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Manhattan Institute

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Liability Law Conference: A Review

issue brief

Liability Law Conference: A Review

January 1, 1988
Legal ReformOther

Causes and Symptoms of the Litigation Crisis

Although there is a common perception that we are an overly litigious society and that a litigation "explosion" has beset us, in recent years, there seems to have been little consensus as to the cause, let alone the solution. A number of papers analyzed the legal, economic and social factors behind these trends.

Peter Schuck (Yale Law School) emphasized a change in the philosophy that courts bring to court cases as a primary cause of the liability crisis. He argued that the "new ideology of tort law" consists of a profound skepticism of the role of markets as well as an emphasis on pursuing an ever-expanding set of social goals rather than achieving corrective justice. Ken Abraham (University of Virginia Law School) argued that the principal problem is a "legal climate that makes insuring businesses and professionals a risky enterprise." He cited the unpredictability of the legal climate as being particularly disruptive of insurance markets.

In sharp contrast, Richard Abel (UCLA Law School) claimed that the crisis was the result of an "epidemic of injuries" and that society as a whole suffered from too little litigation, not too much.

Business and Competitiveness

Several papers examined the effect of our liability system on American business, especially the nation's competitive position in the world economy.

Douglas Besharov (American Enterprise Institute) argued that U.S. liability laws hinder competitiveness. For example, product liability costs American companies more than eight times what it costs comparable Japanese companies. Through a variety of factors, Besharov said, “our legal system provides artificial advantages to foreign competitors which come at the expense of U.S. consumers, insurers and companies." American companies have also experienced increasing difficulty in attracting and retaining qualified directors to serve on corporate boards. Fear of litigation seems to have played a major role, with small companies being the hardest hit. Roberta Romano (Yale Law School) analyzed how legal and economic conditions in the 1980s caused an upheaval in the market for Directors' and Officers' liability insurance.

Economist Kip Viscusi (Northwestern University) delved into the complex problem of occupational diseases. He concluded that market forces, workers' compensation and regulations were unable to solve the problem and proposed a "reformulation of our occupational disease policy."

Innovation and Safety

Scientist and attorney Peter Huber (Manhattan Institute) focused on the courts' regressive attitudes toward innovation as a major unintended by-product of our liability system. Modern tort law has assumed the daunting task of evaluating not only manufacturing defects but "design" defects as well. According to Huber, court decisions' have "greatly suppressed production and innovation" in a number of areas, particularly where complex products such as vaccines are concerned. "What we have lost today with the great expansion in the tort system," Huber said, "is the ability to find a clear 'yes,’ or 'go-ahead,’ for new technologies."

More generally, conference director Walter Olson (Manhattan Institute) concluded that the legal system, by "overdeterring" certain risks, may have had the paradoxical effect of making life less safe—the very opposite of its goal. "No challenge to the modern liability system could be more fundamental," Olson said, than the discovery that it actually resulted in more accidents, more risks, and less overall safety.

Proposals for Reform

Robert Cooter and Stephen Sugarman (Berkeley) offered an alternative dispute resolution proposal. They would get liability "out of the courts and into the market" by permitting individuals to sell their rights to recover damages for injuries to their employers (or other third parties)—in advance. Both argued that many deficiencies of current tort law could be corrected by such a market.

Michael McConnell (University of Chicago Law School) urged Federal legislation in the area of "choice of law" as a way of getting to a better, fairer and more wealth-generating products liability law than we have under the present system. Meanwhile, Jeffrey O'Connell (University of Virginia Law School) criticized conventional versions of tort reform and argued for a no-fault insurance plan. He outlined two basic criteria needed to achieve successful tort reform: make it easier for injured parties to be paid for economic loss without litigating fault; and hold the line on liability costs by offsetting any increase in new claims with a reduction in litigation costs and payments for non-economic loss.

What Does the Future Hold?

The severity of the tort crisis might lead us to expect that the Federal government will be the next victim of the litigation spiral. As political scientist Jeremy Rabkin (Cornell University) put it, "With its vast taxing and spending powers, the Federal government could be considered the 'deepest pocket' of all." He concluded, however, that in contrast to the trends in private law, the immunity of the Federal government has remained remarkably settled over the past 40 years and that this stability is likely to continue.

Regarding the impact of recent legal reforms, George Priest (Yale Law School) argued that the state-level reforms that have received so much attention and have been the objects of so many legislative efforts in recent years—limitations on pain and suffering and punitive damages, abrogation of joint and several liability and the collateral source rule—are "very modest changes which ultimately will not have a tremendous effect in restoring the vitality of the insurance market that has been crippled in the liability crisis."