Liability: The Legal Revolution and Its Consequences

by Peter W. Huber

Chapter One: Uncommon Law

It is one of the most ubiquitous taxes we pay, now levied on virtually everything we buy, sell, and use. The tax accounts for 30 percent of the price of a stepladder and over 95 percent of the price of childhood vaccines. It is responsible for one-quarter of the price of a ride on a Long Island tour bus and one-third of the price of a small airplane. It will soon cost large municipalities as much as they spend on fire or sanitation services.

Some call it a safety tax, but its exact relationship to safety is mysterious. It is paid on many items that are risky to use, like ski lifts and hedge trimmers, but it weighs even more heavily on other items whose whole purpose is to make life safer. It adds only a few cents to a pack of cigarettes, but it adds more to the price of a football helmet than the cost of making it. The tax falls especially hard on prescription drugs, doctors, surgeons, and all things medical. Because of the tax, you cannot deliver a baby with medical assistance in Monroe County, Alabama. You cannot buy several contraceptives certified to be safe and effective by the Food and Drug Administration (FDA), even though available substitutes are more dangerous or less effective. If you have the stomach upset known as hyperemesis, you cannot buy the pill that is certified as safe and effective against it. The tax has orphaned various drugs that are invaluable for treating rare but serious diseases. It is assessed against every family that has a baby, in the amount of about $300 per birth, with an obstetrician in New York City paying $85,000 a year.

Because of the tax, you cannot use a sled in Denver city parks or a diving board in New York City schools. You cannot buy an American Motors "CJ" Jeep or a set of construction plans for novel airplanes from Burt Rutan, the pioneering designer of the Voyager. You can no longer buy many American-made brands of sporting goods, especially equipment for amateur contact sports such as hockey and lacrosse. For a while, you could not use public transportation in the city of St. Joseph, Missouri, nor could you go to jail in Lafayette County in the same state. Miami canceled plans for an experimental railbus because of the tax. The tax has curtailed Little League and fireworks displays, evening concerts, sailboard races, and the use of public beaches and ice-skating rinks. It temporarily shut down the famed Cyclone at the Astroland amusement park on Coney Island.

The tax directly costs American individuals, businesses, municipalities, and other government bodies at least $80 billion a year, a figure that equals the total profits of the country's top 200 corporations. But many of the tax's costs are indirect and unmeasurable, reflected only in the tremendous effort, inconvenience, and sacrifice Americans now go through to avoid its collection. The extent of these indirect costs can only be guessed at. One study concluded that doctors spend $3.50 in efforts to avoid additional charges for each $1 of direct tax they pay. If similar multipliers operate in other areas, the tax's hidden impact on the way we live and do business may amount to a $300 billion dollar annual levy on the American economy.

The tax goes by the name of tort liability. It is collected and disbursed through litigation. The courts alone decide just who will pay, how much, and on what timetable. Unlike better-known taxes, this one was never put to a legislature or a public referendum, debated at any length in the usual public arenas, or approved by the president or by any state governor. And although the tax ostensibly is collected for the public benefit, lawyers and other middlemen pocket more than half the take.

The tort tax is a recent invention. Tort law has existed here and abroad for centuries, of course. But until quite recently it was a backwater of the legal system, of little importance in the wider scheme of things. For all practical purposes, the omnipresent tort tax we pay today was conceived in the 1950s and set in place in the 1960s and 1970s by a new generation of lawyers and judges. In the space of twenty years they transformed the legal landscape, proclaiming sweeping new rights to sue. Some grew famous and more grew rich selling their services to enforce the rights that they themselves invented. But the revolution they made could never have taken place had it not had a component of idealism as well. Tort law, it is widely and passionately believed, is a public-spirited undertaking designed for the protection of the ordinary consumer and worker, the hapless accident victim, the "little guy." Tort law as we know it is a peculiarly American institution. No other country in the world administers anything remotely like it.

From Consent to Coercion

Tort law is the law of accidents and personal injury. The example that usually comes to mind is a two-car collision at an intersection. The drivers are utter strangers. They have no advance understanding between them as to how they should drive, except perhaps an implicit agreement to follow the rules of the road. Nor do they have any advance arrangement specifying who will pay for the damage. Human nature being what it is, the two sides often have different views on both these interesting questions. Somebody else has to step in to work out rights and responsibilities. This has traditionally been a job for the courts. They resolve these cases under the law of torts or civil wrongs.

