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Tort "Reform"

Tort Reform, Externalities, and Balance

— January 18, 2017

Now that the new administration plans to throw healthcare back on the table, we’ll surely hear once again about the virtues of tort reform. A perennial conservative salve for seemingly every economic ill, tort reform reduces peoples’ ability to seek redress in court. Hypothetically, tort reform serves as a counterbalance against what the business community perceives as an overly litigious culture. Reforms limit the amount plaintiffs can seek in damages and why they can seek them in the first place. Because doctors and other businesses are less likely to suffer judgments against them, this eases their insurance burden, too. As you can imagine, getting angry, hurt people off their backs ranks high in popularity with the business community. However, there’s another side of this debate to consider.

Kathleen Hunker’s recent piece, Limited Liability, Unlimited Growth, credits tort reform as an unsung hero of the Texas Miracle. The Texas Miracle has become a rallying cry for corporate interests and the politicians that cater to them. Reducing the ability of injured Texans to seek justice in court, Hunker claims, allowed businesses to thrive. Drawn by the opportunities inherent in reduced regulation, other companies moved to Texas. Supposedly this boom became self-perpetuating, allowing for innovation, freedom, and prosperity to rain upon Texas like blessings from above.

Of course, this ignores some inconvenient truths. It’s easy to look prosperous if you don’t have to pay your bills (especially those of people you injure). If I didn’t pay my mortgage, I could spend several hundred dollars a month on bling instead. Would you think me responsible for doing so? Probably not. Tort reform works in a similar way. Instead of encouraging personal and corporate responsibility, all it does is foist costs onto others. Privatizing profits while externalizing costs is one of the open secrets to becoming wealthy, after all. But it does so by creating a worse world for all of us to live in.

Then governor of Texas, Rick Perry (pictured) signed a package of tort reform recommendations into law in 2003. Photo by Gage Skidmore, via Flickr.
Then governor of Texas, Rick Perry (pictured) signed a package of tort reform recommendations into law in 2003. Photo by Gage Skidmore, via Flickr.

Hunker’s article claims that “the Texas model works because it strives to keep as much capital as possible in the hands of market participants.” This ignores, perhaps intentionally, that we’re all market participants. In fact, market interactions with negligent doctors or manufacturers of faulty products is how a lot of people get hurt in the first place. And what do people do with their settlement money except participate in markets with it? What a ridiculous argument.

There is some merit in seeking to weed out frivolous lawsuits. However, who gets to decide which lawsuits are frivolous and which are not? A business facing a lawsuit will likely want us to believe that nearly every action against them is laughable. Similarly, everyone who has sustained some injury rooted in corporate malfeasance believes that their suit is rightful and true. Even without tort reform, there are ways to toss out baseless suits, such as filing or granting a motion to dismiss. Judges make these decisions daily. Tort reform removes some of this power from the court system and gives it, instead, to legislators. I’m not sure that’s an improvement.

In the end, tort reform is a bit of handwaving that makes the elementary mistake of counting the positive side of the balance sheet without paying any attention to the costs involved. Enacting “loser pays” rules, as was done recently in Idaho and partially in Texas in 2011, makes it even riskier for less wealthy people to seek justice out of fear that they’ll have to pick up everyone’s attorney fees. If the Texas Miracle is based on keeping companies flush with capital and less worried about injuring everyday people with their products and services, while de facto restraining those people from pursuing justice out of fear and intimidation, it’s not a very blessed miracle, now, is it?

Related: Special Education is failing in Texas


Limited Liability, Unlimited Growth
‘Loser pays’ court rule first of a kind
The Fallacies of Medical Malpractice “Tort Reform”
Tort Reform Is Anti-Democratic (And Ingeniously Marketed)

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