The Public Policy Institute

Section 5

Replacing Lawsuits with Consumer Choice

Over a decade ago, the Jones Commission concluded that the “compensatory thrust” of the tort system “has greatly expanded the number of claims the system must handle, increased the transaction costs that the parties must bear, and stretched the concept of fault to the breaking point.”

New York State's tort laws clearly impose both direct and indirect costs out of all proportion to their putative benefits--and in light of actions in states that most directly compete with us for private-sector jobs and investments, tort reform now needs to be viewed as both an economic and legal imperative.

Priorities for change

The recommendations of the Jones Commission--a bipartisan panel whose findings were exhaustively documented and debated over a decade ago--could be viewed as an ideal starting point for action, augmented by steps to limit out-of-control awards for non-economic damages.

Reforms that could be addressed to make New York's system less costly and more responsive might include the following:

In addition to underscoring the already well-documented need for tort reform, the findings in our report point towards at least two other priorities:

  1. Change the compensation system for plaintiffs' lawyers. Given the multi-billion-dollar stakes in the game of lawsuit lottery, contingency fees give plaintiffs' attorneys an overwhelming incentive to file questionable suits. Under the guise of educating consumers about their legal rights, too many of these lawyers are using mass advertising techniques to promote litigiousness of all kinds, especially in the personal injury area.
  2. Collect and report more information on the workings of the civil justice system.The Unified Court System should beef up its data collection capabilities, using information already reported on“request for judicial intervention” forms to report on the type and number of suits, and on their resolution. In the case of settlement data, confidentiality can be protected with the same statistical reporting safeguards used in the field of tax analysis.

Trying a renewed focus on contracts

In the long run, the greatest breakthrough in reducing the tort tax and improving New York's competitiveness--without shortchanging real victims or encouraging negligent conduct--may come from an overhaul of the law to combine basic changes in economic incentives with the implementation of contract law.

This approach is exemplified by the “Auto Choice” plan, co-sponsored on the federal level by U.S. Senators Daniel P. Moynihan of New York, Mitchell McConnell of Kentucky and Joseph Lieberman of Connecticut, which would allow consumers to opt out of the current liability system entirely. The proposal is a big step beyond New York's current no-fault system--which, as noted, continues to allow for huge non-economic awards and other damages in the expanding category of “serious injury” claims.

Consumers who chose a “personal protection insurance” policy under the Auto Choice program would waive their chance to win pain and suffering damages, but they would be covered for such claims made by other motorists (unless those motorists had also chosen a waiver plan). Participants would realize huge premium savings--averaging $417 a year for New York drivers--because fraud, pain-and-suffering damages and attorney fees would be eliminated or minimized. The largest savings would flow to the poorest drivers, who often carry only minimal coverage under the current system.

“The flaw in no-fault is that it has not eliminated the 'pain and suffering' lottery,” Moynihan, McConnell and Lieberman note.(38)

The Auto Choice bill, like the proposed early recovery legislation for tort cases, is designed to de-emphasize the role of lawyers and to re-empower consumers with real choices.

Contractual relationships work well in defining other relationships in our economy; they should be given a chance to work as well in the area of liability.

It's about justice

Reforms in liability standards and procedures are essential, and New York would benefit greatly by trying them, as other states already are. They may not prove to be the total solution. Reforms have had a mixed record in terms of reducing liability costs--because the hunger and creativity of trial lawyers have expanded the scope of their litigiousness faster than the reformers can get restrictions on them enacted.

The“no-fault” automobile insurance legislation enacted in the 1970s, for example, initially appeared to at least partially close the door to a traditional source of easy money for trial lawyers, the routine auto-accident suit. But in only a few short years, there was an explosion in other litigation--especially that focused on medical malpractice. After the Legislature acted to restrain the worst abuses in medical malpractice cases, manufacturers and municipalities suddenly found that they were the targets of a major wave of lawsuits. And now, as we have documented, the trial lawyers are back in the auto-accident business, stronger than they have been in decades.

The reform process ultimately will have to be judged not by whether this or that liability rule is changed, but by whether the reform actually produces a reduction in the overall incidence and cost of litigation. Beyond reforming the tort process itself, therefore, it may be important to change the financial incentives that now exist for trial lawyers to pursue counter-productive lawsuits--such as reforming the contingency-fee system--and to restrain the advertising and other business-chasing techniques now in use. Changes of that kind, in turn, might make the trial bar less attractive as a career.

It's time that somehow, some way, we rein in the lawsuit business in New York. The law is not a lottery. It's not a game. It's about justice. New York needs a legal system that throws away mottoes about “an accident and a dream”--a system that meets the needs of the people, not of the trial bar.

38. “Auto Insurance: A Better Way,” Wall Street Journal, Sept. 22, 1997.

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