But the car accident between strangers is comparatively rare in the larger universe of accidents and injuries. Just as most intentional assaults involve assailants and victims who already know each other well, most unintended injuries occur in the context of commercial acquaintance-at work, on the hospital operating table, following the purchase of an airplane ticket or a home appliance. And while homicide is seldom a subject of advance understanding between victim and assailant, unintentional accidents often are. More often than not, both parties to a transaction recognize there is some chance of misadventure, and prudently take steps to address it beforehand.

Until quite recently, the law permitted and indeed promoted advance agreement of that character. It searched for understandings between the parties and respected them where found. Most accidents were handled under the broad heading of contract- the realm of human cooperation- and comparatively few relegated to the dismal annex of tort, the realm of unchosen relationship and collision. The old law treated contract and tort cases under entirely different rules, which reflected this fairly intuitive line between choice and coercion.

Then, in the 1950s and after, a visionary group of legal theorists came along. Their leaders were thoughtful, well-intentioned legal academics at some of the most prestigious law schools, and judges on the most respected state benches. They were the likes of the late William Prosser, who taught law at Hastings College, John Wade, Professor of Law at Vanderbilt University, and California Supreme Court Justice Roger Traynor. They are hardly household names, but considering the impact they had on American life they should be. Their ideas, eloquence, and persistence changed the common law as profoundly as it had ever been changed before. For short, and in the absence of a better term, we will refer to them as the founders of modern tort law, or just the Founders. If the name is lighthearted, their accomplishments were anything but.

The Founders were to be followed a decade or two later by a much more sophisticated group of legal economists, most notably Guido Calabresi, now Dean of the Yale Law School, and Richard Posner of the University of Chicago Law School and now a federal judge on the Seventh Circuit Court of Appeals. There were many others, for economists seem to be almost as numerous as lawyers, and the application of economic theory to tort law has enjoyed mounting popularity in recent years as tort law has itself become an industry. An economist, it has been said, is someone who observes what is happening in practice and goes off to study whether it is possible in theory. The new tort economists were entirely true to that great tradition. Indeed, they carried it a step forward, concluding that the legal revolution that had already occurred was not only possible but justified and necessary. Mustering all the dense prose, arcane jargon, and elaborate methodology that only the very best academic economists muster, they set about proving on paper that the whole new tort structure was an efficient and inevitable reaction to failures in the marketplace. Arriving on the scene of the great tort battle late in the day, they courageously congratulated the victors, shot the wounded, and pronounced the day's outcome satisfactory and good.

Like all revolutionaries, the Founders and their followers, in the economics profession and elsewhere, had their own reasons for believing and behaving as they did. Most consumers, they assumed, pay little attention to accident risks before the fact. Ignoring or underestimating risk as they do, consumers fail to demand, and producers fail to supply, as much safety as would be best. As a result, manufacturers, doctors, employers, municipalities, and other producers get away with undue carelessness, and costly accidents are all too frequent. To make matters worse, consumers buy less accident insurance than they really need, so injuries lead to unneeded misery and privation and some victims become public charges.

With these assumptions as their starting point, the new tort theorists concluded that the overriding question that the old law asked- how did the parties agree to allocate the costs of the accident?- was irrelevant or worse. The real question to ask was:

How can society best allocate the cost of accidents to minimize those costs (and the cost of guarding against them), and to provide potential victims with the accident insurance that not all of them currently buy or can afford? The answer, by and large, was to make producers of goods and services pay the costs of accidents. A broad rule to this effect, it was argued, can accomplish both objectives. It forces providers to be careful. It also forces consumers to take accident costs into account, not consciously but by paying a safety-adjusted price for everything they buy or do. And it compels the improvident to buy accident insurance, again not directly but through the safety tax. It has a moral dimension too: People should be required to take care before the accident and to help each other afterward, for no other reason than that it is just, right, and proper to insist that they do so.

The expansive new accident tax is firmly in place today. In a remarkably short time, the Founders completely recast a centuries-old body of law in an entirely new mold of their own design. They started sketching out their intentions only in the late 1950s; within two short decades they had achieved virtually every legal change that they originally planned. There were setbacks along the way, of course; the common law always develops in fits and starts, with some states bolder and others more timid, and the transformation of tort law was no exception. But compared with the cautious incrementalism with which the common law had changed in centuries past, an utter transformation over a twenty-year span can fairly be described as a revolution, and a violent one at that.

