UNDERSTANDING TORT REFORM

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1 A White Paper Presented by UNDERSTANDING TORT REFORM A ROADMAP

2 UNDERSTANDING TORT REFORM A ROADMAP If you lived in California during the 2014 election cycle, you may have heard of something called tort reform. When the words tort reform get used in discussions about the legal system and personal injury laws, your ears should perk up. Tort reform, as a phrase, can be political code for a certain way of thinking and speaking about our personal injury legal system. Proponents of tort reform wish to change the legal system, but in a way that benefits private individuals and public corporations who have caused harm at the expense of the people they have seriously injured. However, many proponents of tort reform know their position isn t going to be viewed sympathetically by reasonable people if it is presented in plain language. For that reason, they use the word reform. By doing so, they hope to frame their position in such a way as to make themselves look as if they have motives rooted in what is best for most of the population. After all, so they would like people to think, if something is in need of reform, it must be something bad or broken, something in need of being replaced or repaired. They want you to believe that the system is running away with exorbitant amounts of money being demanded and awarded for such things as a burglar being injured while breaking into a store. That the system is in free fall. This campaign (often referred to as The Stella Awards) is based on fear, disinformation, fiction, and not on fact. Therefore, when thinking about California s personal injury legal system and assessing the arguments made in discussions regarding tort reform, there are a number of points for you to keep in mind. 2

3 THE WORD TORT IS A TERM OF ART IN THE PERSONAL INJURY LEGAL SYSTEM First, you should understand that the word tort is a legal term of art with a particular meaning. Black s Law Dictionary offers the following definition of tort: 1. A civil wrong for which a remedy may be obtained, usu. in the form of damages; a breach of a duty that the law imposes on everyone. 2. (pl.) The branch of law dealing with such wrongs. 1 Very loosely speaking, and for our limited purpose here of providing a general introduction, you can think of tort as the technical legal word used to refer to an entire body of law regarding the injuries people suffer, especially physical injuries. Under tort (in other words, under the theory of law relevant to personal injuries), when people are injured under certain circumstances, the law allows those people to establish the extent to which they have been damaged. To the extent a person has been damaged, that injured person can then pursue and recover from whomever is held legally responsible for the injury. Normally, the court can obligate the responsible person for payment to the injured person according to the nature of the injuries. The nature of these injuries and their extent emotional, physical, financial and otherwise are determined by the court. INSURANCE COMPANIES ARE FOR-PROFIT BUSINESSES, NOT ALTRUISTIC CHARITIES Because tort reform is a story being told by particular people for a particular reason, it has a cast of characters. A key character in the drama of tort reform is the insurance industry. Simply put, when an injured person successfully holds a person or corporation responsible for causing injury, the responsible person s insurance company pays the injured victim. The insurance companies and often the corporations who have caused the injuries, therefore, both have taken an active interest in keeping any payments to injured people as low as possible or preventing them in their entirety. To do that, they have proposed caps on these payments. More on that below when we talk about damages. 3 1 BLACK S LAW DICTIONARY (7th ed. 1999); see also, Cal. Civ. Code 3333, et seq. (West 2014).

4 you have been injured, and when the responsible person and his or her insurer are not treating you fairly. ATTORNEYS SEEK TO REPRESENT CASES THAT HAVE MERIT ATTORNEYS MUST PUT YOUR BEST INTERESTS ABOVE THEIR OWN PROFIT MOTIVE To balance the scales between you, on the one hand, and the companies and their insurers on the other, an attorney can step in on your behalf. Unlike the insurance companies whose first responsibility lies with their investors, an attorney s first responsibility lies with his or her client. This responsibility held by an attorney toward a client is imposed upon the attorney as a necessary condition of being a lawyer. It is called a fiduciary duty. Under this fiduciary duty, your attorney must advise you according to your own best interests. Unlike an insurance company whose first duty lies to its investors, an attorney must put a client s best interests even before the attorney s own interest in profit or fees. In following this duty, attorneys commit themselves to helping clients protect their rights and receive fair treatment. To that end, an attorney can help you when The best approach an attorney can take generally involves what is called a contingency fee arrangement. When you and your attorney enter into your own contract for legal services, your attorney normally only receives payment out of whatever proceeds the attorney recovers on your behalf. As a result of this contingency fee arrangement, attorneys are motivated to only accept those cases that have merit. Why is this the case? Because attorneys must invest their own money in a case in order to prosecute it. An attorney will only want to invest in cases, therefore, that show a likelihood of success. And the cases most likely to succeed are those that have merit. Therefore, payment works differently in the personal injury system than it does in other areas of the law. Most people think all lawyers simply get paid by the hour. If that were the case in the personal injury system, then lawyers would simply take whatever case would be presented to them. 4 Design and editorial services by FindLaw, a part of of

