Liability for Dummies

In a guest appearance on 2 Blowhards, Colby Cosh suggests that comedy and Middle Eastern speculation gather the most traffic. With that in mind I want to say a few words about liability law.

Everyone agrees that it is crazy for some flaky broad to collect $986,000 on the theory that a CAT scan deprived her of her psychic powers.¹ But what is to be done? Depends who you ask.

1. Change the procedures. The Wally Olson school. Olson, who devotes an entire web site to liability excesses, thinks it’s the way the law is enforced, more than the law itself, that creates the problem. He wants a system, like Britain’s, where the loser pays the winner’s legal fees, rather than our current each-pays-his-own scheme. This is attractive but not without difficulties. It would operate especially harshly in the case of small debts; a $100 debt, paid late, could easily grow, once the collection agency is enlisted, to ten times that or more. You also need a pretty complicated set of rules to determine who really “won” in many cases — if, say, $10 million in damages was asked for and $10 was awarded. Britain even has “taxing masters,” court officers whose job, among other things, is to decide nice questions like this.

It is true that Olson’s proposed reforms would keep a lot of frivolous lawsuits out of court. But the fact remains that frivolous lawsuits, because of the state of the law, are very often won, about which loser-pays, or any other procedural reform, does nothing directly.

2. Revive contract. The Peter Huber school. Huber, who unlike Olson is a lawyer, a distinguished one who clerked for Justice Sandra Day O’Connor, takes a more lawyerly approach to the problem. Huber argues that liability litigation flourished as contract withered away. The first blow to contract, struck early in the 20th century, was implied warranty. America had grown rich enough that most people could afford decent food and medical care. Congress passed the Pure Food Act in 1905, and the courts at the same time began to rule that all sellers warranted their products as fit for human consumption, in the absence of any warning to the contrary. Silence on the part of a seller used to mean caveat emptor; no longer, said the courts. (This is a common pattern. Leftist agitator demands a mandate, by law, of a certain good: a 40-hour workweek, a minimum wage, fresh vegetables. Living standards, thanks to capital accumulation, rise to the point where the good is attainable. Said law is passed. Said agitator is lionized as a friend of the people, and history texts trace the good to the law.)

Manufacturers naturally responded with a blizzard of warnings, disclaimers and limited warranties. These were steadily invalidated, at first because of loopholes in their wording, and then, when the wording was tightened up, because of unequal economic power of the contracting parties — the infinitely flexible doctrine of “contracts of adhesion” — and finally because safety disclaimers were “unconscionable” or “contrary to public policy” or “inconsistent with natural justice and good morals,” that is, for any old reason at all.

Huber suggests something he calls “neocontractual law,” which amounts to circumventing the courts instead of trying to reform them. He proposes that companies offer their own insurance directly to customers, providing for a much higher expected payout by eliminating legal fees. If you buy the insurance and take the payout you agree to waive the lawsuit. The beneficiary can always renege, but if the payout is generous enough, and certain, it doesn’t make much sense to do so.

3. End negligence. The Richard Epstein school. Epstein, a professor at the University of Chicago, wrote an essay called A Theory of Strict Liability in which he argues for abandoning negligence altogether and replacing it with strict liability. He adduces some persuasive thought experiments. Consider the famous British tort case of Bolton v. Stone (1951). Miss Stone, passing by a cricket field, is struck in the head by a batted ball and seriously injured. By the negligence standard the batsman was clearly not liable, and the House of Lords so found: only six balls had flown out of the field in 28 years, the risk of harm was not significant, and reasonable care had been exercised. It seems to Epstein, and to me, that the batsman should have to pay notwithstanding. I ran this case by the girlfriend, who is infallible in matters of moral intuition. At first she inquired why I was quibbling over old tort cases instead of looking for a job. Eventually she agreed that, yes, the batsman should pay damages.

Still, this sounds weird. Isn’t it too much liability that got us into our current fix? Not exactly. What got us into trouble is too much judicial discretion, and too much uncertainty. Under the negligence standard everything is conceivably material. In Bolton v. Stone, for instance,

…the plaintiff had to make a case against the defendant on the theory that its cricket grounds were negligently maintained and this opened up a vast range of questions — on the appropriate size for the cricket field; the location of the pitch; the height of the fence; the year the cricket club began to use its grounds; the land use patterns in the neigborhood both at and since that time; the number of cricket balls hit in Mr. Brownson’s neighboring garden; the number hit into the street; the defendants’ views about the safety of their own grounds. It cannot be a point in favor of the law of negligence, either as a theoretical or administrative matter, that it demands evaluation of almost everything, but can give precise weight to almost nothing.

Epstein proposes, essentially, that whoever harms should pay, but he also proposes a rigorous standard for causation, far more rigorous than what now prevails.

Who’s right? They’re all right. Procedural reform is likeliest to be implemented; in fact a good deal of Olson’s agenda is on the Republican platform. There have already been successes for neocontractual law. Since 1981 the State of Washington has sold liability coverage to its public high school athletes for a few dollars a year; not a single case has gone to court. Strict liability in Epstein’s sense may never come to pass; that’s the price for getting to the heart of the matter.

¹Yes, I know the judge overturned the verdict. But it is amazing that the jury could bring it in in the first place.