The revolution began and ended with a wholesale repudiation of the law of contract. Until well into the 1960s, it was up to each buyer to decide how safe a car he or she wanted to buy. Then as now, the major choices were fairly obvious: large, heavy cars are both safer and more expensive; economy cars save money but at some cost in safety. In case after case today, however, the courts struggle to enforce a general mandate that all cars be crashworthy. That term is perfectly fluid; it is defined after the accident by jury pronouncements; it is defined without reference to preferences and choices deliberately expressed by buyer and seller before the transaction. A woman's choice of contraceptives was once a matter largely under the control of the woman herself and her doctor, with the FDA in the background to certify the general safety and efficacy of particular drugs or devices. Today tort law has shifted that authority too from the doctor's office to the courtroom. Balancing the risks and benefits of childhood vaccination was once a concern of parents, pediatricians, the FDA, and state health authorities. But here again, the views of the courts have become the driving force in determining what may be bought and sold. Not long ago, workplace safety was something to be decided between employer and employees, often through collective bargaining, perhaps with oversight from federal and state regulators, while compensation for accidents was determined by state workers' compensation laws. Today the courts supervise a free-for-all of litigation that pits employees against both employers and the outside suppliers of materials and equipment, the latter two against each other, and both against their insurers.

What brought us this liability tax, in short, was a wholesale shift from consent to coercion in the law of accidents. Yesterday we relied primarily on agreement before the fact to settle responsibility for most accidents. Today we emphasize litigation after the fact. Yesterday we deferred to private choice. Today it is only public choice that counts, more specifically the public choices of judges and juries. For all practical purposes, contracts are dead, at least insofar as they attempt to allocate responsibility for accidents ahead of time. Safety obligations are now decided through liability prescription, worked out case by case after the accident. The center of the accident insurance world has likewise shifted, from first-party insurance chosen by the expected beneficiary, to third-party coverage driven by legal compulsion.

Paralleling this shift from consent to coercion has been a shift from individual to group responsibility. The old contract-centered law placed enormous confidence in individuals to manage the risks of their personal environments. The new, tort-dominated jurisprudence prefers universal rules with no opt-out provisions. Tort law now defines acceptable safety in lawn mower design, vaccine manufacture, heart surgery, and ski slope grooming, without regard to the preferences of any individual consumer or provider. If the courts declare there is to be a safety tax on a vaccine at such and such a level, the tax will surely be paid, whatever other arrangements the buyer or user of the vaccine or the FDA, let alone the manufacturer, may prefer or can afford. In a similar spirit, the old law relied on the political branches of government to make those safety choices that only a community as a whole can responsibly oversee. The new again prefers control through the instrument of the lawsuit. Safety standards have been entirely socialized, but in a peculiar sort of way that freezes out not only private choice but also public prescription through all government authority other than the courts. The new accident insurance is likewise furnished on a universal and standardized plan, whether or not one or another of us might prefer a different set of policy terms or a different insurance carrier.

Though we have gone a great distance, there is no reason to believe that the journey is over. In the first place, the momentum of accumulated logic is likely to keep the system moving for the indefinite future, as newly established legal principles are deployed to open up fresh areas of litigation. There is also great financial momentum in the system. The tens of thousands of plaintiffs' lawyers who advertise for clients, dig up the cases, marshal the evidence, and take the claims to court, now have considerable economic muscle on their side. In 1988, asbestos lawyers were beginning to collect fees that will total about $1 billion, and were looking, so to speak, for new places to invest this money. Among the candidate targets were fiberglass and other insulators, tobacco, and various chemicals. The early claims against the Dalkon Shield intrauterine contraceptive device funded second- and third-generation lawsuits against other IUDs, spermicides, and morning sickness drugs. The lawyers who started careers as small-town traffic accident litigators were later to take on automakers, municipalities, taverns, and distilleries. As the Founding generals won their victories, the ranks of their followers swelled. And as the armies grew, the perimeters of the tort empire were pushed out further still. Despite occasional initiatives in state legislatures, and interminable hand wringing in Congress, no armistice seems imminent.

The statistics confirm this picture of restless, ceaseless expansion. The number of tort suits filed has increased steadily for over two decades. So has the probability that any given suit will conclude in an award. And the average size of awards has grown more rapidly still. Multiplied together, these three trends produce the universal tort tax so pervasive in our world today.