5 As explained above, however, that is not the case. Because lawyers invest their own time and funds in a case and they only receive that money back if they successfully resolve the case, personal injury lawyers are highly motivated to pursue only those cases they believe a judge and jury will believe in, too; and, then to work extremely hard to prepare and present a winning case. THE VALUE OF AN INJURY CASE IS GOVERNED BY CALIFORNIA LAW If you have been injured, you may have very well-intentioned people telling you to sue for everything you can get. They may even be telling you the sky is the limit. It is interesting that you can almost always find someone who somehow knows someone else who got so much money for a similar injury at some ill-defined time in the past. While these comments are well-intentioned and most likely meant to give you support during your recovery, they are also misinformed. California law does not leave the determination of such an important matter to chance. Instead, California law expressly provides a number of categories that dictate what can be recovered in a case. These categories are called damages. Damages serve as the crux of the tort reform drama. THE TERM DAMAGES IS ALSO A LEGAL TERM OF ART IN THE PERSONAL INJURY SYSTEM Much of tort reform is aimed at limiting the amount of damages for which a corporation, entity or individual can be held responsible. The proposed limits on damages are called caps. According to California state statute, three kinds of damages can be recovered in a personal injury case. These three categories are: 1. Noneconomic 2. Economic 3. Punitive THE 3 KINDS OF DAMAGES THAT CAN BE RECOVERED in a personal injury case 1 NONECONOMIC ECONOMIC PUNITIVE

6 You may have even heard of some of those terms over the course of the 2014 political advertising. The context for our discussion of those terms, though, is a little bit different. Whereas the political discussions concerned injuries arising out of medical malpractice, our examination of the terms here is solely with respect to those personal injuries not arising out of medical malpractice. BUT WHAT DO THE TERMS MEAN? If you have heard of pain and suffering or emotional distress, then what you have been talking about are technically called 1 NONECONOMIC noneconomic damages under the law. Noneconomic damages are also sometimes referred to as general damages. Public corporations and insurance companies are keenly interested in capping noneconomic damages because these damages place the financial responsibility on the corporation or the insured for causing the injuries and disabilities inflicted on the injured person rather than transferring them to the taxpayers and general population. Noneconomic damages also form a key element in compensating the injured party for what are often life-changing and even life-ending accidents resulting from careless or negligent behavior. Noneconomic damages are different from economic damages. Economic damages, generally speaking, are what we are talking about when we are discussing matters such as medical bills arising out of the treatment related to the injury. We could also be discussing the income that an injured person has lost now and potential income that will be lost in the future. A third kind of damages are punitive damages. Many people often lump punitive damages with noneconomic damages, but the two kinds 2 ECONOMIC 3 PUNITIVE of damages are distinct categories. To keep them separate in your mind, recall that punitive damages (sometimes called exemplary damages) are a kind of punishment for bad or intentional conduct (e.g., marketing products known to be defective and likely to cause or having a history of causing injury). 6

