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Under Siege: New York's Liability Ordeal

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issue brief

Under Siege: New York's Liability Ordeal

January 1, 1996
Legal ReformOther

Richard Miniter is an adjunct fellow at the Manhattan Institute. The Civil Justice Memo is a publication of the Institute’s Judicial Studies Program.

When gunman-arsonist Roland Smith killed seven people at Freddy's clothing store in Harlem last December, it seemed to be the act of a lone criminal. Still, attorneys for one of the wounded survivors filed suit against every deep pocket in sight, including a $75 million claim against the City of New York.  Why is the city allegedly at fault?  Because its agencies failed to detect and take action against supposed fire and building code infractions. That’s just business as usual for the embattled Torts Division of the city’s Office of the Corporation Counsel, which seems to find itself on the financial hook after every catastrophe in the city, even those which, like this, take place on private property. City payouts for settlements and judgments have set another record: they totaled $275 million in fiscal year 1994, according to figures recently released by Comptroller Alan G. Hevesi.

That’s more than the total combined budgets of the city’s libraries and botanical gardens, the Bronx Zoo, the Metropolitan Museum of Art, and the Department of Youth Services.  It’s an impressive sum that breaks down to ninety-eight dollars for every household in New York City.  The true cost to the city is even greater when one takes legal representation costs and payouts from city authorities into account. The Transit Authority paid $53.1 million and the Housing Authority shelled out $20.6 million in calendar year 1994. By 1997, according to projections released last spring, the annual payout for direct city claims alone will exceed $300 million. Corporation Counsel Paul Crotty, who manages the city’s legal efforts, estimates that the 70,000 cases in the pipeline could end up costing more than $2.1 billion.

Payouts in claims against the city have risen (see table on next page) by 187 percent since 1984 and more than 1,000 percent since 1977. For New York these figures represent not only a substantial burden on taxpayers but a tangible measure of a climate of litigiousness that drives businesses out and helps keep them from moving into the city. For those involved in the national debate over legal reform, they offer another sign that, contrary to some reassurances, the litigation crisis is not somehow “taking care of itself” in the absence of purposeful reform.

Though New York is not the nation’s average city, it makes in some ways a uniquely valuable laboratory in which to chart litigation trends. New York's 11,000 miles of sidewalks, hundreds of acres of parks, tens of thousands of police officers, and eleven hospitals open the city to a wide variety of legal claims.  The city is a magnet for trial lawyers, and because of its broad exposure it offers a microcosm of how liability affects all our lives. The city releases detailed figures on what it pays in judgments and settlements by category, along with numbers of newly filed, pending and newly settled cases. The Comptroller’s Office has compiled such figures for more than a decade.  (The FY 1994 Report on Claims: The “Deep Pocket” is available from the Comptroller’s press office at 212-669-3747).  Since the city is self-insured, it gets no cushion from legal road shocks and there is no insurance “cycle” masking the trends in courtroom payouts.

The first trend to jump out from the numbers (see table) is the breadth of the continuing upsurge in liability. It is not confined to one or a few categories, but cuts across virtually all: schools, parks, streets, hospitals, and police.  Though the city periodically considers efforts to reduce one or another area of liability exposure, to limited success, it is clear that its problems are systemic. Nor is there any apparent correlation with the condition of city facilities: liability marches relentlessly upward regardless of the ups and downs of the city’s efforts to fix its infrastructure. In 1977, though several years of fiscal crisis had brought the condition of city facilities to a low ebb, payouts ran a mere $24.2 million. Lawyers have publicized supposed “sidewalks of death” where multiple claims are filed—many of which turn out, conveniently enough, to run alongside lawyers’ offices and hangouts such as the Bronx Municipal Building—but it’s hard to determine what the lawyers find acceptable in a sidewalk condition: they’ve fingered nearly 90 percent of city sidewalks, about 10,000 miles, as having hazards.

The optimistic claims of reform opponents aside, the wave of torts has not ebbed—as measured by Gotham's balance sheet. Note, however, that it would be misleading to look only at the number of claims filed.  The number of claims filed grew by a relatively modest 50 percent between 1984 and 1994.  Some years featured declines.

At the same time, the dollar value of settlements and judgments has surged—from an average of $14,386 per claim to $29,894, up 108 percent since 1984.  In the bellwether category of settlements and judgments over $1 million, the city paid only $11.4 million in 1984. By 1994, such payouts had increased sevenfold to $78.6 million.

Opponents of legal reform sometimes suggest that irrational verdicts and runaway awards are now a thing of the past: newly skeptical juries are no longer swayed by courtroom demagogy, while cautious judges throw out whatever bad awards slip through. Yet the experience of New York City, where there has been no significant tort reform, contradicts the notion that the system’s excesses will somehow turn around by themselves.  Nor does it back up the occasionally bruited-about notion that the real source of litigation excess is a rise in contract and business disputes. Although New York City has wide-ranging commercial and construction interests which entangle it in many lawsuits, personal injury payouts amounted to 90 percent of the city’s total payouts. Commercial litigation is indeed a growing problem for the city, but personal injury claims remain by far the most expensive source of municipal liability.

Indeed, there is some reason to fear that New York and its taxpayers will be swept up in the most feared of all types of injury litigation: the “mass tort,” a new legal lifeform that arose as a mutation of the class action suit.  The most recent victim was Dow Corning, which was bankrupted by silicone breast implant litigation. Personal injury lawyers are looking avidly for the next mass tort.  Lead paint litigation may be their vehicle. With mass mailings and 1-800 numbers, they are recruiting thousands of plaintiffs to sue paint makers, landlords, realtors, former brownstone owners and many more for the reputed ill effects of lead paint. As a major landlord of tenement property seized for back taxes, New York is also a prime litigation target.  The city has already paid $2.5 million in one such case.  If such cases can be mass-produced, New York will be facing a mass tort epidemic.

Mayor Giuliani and the Dinkins and Koch administrations have agreed, despite differences on other policies, that liability reform is needed to protect the city while preserving a means of compensation in genuinely meritorious cases. Former Comptroller Elizabeth Holtzman and former Corporation Counsel O. Peter Sherwood have also urged legal reform. Paul Crotty, the current Corporation Counsel, has asked the New York Court of Appeals to adopt fundamental changes along the lines of those proposed in the Manhattan Institute's monograph “Rethinking Contingency Fees.” To date, the state’s powerful trial lawyer lobby has easily blocked reform: votes haven’t even been close. The members of New York City’s delegation to the state legislature, for reasons best known to them, have ignored City Hall and sided with the legal lobby, as did the late Cuomo Administration.

Now there’s a new leadership in Albany committed to taking a fresh look at old abuses and helping the city by way of initiatives that don’t drain upstate residents.  Will Governor Pataki seize the opportunity?