Begin with the number of cases. Traffic accident claims, which account for about 40 percent of all tort cases today, have held steady or even declined as states have passed no-fault laws. But other cases have been on a steep rise. Cases where appliances, factory machinery, chemicals, automobiles, and other products are blamed for injuries increased fourfold between 1976 and 1986. More medical malpractice suits were filed in the decade ending in 1987 than in the entire previous history of American tort law. One survey found that damage claims against cities doubled between 1982 and 1986. In the space of a single year, between 1984 and 1985, claims filed against the federal government grew from 41,000 to 54,000, and the amount demanded from $112 billion to $149 billion, an increase of over 30 percent by either measure.

The plaintiff's probability of winning has also risen steadily. The likelihood of success rose from 20 to 30 percent in a product case in the 1960s to more than 50 percent in the 1980s, with similar increases in other classes of lawsuit, again excluding traffic cases.

Finally, there has been sharp growth in the size of awards.

The average judgment in all tort cases rose from an inflation-adjusted $50,000 in the early 1960s to more than $250,000 in the early 1980s- a fivefold increase. The inflation-adjusted median award-the amount exceeded in half of all judgments-has been rising steadily too, by more than 80 percent in the same period. Average verdicts against cities rose almost tenfold, to $2 million. The first jury verdict exceeding $1 million came in 1962; in 1975 there were fewer than twenty; today there are over 400 a year, an increase that could not possibly be ascribed to inflation alone. Inflation-adjusted awards in medical malpractice cases have doubled about every seven years.

It is always possible to manipulate and rearrange statistics, and tort law statistics are no exception. Many defenders of the new jurisprudence, including some who helped catapult tort law to the triumphant position it occupies today, have become notably modest, in recent years, about the success of their crusade. Insisting all the while that the legal changes they brought about were necessary, important, and all for the common good, they also suggest that not much has changed at all, at least not in the litigation statistics. They come up with modest-sounding figures on the rise in litigation, most commonly by lumping together traffic accident cases, which have been notably stable, with others, where the real turmoil has occurred. But anyone who cares to wade through the numbers in detail will find the conclusions unambiguous. We are living in an altogether new legal environment, created in little more than twenty years, and profoundly different from what existed in this country and in England for six centuries before. Tort law, once a remote and sleepy province of the law's empire, has become one of its most bustling and dynamic centers of activity.


If you pay a steep, unsettling, and broad-based tax, you expect something in return. The Founders promised the world that their tax would bring measurable progress toward two deeply held social goals: protecting life and limb, and helping the injured when accidents do happen nevertheless. How well has the tort tax achieved these goals? The record is a mountain of pretentious failure.

High taxes drive up some prices, and the new tort system has certainly done that. Taxes drive other things off the market altogether, and that too has happened. The immediate impact of the new legal rules has been a marked increase in price and a decline in the availability of a wide range of goods and services. That much was expected, indeed welcomed, by the Founders. Hazardous goods should cost more, they felt, to reflect the risk; too-hazardous goods should not be sold at all.

What was unexpected was the propensity of the tort tax to fall where it is least needed and most difficult to bear. Contrary to all original expectations, the first major casualties of the new legal regime have been many of the methods by which society pursues safety itself. Hospital emergency-room services are perilous in liability terms because emergency room patients are in trouble to begin with. Vaccines are hazardous (again, from the legal perspective) because the children who receive them are susceptible to a host of diseases and reactions often indistinguishable from vaccine side effects. Running a municipal police department, ambulance service, town dump, or waste cleanup service invites litigation because these activities are aimed at situations that are risky from the beginning. Selling an antimiscarriage drug, contraceptive, abortion, or obstetrical service is legally dangerous because pregnancy itself is risky for both mother and child. And modern tort law has written an altogether new conclusion to the parable of the Good Samaritan, making it unwise to stop at the roadside accident without first checking in with your local insurance agent and lawyer. In its search for witches, the modern tort system has undoubtedly found a few and reduced them to ashes. But too many wonder drugs have also been gathered into the flames.

How could a tort system so committed to increasing safety have landed some of its first punches on the very persons who work on the front line of helping others? Why does it so often fail to distinguish risks that are part of the problem from risks that are part of the solution? The answers are complex. For one thing, juries have often (and quite understandably) proved unskilled at distinguishing the various parties found at the scene of the crime. They are too prone to arrest the firefighter along with the arsonist, the ambulance driver along with the drunk who made the ambulance necessary in the first place. Another part of the reason lies in a slip between theoretical cup and real-world lip. The Founders were committed to deterring hazardous practices. But judges and juries were, for the most part, committed to running a generous sort of charity. If the new tort system cannot find a careless defendant after an accident, it will often settle for a merely wealthy one. But the wealthy defendant is more often part of the safety solution than the safety problem.

