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LIABILITY: The Legal Revolution and Its Consequences

by Peter W. Huber

New York: Basic Books, 1988. 260 pages, $19.95.

Reviewed by John G. McClendon

I first heard about Peter W. Huber while in law school. I never heard his name, mind you; I heard his legend. "Can you believe it?" I overheard one student saying, with the law student's traditional "this-is-why-I'll-never-clerk-for-the-U.S. Supreme Court" resignation. "There's a guy clerking for Justice O'Conner who graduated with honors from Harvard Law School. He's got a Ph.D. in engineering from MIT. And he taught at MIT." It was only after I graduated that I discovered he was talking about Peter Huber.

With a resume like his, Mr. Huber could easily have been the year's prize trophy to be bagged on the annual recruitment safari conducted by America's most prestigious law firms. But Mr. Huber decided to stalk a big quarry himself: the American legal profession. In LIABILITY: The Legal Revolution and Its Consequences, Huber tells the fascinating story of how a handful of activist judges, law professors and attorneys, motivated by the best intentions, in less than a quarter century completely rewrote the centuries-old Common Law rules regarding victim's rights and tort liability. But it is not a story with a happy ending; its genre shares much in common with the Steven King horror novel: a peaceful, stable, bucolic setting destroyed by sinister evil. For Huber convincingly demonstrates how these activists, in attempting to use tort law (the law of personal injury and accidents) to create an ideal society wherein every accident is compensated, every danger is deterred, instead destroyed a centuries-old liability system predicated upon the freedom of individuals to allocate risks by private contract. And in its place they created a new system that, although it looked so good on paper, has escaped from the laboratory of legal theory like Frankenstein's monster to wreak evils upon society both subtle and profound. The moral to this story is one all too familiar to citizens of the Modern State: the cause of almost any contemporary social horror or "crisis" can usually be traced to the actions of Utopian-minded social planners bent on engineering the perfect society.

Much of Huber's book is devoted to identifying the various evils of the new tort system. Perhaps the most profound horror is what Huber dubs the tort liability tax:

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 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. ... 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... The tax has curtailed Little League and fireworks displays, evening concerts, sailboard races, and the use of public beaches and ice-skating rinks...

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. (p. 3-4)

This tax is not levied and collected by elected officials but by the courts. And although the idea behind the tax was to assure adequate, cost-effective compensation of all accident victims, more than half of the tax proceeds are siphoned off by lawyers and the legal system before they ever reach the intended beneficiaries. Consonant with America's international reputation as the most litigious nation on earth, "No other country in the world administers anything remotely like it." (p.5)

The liability tax was the brainchild of activist legal theoreticians studying how society could most efficiently allocate the costs of accidents. Who, they asked, was in the best position to reduce both the likelihood of accidents as well as provide accident compensation for victims once accidents did occur? With near unanimity they concluded it was the providers of goods and services. The solution lay in charging providers with the costs of accidents regardless of whether they were even responsible for causing them. This would, on the one hand, force providers to use maximum care in producing goods and services and, on the other hand, force consumers to purchase a hidden insurance policy that producers would now have to build into the price of every good and service sold in the form of a risk-adjusted liability "tax". To the activists, this solution seemed elegantly simple; the real challenge would come in implementing this plan in the courts. For in doing so, it would be necessary to cast aside the whole Common Law tradition of accident liability.

For centuries the law of accidents had been guided by principles of contract that allowed parties freedom to contract between themselves as to how they would allocate risks. In the absence of an agreement between parties as to how product or service risks were to be allocated, courts utilized liability allocating presumptions that were familiar and predictable, yet rebuttable with a showing of proof. These presumptions in turn served as incentives for parties to contractually allocate risks at the outset of their dealings. Tort law was but a minor appendix to the law of accidents, which came into play only when the parties were strangers without a prior relationship (as in the typical auto accident case).

The activists discovered that the key to implementing their new agenda lay in courts radically expanding the law of tort by means of precedent-setting decisions until contract law was pushed almost totally out of the liability picture. But contract law was no pushover Humpty-Dumpty, and Huber has great fun in recounting the battle strategies as courts circumvented producer's contractual liability disclaimers, producers parried with express disclaimers, and courts reacted to these "much as a pack of chimpanzees welcomes a python, with much howling and chest pounding and waving of arms and throwing of rocks' (p.29) before finding ways around them too. Producers eventually managed to draft contractual disclaimers that were virtually impervious to judicial nullification via creative interpretation. But it was all for naught. In the end the courts unleashed the judicial equivalent of a nuclear strike against contract liability disclaimers: such disclaimers were simply "unconscionable" and "contrary to public policy", they decreed. The consumer was simply not going to be allowed to bargain away his judge-given right to be protected from harm, nor be permitted to purchase a product or service, without paying the built-in liability tax.

Underlying the activists' rationale for jettisoning the old contract law was their philosophy of statist paternalism and its cynical view of the competency of individuals to make wise choices. In their view consumers were too ignorant, technology too complex, and the bargaining position of producers too powerful, to permit naive consumers and jaded providers the freedom to allocate risk-of-injury liability by private contract. Left to themselves, some consumers would invariably choose to forego paying for liability coverage, suffer uncompensated injuries, and then become burdens upon the welfare state. Therefore, the courts were required to act in loco parentis to protect consumers from their own folly and reduce social welfare costs. Always finding producers at fault when injuries occurred forced consumers to pay a safety surcharge on every purchase, a surcharge that in some cases priced poorer consumers out of the market for certain items altogether.

