its airplanes. If the risk of losses from lawsuits + the risk of losing the aircraft seems to the company to be higher than the cost of S, S will be included. If not, not. In a regulatory system, government regulators would look at the costs and benefits of S and make a determination about whether all airplane manufacturers (or perhaps just manufactures over a certain size) should be required to include S.

To get back to the bog posts and the BP spill, then, Paul Krugman points out a paradoxical feature of the American political landscape - namely, the very same politicians who often oppose more regulation also oppose an effective tort system. They talk about a "blame game society" and attempt to put caps on the amount a company like BP might have to pay out in a lawsuit.

And that's what makes modern day libertarians (especially Paul Rand) so baffling sometimes. It's one thing to oppose regulatory agencies as long as you support something to fill the void left by getting rid of them. But when you also support crippling the tort system, you're essentially saying that the only people who should bear the cost of risky behavior are the people who get hurt.

In any case, thoughts?

[Disaray]

A strictly tort based systme, to me, seems like a bad idea. Governments are set up to protect the people they govern so why shouldn't that government make rules that dictate what can and cannot be done in order to protect the people. Saying that you can regulate business with a tort system dosen't cover all kinds of damages. This oil spill is a perfect example. No ammount of money that can be gained thru the tort system will be able to repair some of the enviromental damages caused by this oil. And if that isn't enuf no ammout of money will bring back the 11 dead workers on the platform. If there were rules in place to prevent, or mitigagte the chances of the distaster, all of this would be a moot point.

The Exon spill up in Alaska shows another flaw in this system. The courts take forever to get things done. 20+ years on and Exon still hasn't payed out moneis that it owes people up there and several of those owed money have died waiting.

It is simply a half assed way to mitigate harm. Like the old saying goes: "This is closing the barn door after the horse has escaped."

[magickyleo101]

A strictly tort based systme, to me, seems like a bad idea. Governments are set up to protect the people they govern so why shouldn't that government make rules that dictate what can and cannot be done in order to protect the people. Saying that you can regulate business with a tort system dosen't cover all kinds of damages. This oil spill is a perfect example. No ammount of money that can be gained thru the tort system will be able to repair some of the enviromental damages caused by this oil. And if that isn't enuf no ammout of money will bring back the 11 dead workers on the platform. If there were rules in place to prevent, or mitigagte the chances of the distaster, all of this would be a moot point.

The Exon spill up in Alaska shows another flaw in this system. The courts take forever to get things done. 20+ years on and Exon still hasn't payed out moneis that it owes people up there and several of those owed money have died waiting.

It is simply a half assed way to mitigate harm. Like the old saying goes: "This is closing the barn door after the horse has escaped."

I actually support a largely tort-based system, though I agree that cases like the oil rig are proper places for regulation.

It's important to remember that even though lawsuits happen after a disaster or accident actually occurs, the threat of a lawsuit can act to change behavior well before anything goes wrong. In fact, I can almost guaruntee you that even if no regulations were changed after the BP spill, companies would change the way they run their oil rigs in order to avoid paying damages similar to the ones BP is going to have to pay.

[Disaray]

In areas where money damages can make things whole again I fully suport the tort system, though reforms need to be made to expidite payment and keep it from simply being a money maker for the lawyers. But when loss of life or destruction of the enviroment to the point that isn't repairable and other things that money simply can't fix, it just dose not seem apropriate to let it fall to the tort system.

[chamaeleo]

Good opener!

What we have now is Milo Minderbinder, replacing the parachutes with IOU's and feeding the government regulators 7 course meals to look away.

Tort is scarcely better, as thousands more suffer in the dark for every individual awarded a disproportionally generous settlement. I'd be for shuffling 90% of each award into charities which alleviate a widespread problem at the societal level, rather than handing the entire winning lottery ticket to the guy with the sleaziest lawyer. Less incentive to initiate a frivolous lawsuit, when personal gain is lessened by an order of magnitude, although the amount unfortunately must be large to keep companies honest.

What we need is more vigilent oversight, inspired by the absolute fear of being exposed in bed with the entities being scrutinized. Stiffer penalties for accepting or offering bribes, and rubberstamping licenses...time in federal prison, forfeiture of retirement savings, that sort of thing. Re: oilspill, as I understand it the Environmental Impact Report deadline is 30 days after application, so we'll need to make it less of a formality and moreso a complete risk analysis.

Basically, the watchdog needs a spikier collar and a much shorter leash.