The larger fallacy in the Founders' grand scheme was the idea that the most attractive defendants would stick around to be sued, in case after case, after it became clear what was happening. As our right to sue the butcher, brewer, and baker after the sale has grown, our freedom to make the purchase in the first place has declined. The purveyors of meat, beer, and such withdraw only partially, by demanding a higher price; the purveyors of rare drugs, Yellowstone hiking, and rural obstetrical services have often been driven from the market altogether. An unbounded and impossible-to-waive right to sue necessarily overtakes and destroys the right to make deals with people who place a high premium on staying in business and out of court. While the consumer has indeed acquired a new and sometimes valuable right to sue, he has done so only by surrendering an older right, the right to contract, which in the long run is worth far more.

What about the aim of providing more and better insurance against accidents? It has fared no better than the goal of improving safety, and for much the same reason. How much insurance we get depends not only on how much we want to buy but on how much others are willing to sell. The Founders sought to increase the demand for liability insurance, and they undoubtedly did just that. But at the same time they decimated the supply. The net effect was less insurance all around.

The key to providing private insurance is to seek out reasonably narrow, well-defined risk groups, whose membership can be precisely described and whose future claims can be predicted with some accuracy. If an insurer cannot distinguish the young Corvette enthusiast from the middle-aged driver of a weekend Oldsmobile, high-risk drivers will stock up on bargain coverage while low-risk drivers will cut back, and the insurer will eventually have to charge everyone something approaching a Corvette rate. Less insurance will be sold as a result. Every major change in legal rules implemented by the Founders aggravated problems of exactly this kind, by requiring a looser definition of risk and responsibility, which led to higher rates, which led to lower coverage.

As it became less and less clear whose policy would have to pay for whose injury, liability insurance became scarce. In more than a few markets it disappeared altogether. For day care centers, orthopedists, neurosurgeons, and countless others, insurance became wholly unavailable at any price. Some insured activities were discontinued, which turned the shortage of insurance into a shortage of goods and services. Some among the bolder liability targets chose to go bare, deliberately undercapitalizing and underinsuring their operations, and then daring the tort system to do its worst. Many others wound up doing what amounted to the same thing on a more modest scale, still carrying some insurance but far less than they needed or wanted. The liability insurance crisis has hit the smallest enterprises the hardest. While larger players always survive the assault one way or another, the smaller ones often cannot. The system does succeed in paying some of the people some of the time, and on occasion paying them handsomely. But though munificent for a very few, it has been profoundly destabilizing for many more. The financial security of most people, most of the time, has declined.

In both its safety and its insurance effects, the new tort system is highly regressive; those who have the least to begin with are hurt the most. The affluent woman in this country today goes abroad for the IUD, once-a-month pill, or for the exotic eye drug driven off the U.S. market by liability too heavy to be borne; the poor woman stays at home and does without. The highly skilled worker need not be concerned when employers retrench their hiring because of liability concerns; the borderline worker has everything to lose. The well-to-do escape contagious disease entirely or survive with expert medical care; those who live in crowded squalor are far more likely to succumb to an unchecked epidemic that only aggressive distribution of vaccines or medicines could halt. The city dweller continues to enjoy ready access to specialty medical services; her less fortunate country cousin travels great distances or does without.

The insurance picture is more regressive still. The mandatory accident insurance required by modern tort law is funded by an excise tax on goods and services, but its benefits, such as they are, are strongly linked to income and social status. The car- and the implicit insurance contract that must go along with it- is sold at one price, whether the buyer is the president of the First National Bank or its janitor. Yet when disabled in a crash, the president can expect to receive a far higher award than the janitor for loss of future wages. The deal may be a good one for the president (though she undoubtedly has obtained comprehensive direct insurance elsewhere); for the janitor it is a cruel fraud. We would find it unthinkable to require all citizens to pay the same rate for a type of life insurance that gave far higher benefits to affluent beneficiaries. Nor would we charge the same fire insurance premium for a bungalow in Watts as for a mansion in Beverly Hills. Yet that is precisely how modern tort law operates. A more regressive scheme of social welfare could hardly be imagined.

