Total Injury

A briefing paper by the Economic Policy Institute, relying heavily on data from the Congressional Budget Office, draws some interesting conclusions about the "costs" of litigation in the U.S.:

1. The reported "tort cost" is greatly exaggerated, because it takes into account the transfer of money from the injurer to the victim, which is not accurately classified as a cost to society;

2. The number of tort cases in the United States has declined over the past dozen years; and

3. There is no evidence that litigation influences the cost of health care. In fact, the Congressional Budget Office estimated that even a 30% drop in medical malpractice insurance premiums would only reduce the cost of health care by a fraction of one percent.

The full text of the report is available on the Economic Policy Institute's website.

In the continual lobby to limit awards in personal injury cases, one of the most commonly--and dramatically--reported topics is huge punitive damage awards associated with comparatively minor injuries.

The point they're missing, or at least hoping that you'll miss, is that the disconnect between the appropriate level of damages and the plaintiff's actual losses is the whole point. Punitive damages aren't intended to compensate the victim--that's what "compensatory" or "actual" damages are for. In fact, in some states a large portion of punitive damages is paid to the state, not to the plaintiff.

Punitive damages are intended to do just exactly what the name implies--punish the defendant so as to make it unprofitable to engage in the kind of dangerous behavior that caused the problem.

Corporations make decisions based in part on a risk analysis--in essence, a determination as to whether it will cost them more to take precautions, or to pay for the harm once the damage is done. Punitive damages discourage that kind of analysis and aim to prevent decisions that put people at risk in the interest of profits.

The recent Vioxx case in Texas provides an excellent illustration. The company delayed a change in the drug's warning labels after it knew the drug could trigger heart attacks and strokes because its executives estimated that the delay would save the company $229 million.

The Texas jury wanted to make sure the company didn't profit from that decision, and so returned a verdict that included $229 million in punitive damages. Unfortunately, Texas law caps punitive damages, and the award will be reduced to less than $2 million, leaving the company to reap hundreds of millions of dollars in profit from its decision to go ahead and let some people die in the interests of higher profit margins.

That's the kind of thinking that punitive damages are intended to discourage--and the kind that will become more and more routine as states cap punitive damage awards and remove the risk to corporations that knowingly put human safety at risk.