[Viking Prince]

Are you suggesting that the regulations that were in place and considered adequate by the politicians before the drilling rig burned after the casing blow out are now to be resolved automatically by introducing more regulations? We do not know the causes of the accident. I am certain that BP and all the subcontractors did not conspire for the sake of better profits to take risks that they knew would result in the death of the platform workers. I am also certain that the workers were aware of the risks taked to work on the platform. Without answers to how and why, suggesting further regulation is futile and only an exercise in populist political rhetoric.

BP has claimed that they will pay the damages. I have seen no reason to suggest that this is not a valid statement. If parties with legitimate concerns wish to file suit to assure themselves of a position, so be it. For the political establishment to claim to be holding a boot to the neck of BP though -- is not useful.

Any all inclusive phrase such as tort reform is pretty meaningless though. That is like tossing out 'health reform' to the masses and then pollling whether the public is for or against it. Our current government (Republicans and Democrats together) likes the idea of comprehensive reform solely for the purpose of fund raising. The terms are vague and thus all interested parties will receive campaign contributions and lobbyist attention.

I have no doubt that Rand Paul has some specific ideas regarding the broad idea of tort reform. However it is better to discuss each specific idea individually rather than the broad umbrella of tort reform.

edit: This is directed to the thread conversation and not to an indivdual post. Sorry if there was some confusion.

[magickyleo101]

Are you suggesting that the regulations that were in place and considered adequate by the politicians before the drilling rig burned after the casing blow out are now to be resolved automatically by introducing more regulations? We do not know the causes of the accident. I am certain that BP and all the subcontractors did not conspire for the sake of better profits to take risks that they knew would result in the death of the platform workers. I am also certain that the workers were aware of the risks taked to work on the platform. Without answers to how and why, suggesting further regulation is futile and only an exercise in populist political rhetoric.

As Chamaeleo said, it's not really clear who you're talking to here. I don't think regulations make any sense until we know what went wrong (and, as you point out, we don't) because you can't make a rule against what you don't know about.

BP has claimed that they will pay the damages. I have seen no reason to suggest that this is not a valid statement. If parties with legitimate concerns wish to file suit to assure themselves of a position, so be it. For the political establishment to claim to be holding a boot to the neck of BP though -- is not useful.

I'm somewhat skeptical that BP will actually willingly pay out all the damage they caused. To be sure, I imagine they'll pay for the obvious cases (like oil getting in someone's oyster bed, etc.), but there are lots of less obvious cases (like hotels losing business for years because their beaches are ruined) that will probably have to be fought out in the courts.

Any all inclusive phrase such as tort reform is pretty meaningless though. That is like tossing out 'health reform' to the masses and then pollling whether the public is for or against it. Our current government (Republicans and Democrats together) likes the idea of comprehensive reform solely for the purpose of fund raising. The terms are vague and thus all interested parties will receive campaign contributions and lobbyist attention.

I agree that there are a lot of different proposals, all of which fall under the heading of "tort reform" but that doesn't make the phrase entirely meaningless. Tort reform is generally only used for proposals that seek to limit the ability of plaintiffs to recover (either by capping their damages, restricting contingent fees, or what have you). You can come out generally against movement in this direction in the legal system either by attacking specific proposals that would move things in that direction or by attacking "tort reform" generally.

[chamaeleo]

VP: not sure who you're talking to. I'm not for more strict regulations, just proper enforcement of the existing ones and more oversight of the regulatory agency itself. As for tort, you're dead on.

[Simon Cashmere]

As I said in another thread, after the Exxon spill, liability was capped at $75 million for companies in an oil spill. It would be cheaper for BP to say 'Here's your 75 mil, good luck!' rather than try to fix what has been broken.

The people need protecting from insurance companies, and it's only the courts that can do it. I would probably remove punitive damages from a lot of cases too. It's the whole system that needs to be reformed, but nobody has the will or ability to do it. In Australia, only the insurance companies were organised enough to reform the system, and everyone listened. They spent 100s of millions lobbying every government in the country, and got the changes they wanted. Unless you are 15% whole person impaired, you get *nothing* in a negligence suit. Worth noting that 15% whole person impaired doesn't include scarring, so you can be horribly burned through an industrial accident but because you can still walk, despite the fact you look like the elephant man, you get nada. The system has gone way too far the other way.

The chilling effect of malpractice suits can lead to people taking extraordinary steps to guard against silliness. A common sense statute for obvious risks may help too.