Although the legal revolution has assumed the mantle of public interest, it has paradoxically put a damper on communal enterprise as well. Many things that can only be accomplished collectively are no longer even attempted, because the private right to sue has eclipsed the public power to act and serve. Sometimes the consequences are comparatively minor, as when public transportation is curtailed or a public beach shut down. Sometimes they are grave, as when a mass vaccination initiative is delayed or abandoned altogether. And again the worse-off are hit harder. The wealthy community always finds a way to ship its smokestack factories and wastes elsewhere; the poor one, when prevented by the courts from reaching an understanding with its own citizens, must entirely surrender the communal benefits that such activities make possible.

Across the board, modern tort law weighs heavily on the spirit of innovation and enterprise. The Founders confidently expected that their reforms would provide a constant spur to innovate. The actual effect has been quite the opposite. The old tort rules focused on the human actors, inquiring whether the technologist was careful, prudently trained, and properly supervised. The new rules place technology itself in the liability dock. But jurors, who generally can reach sensible judgments about people, perform much less well when they sit in judgment on technology.

Under jury pressure, the new touchstones of technological legitimacy have become age, familiarity, and ubiquity. It is the innovative and unfamiliar that is most likely to be condemned. One feature after another of the new system presses in the same direction. Consider the gilt-edged safety warnings that the new tort rules demand. Honing a warning to a fine point of perfection requires years of market and litigation experience, which means that established products now do comparatively well in tort suits based on warnings, while innovative challengers are vulnerable. The new rules also force providers to sell not only a product or service but also an accident insurance contract with it. But the availability of reasonably priced insurance depends on the accumulation of actuarial experience something that all established technologies have but no truly innovative one ever does.

As a result of these and other similar forces, it is far safer, in liability terms, to sell an old, outdated oral contraceptive than a new IUD or sponge. It is more prudent, at least from the legal perspective, to stick with the tried-and-true technologies for car frame design, or aircraft engines, or vaccine formulation than to experiment boldly with something new. Does a pesticide manufacturer wish to steer clear of the courts? Any lawyer knows that the best legal bet is an old, familiar chemical, which has been used for years by every farmer in the community, rather than the latest exotic breakthrough in genetic engineering. Is the electric power company seeking at all costs to avoid liability? It will find coal to be the safest possible fuel in those terms, and uranium the most dangerous, though the ranking of actual risks may be the reverse.

The result is to ingrain a bias against innovation at all levels of the economy-for which we pay a heavy price, not just in money and in our nation's competitive position in the world, but in safety once again. The lay mind is accustomed to equate familiarity with safety, but newer, more often than not, is in fact safer than older. Life expectancy in this country has increased at the astonishing rate of three months per year throughout the twentieth century, not because of the proliferation of litigation but because of the constant press of technological innovation-innovation that is now being slowed and sometimes even reversed by the ongoing legal assault.

Wrong Signals

Modern tort law has likewise failed in what one might call its educational objective, its aim of signaling to consumers which courses of action are riskiest. What the modern law has done with warnings again richly illustrates the problem. Of course it makes sense for the manufacturer of a lawn mower or a potent drug to alert users to the risks. But warning is such an obvious and attractive concept that insufficient warning has become a catchall rationale for liability when no other comes readily to mind. This has been carried to the point where tort law now presses hard for warnings that go into mind-numbing detail and overstate actual risks. An excess of detail undercuts the value of the warning in practice; to warn of everything is to warn of nothing, and in a torrent of new data the really crucial bits of information are likely to go unread. Overstatement is worse still. An overly lurid warning that causes a man with hypertension to put aside a prescribed medication, or an older, overweight woman to reject an IUD and go back to the pill, or a mother to forgo vaccinating her young child, can cause considerably more harm than the omission of a warning of some obscure side effect that does occasionally materialize. Public health professionals across the country work tirelessly to encourage childhood vaccination. Meanwhile, tort verdicts against vaccine manufacturers have been based on the premise that a more draconian warning was desirable precisely because it might have caused parents to spurn the professional advice. And other consumers learn to adjust for overstatement by ignoring warnings altogether. There was a fable once about crying wolf, but it apparently went unheeded when modern warning doctrine was being framed.