7 Punitive damages are intended to deter people from conducting themselves similarly in the future. These damages are normally considered when the conduct of the responsible person or corporation has been especially bad. Punitive damages, therefore, often come under attack from private interests who wish to eliminate or cap them in order to make their business calculations more predictable in cases involving their reckless or negligent behavior. The focus of much reform is on punitive damages when in truth the award of punitive awards is extremely rare. Punitive damages can also be remembered by referencing two famous cases: the Pinto case and the McDonald s coffee case. In the Pinto case, Ford knew that people were dying because of a faulty design in the Pinto: The gas tank was placed in the rear of the car in such a way that it ignited upon impact. Rather than remedy the situation, Ford decided it would be cheaper to let people sustain injuries or burn to death. Ford made this determination by calculating the cost of remedying the situation versus how much each injury or death cost it. PUNITIVE DAMAGES EXAMPLE: FORD Pinto Case Ford decided to not correct the defect even though it knew about the problem during the test phase. Ford decided to spend $49.5 million to defend lawsuits rather than spend $137 million to correct the defect. 7 2 Cal. Civ. Code (a), et seq. (West). 3 Cal. Civ. Code (b), et seq. (West). 4 Cal. Civ. Code 3294, et seq. (West).

8 Another example of punitive damages is the McDonald s coffee case. Here, McDonald s had been warned in writing by customers for years that the coffee was so hot it injured people with severe third-degree burns. Rather than change its practices, McDonald s determined it would make more money by keeping the temperature of the coffee where it was to increase sales in their stores. Anybody who was burned in the process, McDonald s determined, would not be able to recover enough in damages to make the practice unprofitable. In both of the above cases, two major corporations trusted for decades by millions of citizens in our country, took advantage of their reputations as good corporate citizens in order to maximize profitability. They did so knowingly at the expense of their own customers health and even their lives. To put a stop to those behaviors, the courts awarded punitive damages that made the profit calculations of Ford and McDonald s worthless. Powerful interests such as Ford and McDonald s, because of punitive damages, could no longer assign a value to human life that they could use in order to calculate profitability. MCDONALD S COFFEE CASE FACTS 1. In the decade prior to the case, McDonald s had received at least 700 reports of coffee burns ranging from mild to third degree and had settled claims arising from scalding injuries for more than $500, Christopher Appleton, a McDonald s QA manager, testified for McDonald s that McDonald s had no plans to change its procedures, claiming: There are more serious dangers in restaurants. 3. Robert Knaff, a human factors engineer, testified for McDonald s that the burns were statistically insignificant when compared to the billion cups of coffee McDonald s sells annually. 4. Jurors felt McDonald s wasn t attaching enough importance to the fact that there are people attached to those numbers. They were not taking care of their customers. Some jurors wanted to award as much as $9.6 million, but the jury settled on $2.7 million. The attorney had suggested amounts equal to one or two days of company-wide coffee sales, or approximately $1.35 million per day. 8 5 Grimshaw v. Ford Motor Co., 119 Cal.App.3d 757, 174 Cal. Rptr. 348 (1981); Liebeck v. McDonald s Restaurants, P.T.S., Inc., No. D-202 CV , 1995 WL (Bernalillo County, N.M. Dist. Ct. August 18, 1994).

9 PROPONENTS OF TORT REFORM PUT PROFIT ABOVE PERSONAL RESPONSIBILITY Not surprisingly, the parties most in favor of tort reform are those corporations that want to go back to the good old days. They want to be able to accurately forecast the profitability of their actions even if they should behave in such a way that causes injury or death. In order to calculate death, the proponents of tort reform want caps on damages, especially on punitive damages and noneconomic damages. To make their position seem more sympathetic, they characterize the cases that give rise to punitive damages, particularly the McDonald s coffee case, as being frivolous. The superficial versions of cases circulated in the media make people think that caps should be enacted, but you do not have to let it be this way. CONCLUSION Instead, you should keep in mind that the phrase tort reform carries with it a certain perspective. This perspective is not neutral. It is a perspective adopted by people and corporations who want to put the interests of profit above the interests of people who have been injured. Further, people who have been injured need to understand that their interests are under attack even by their own insurance companies. By clearly understanding what is at stake in tort reform, you will be able to protect the rights of the injured while also putting a stop to behaviors that cripple people throughout the country. Visit our site: Call our firm: Follow Us On Social 9 The content of this paper is provided for informational purposes only and does not constitute legal advice Welebir Tierney & Weck, APLC. All rights reserved. Design and editorial services by FindLaw, part of

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