The highly regressive nature of the tort liability tax is another of the horrors of the liability revolution. As Huber points out, the tax falls most heavily on the poor who must pay the same amount for their built-in "insurance policy" as the wealthy. Yet when it comes time to compensate an accident victim the payout is on an entirely different schedule. Injury compensation is based upon the victim's loss of future earning potential. Thus, the injured doctor or corporate CEO may find his damage award to be several million dollars; the janitor's award for the identical injury may amount to a few thousand. This result makes the tort tax an insurance bargain for the wealthy but a terrible buy for the poor. By coercively forcing all consumers to pay the same price for protection the courts have created a system whereby low income consumers wind up subsidizing the larger damage awards paid to high income victims. (And remember that better than half the tax gets eaten up along the way as the legal establishment's "administrative costs" of operating this system!)

Huber's story reads like absurdist fiction when he explains how the activists vulgarized justice in order to implement their agenda. The activists found the traditional principles of tort law simply weren't expansive enough to fill the void left by contract law. The problem was that tort law was guided by venerable Common Law principles of justice tracing their pedigree back to the Bible. According to these principles, if a person did not cause the victim's injury or was not at fault in the matter, then that person could not be made to pay for the victim's injury. Establishing a party's culpability, then, was a prerequisite to requiring that party to pay damage compensation.The activists turned this on its head. Since their primary objective was to compensate victims, they viewed fault and causation as troublesome roadblocks to awarding money to victims. Therefore, their new strategy was to discover first who had the financial resources to compensate the victim and then, working backwards, construct a rationalization for the court's picking that "deep pocket". Courts found a number of ways to accomplish this. Courts stopped taking into account the injured party's share of blame for his injury. A drunk driver who crashed his car into a telephone pole could now collect from the telephone company for damage to his car and himself. Manufacturers were found liable for damages even when they gave explicit warnings not to misuse their product and consumers did so anyway. New theories were introduced in order to make determinations of fault irrelevant. Joint and severable liability enabled courts to assess 100% of a victim's damages against a party that was a nominal 1% at fault. Strict liability held a provider liable for damages on a mere showing that he had sold the product and a person was injured by it; a showing of negligence was unnecessary.

Science also took a weird twist when juries considered the causation issue. The same idiot-consumer legal theorists had found unqualified to determine his own safety requirements was suddenly transformed into a savant once he was impaneled on a jury charged with determining the safety requirements of others. Juries with no scientific expertise were called upon to evaluate high tech products and determine whether these sophisticated products were unacceptably dangerous. What Huber calls "junk science" is a constant bane in the courts. Long after medical science conclusively showed there is no causal connection between cancer and traumatic injury, tort lawyers continue filing suits alleging this connection. And in case after case, clever attorneys manipulate statistics in order to persuade juries that a causal connection exists between an injury and a product, when the best scientific evidence says otherwise.

While Huber expresses disdain for the way the new liability system perverts traditional principles of justice, the centerpiece of his critique lies not in ethics but economics. What is most alarming about the new liability system for Huber is the way it has acted to produce greater economic inefficiencies in our society. His focus here centers on two areas: insurance and innovation.

According to the activists, the new liability system was supposed to increase the availability and affordability of insurance. The reality is just the opposite. As courts invented ways to levy damages against insurers for injuries sustained outside policy coverage periods, insurers fled the marketplace. Availability of insurance has substantially decreased and in some areas has disappeared altogether.

Innovation has likewise been a casualty of the new system. Innovative, safer products actually found it more difficult and expensive to obtain insurance than older, more dangerous products. As insurers reeled from the uncertainties the new rules injected into their actuarial predictions, they grew increasingly cautious. They preferred underwriting older, less safe products with an established safety record, rather than risk being thrown a curve by an innovative product without one. Innovation was penalized in the courts as juries, the newly-appointed experts in matters of technology and engineering, scrutinized new products according to that basic human tendency: trust the old and familiar; distrust the new and unfamiliar. The net result has been a precipitious drop in innovation and invention in the United States. Ironically, as Huber points out, it is from innovation that we historically have acquired our greatest windfalls in safety. Yet the new liability system operates to frustrate innovation.

If the system is such a disaster, what keeps it afloat? In a word: money. The new system is labor intensive and virtually guarantees full employment for attorneys. Thousands of attorneys have become rich by working the system, some fabulously so. With money comes political clout, and these attorneys zealously resist any reform of their cash machine.

There are some blemishes in Huber's otherwise compelling story. I found his deference to the canons of feminist grammar distracting with his use of "she" as the generic pronoun. His argument that the new rules of tort liability will prevent the marketing of the French abortifacient RU-238 in the United States (p.228) was hardly one inspiring me to sacrifice myself upon the tort law battlements. And I positively laughed at this supposed "horror story" of the liability crisis: "By 1985 day care was becoming dangerous, not for the kids but for the people running the centers. More children stay at home today, as a result, where (experience abundantly confirms) they are far more likely to be abused or neglected by someone in their own family, just as before, in the good old days" (p.162-63). Imagine! All these poor children now left to the mercy of their mothers!

Perhaps these blemishes can be attributed to Huber's conviction that the chaotic state of American tort law is a problem transcending politics. Thus, in attempting to illustrate the folly of the tort system to persons of all political persuasions he amasses an arsenal of arguments in his book not all of which will be equally compelling to everyone. For as Huber says, "The issues here should not align liberal against conservative. Our present arrangement is liberal only in the pejorative sense of being generous with others' money, and conservative only in the pejorative sense of being hostile to innovation and change on every front. The only real political line is between lawyers and the rest" (p.224-25). Whether one criticizes America's tort law system on account of its abandonment of Biblical principles of justice, or upon the chaos it has created in the marketplace, Huber is to be credited for doing a masterful job of exposing the utopian pretensions, legal sophistry, and activism that formed it.

Copyright © by Covenant Community Church of Orange County 1990
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