The law's larger message to the consumer is falser still. A cardinal though unstated principle of the modern rules is that it is wrong to blame a victim, or indeed anyone who lacks the funds to pay, for to do so means to give up the quest for victim compensation. The impulse here is surely generous. But accommodating it requires systematic evasion of the truth. It means sending women the message that their own hygiene or sexual habits are not all that important a risk factor in uterine infection or infertility; responsibility lies with the remote corporations that make contraceptives and tampons. It means sending workers the message that lung disease is primarily a function not of their own decision to smoke heavily on the job, or of the acts of their employer who happens to be shielded by workers' compensation laws; responsibility lies instead with the distant company that originally made the insulation. It means pretending that the responsibility for protecting U.S. servicemen and downwind civilians when a war is being fought or weapons are being tested lies not with the Pentagon, which also enjoys legal immunity in these matters, but with government contractors who make herbicides or fighter jets or help to conduct weapons tests. It means telling the individuals close to the accident that they are rarely in a position to make the difference in terms of safety; the ones with real control are the faraway institutions. Such beliefs have been indispensable in accomplishing the objectives of the new tort system. They have been repeated so often in the courts, and then in the press, that many now accept them as true. But they are all in fact dangerously false.

The new tort message is one of misinformation in matters not only of safety but also of financial protection. The notion that tort liability provides a reliable safety net for accident victims would be an exceptionally cruel myth if potential victims took it seriously. Anyone who forgoes buying her own insurance on the assumption that liability offers an adequate substitute is living in a dream that will assuredly become a nightmare if an accident ever occurs. Beyond doubt, liability is a huge and certain expense for American business. But there is a vast gulf between payments in and disbursements out, because of the lottery-like mechanics of litigation and the huge overhead required to run the courtroom casino. For the injury victim, as for the patrons of other casinos, it would be most inadvisable to spend or rely on any winnings before they are firmly in hand.

The Founders can hardly be faulted for their intentions, which were honorable, or their dispositions, which were kindly. But they were remarkably naive and optimistic about the legal system in particular and the world in general, and much further from omniscience than they so earnestly believed. Theirs was a tidy, linear world where simple stimuli in the courts would produce simple responses among producers and insurers. They thought they were dealing with a mule, which if prodded judiciously in the rear would proceed forward. But the beast was really an octopus, with no discernible rear to speak of, and capable of the most unpredictable reactions from the most unexpected directions.

Reassembling the Pieces

The liability tax that looms so large and baleful today is a recent invention, not an ancient legacy shrouded in the wisdom of the ages. Bringing it under control does not require tampering with a venerable body of law. The tampering has already taken place.

Nor, however, does reform necessarily mean a simple return to the traditional line of tort law as it stood, say, thirty years ago. That is neither feasible nor desirable. Times have changed and with them public attitudes and the wealth of our society. We have the resources to encourage safe practices and to take care of people who are nonetheless hurt in accidents. Common decency dictates that we should. The question today is not whether, but how.

The details will require some elaboration, but the principle can be stated succinctly. The individual's best protection against the hazards of living, physical or fiscal, is to be found not in the measures that can be taken after an accident, but in the freedom to make considered, binding choices beforehand. Security lies in prudent planning aimed at avoiding misadventure if possible, and obtaining direct, first-party insurance against any remaining risks in the knowledge that some level of risk is unavoidable. It lies in advance agreement with other individuals or the community as a whole to provide for our mutual benefit and security.

So the answer is not to abandon contract, as the Founders did so briskly and casually, but to modernize it. The time-tested legal tools that promote informed private or public choice about risk and safety, and the use of direct insurance against the hazards that remain, promise far better than the liability spiral we are riding today. Private contract can be resurrected in new forms that channel incentives toward more care by providers and better insurance against accidents. The rebirth of contract can reconcile the generous and protective impulses of an affluent modern society with the venerable legal principles of cooperation and consent. It is never too late to admit that a wrong road has been taken. This is particularly true when the road leads to a poisonous swamp.

But to understand what such a journey back to contract could look like, we must first reexamine the legal path away from it that we have so recently and so very hastily traveled.


Page 3 Long Island tour bus: R. Hanley, "Insurance Costs Imperil Recreation Industry," New York Times, 12 May 1980, p. A1.

Page 3 price of a small airplane: "General Aviation Tort Reform Considered," The Executive Letter, Insurance Information Institute (18 August 1986); see also "Business Struggling to Adapt as Insurance Crisis Spreads," Wall Street Journal, 21 January 1986.

