Sunday, August 20, 2006

Addressing Tort Liability, Public and Private

In an example of how a government will sometimes exempt itself from the requirements to which it subjects its citizens, the state of Tennessee caps the civil liability of various government entities at $250,000 per accident. In an editorial this morning, The Tennessean correctly argues that the cap results in unjust outcomes in some rare instances; however, they do not quite arrive at the appropriate remedy.

Broadly speaking, damage awards in civil lawsuits fall into one of two categories: economic and non-economic. Economic damage awards are designed to make the injured party whole with regard to losses that are monetarily quantifiable: medical expenses, rehabilitation, loss of income, money needed to train for a new occupation, funds for household help or renovations to meet the needs caused by a disability resulting from the accident, and so forth. Non-economic damages compensate the victim for pain and suffering or provide for punitive damages in response to egregious conduct by the liable party.

Advocates of tort reform have argued that limitations should be placed on the amount of non-economic damages in order to put an end to the sorts of outlandish jury awards that garner public attention from time to time -- a maximum of $250,000 is commonly advocated. However, no responsible person in the private sector has argued that tort reform should include caps on economic damages: such caps would be unconscionable, as they would prevent the successful plaintiff from being made whole on basic items such as medical expenses.

But such an unconscionable position is the place where state government stands. According to the editorial, advocates of the cap on economic damages for state and municipal governments argue that "one massive lawsuit could drive a small city into bankruptcy." Indeed. Such lawsuits regularly drive small and medium sized private businesses into bankruptcy, and the possibility of such lawsuits forces private businesses and individuals to spend lavishly on insurance coverage designed to protect them from that threat.

The solution for state and local governments is the same as that for private interests: a successful litigant should be able to be made whole regarding economic damages. Reasonable caps should be placed on non-economic ones.


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