Page 3 hyperemesis pill: T. R. Reid, "Insurance Famine Plagues Nation," Washington Post, 23 February 1986, pp. Al, A6.

Page 4 $300 per birth: Lester Thurow, "In Suit-Happy Society, the Economy Ends Up Suffering the Damages," Los Angeles Times, 15 December 1985, Part IV, p. 3.

Page 4 $85,000 a year: "Business Struggling to Adapt as Insurance Crisis Spreads," Wall Street Journal, 21 January 1986, p. 31.

Page 4 New York City schools: "Sorry, Your Policy is Canceled," Time, 24 March 1986, p. 16; Advisory Commission on Liability Insurance, Insuring Our Future, Scope of the Problem (Report of the Governor's Advisory Commission on Liability Insurance to Governor Cuomo, State of New York, 7 April 1986).

Page 4 "CJ" Jeep: "Insurance Famine Plagues the Nation," Washington Post, 23 February 1986, p. A6.

Page 4 Voyager plans: P. Huber, "Who Will Protect Us from Our Protectors?" Forbes, 13 July 1987, p. 56.

Page 4 St. Joseph, Missouri: R. Lindsey, "Soaring Liability Premiums Threaten Some Bus Lines," New York Times, 29 December 1985, p. A16.

Page 4 Lafayette County: "Business Struggling to Adapt as Insurance Crisis Spreads"; see also "Liability Insurance in Crisis" (editorial), New York Times, 4 March 1986, p. A26.

Page 4 Miami railbus: "Business Struggling to Adapt as Insurance Crisis Spreads."

Page 4 ice-skating rinks: "Insurance Famine Plagues Nation," Washington Post, 23 February 1986, p. A1; New York Times, 12 May 1980, p. A1.

Page 4 top 200 corporations: Chief Executive, Summer 1986, p. 32.

Page 4 $1 of direct tax they pay: "Defensive Medicine: It Costs, But Does It Work?" 257 J.A.M.A. 2801 (May 1987).

Page 9 average award has grown more rapidly still: D.Hensler, M. Vaiana, J. Kakalik, M. Peterson, Trends in Tort Litigation: The Story Behind the Statistics (Santa Monica, Calif.: Rand Institute for Civil Justice, Special Report R-3583-ICJ, 1987).

Page 9 fourfold increase between 1976 and 1986: David Kelley, "Editorial Commentary: When Atlas Shrugs," Barron 's, 21 April 1986, p. 11; Annual Reports of the Director (Washington, D.C.: Administrative Office of the United States Courts, 1974-85) cited in J. Fried, "U. S. Courts Are Jammed by Caseload," New York Times, 9 July 1987, p. A15.

Page 9 claims against cities between 1982 and 1986: The Need for Legislative Reform of the Tort System, A Report on the Liability Crisis from Affected Organizations (Washington, D.C.: Sidley & Austin, May 1986), citing Haas, "U.S. Towns and Cities Paying More for Less," Credit Markets, November 1985, p. 47.

Page 10 claims against the federal government: L. McGinley, "Explosive Growth of Law-suits Against the U.S. Creates Concern Over Potential Budget Impact," Wall Street Journal, 14 January 1985, p. 38.

Page 10 fivefold increase in average judgment: R. Hunter, "Taming the Latest Insurance 'Crisis'," New York Times, Letter, 13 April 1986, p. F3; Mary Zavada, "Brushing Up on Basic Arithmetic" (Letter to the Editor), New York Times, 20 April 1986; David Kelley, "Editorial Commentary"; Annual Reports of the Director.

Page 10 jury verdict exceeding $1 million: S. Taylor, "Product Liability: The New Morass," New York Times, 10 March 1985, Section 3, p. 1; Chief Executive, Summer 1986, p. 38; "Courting Disaster: Is America's Civil Liability System Totally Out Of Control?" World, April 1986, p. 30.

Page 10 medical malpractice awards doubled every seven years: Impact of the Liability Crisis on Health Care in America: Hearings on S. 1804 Before the Senate Comm. on Labor and Human Resources, 99th Cong., 2d Sess. (1986) (Statement of St. Paul Fire and Marine Insurance Company at 4); see Gordon Crovitz, Curbing the Medical Liability Crisis: The English Rule on Costs As an Alternative to the Contingency Fee (Washington, D.C.: Washington Legal Foundation, Working Paper Series, No. 11, Feb. 1987).

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1999 Peter W. Huber