Head of the Class on Tort Reform

While President Bush’s effort to remake Social Security from a social welfare program into a vehicle for individual retirement savings has been met with tepid reaction on Capitol Hill, another of his campaign-speech mainstays has fared better. That would be tort reform, where insurers scored a big victory when the Senate voted overwhelmingly in favor of a bill that would move most class actions to more business-friendly federal courts (see page 8).

Senate Bill 5 is likely to be sped through the House of Representatives, where similar bills have won passage, and of course be signed into law by a president who has loudly and repeatedly spoken in favor of various tort reforms. Supporters of the bill, including lobbyists for the insurance industry, think that keeping cases out of so-called judicial hell-holes and moving them into federal courts will put a brake on plaintiffs’ bar venue shopping in class action cases. The bill also puts limits on attorneys’ fees.

How much money the bill will save insurers and the businesses they insure is unclear. The one thing that it doesn’t do is set the kind of hard cap on awards that would make actuaries’ jobs a lot easier. But it was by pursuing the route of procedural reform that the Republicans finally achieved tort-reform victory in Congress. I believe there was widespread agreement that the so-called jackpot justice of class-action litigation had gotten out of hand, and the way to address it was not by putting some arbitrary limit on awards in such cases–which could allow offenders to make calculated gambles–but by moving them to the more uniform ground offered by federal courthouses.

Also, unlike Republicans’ so far unsuccessful efforts to clamp down on medical malpractice awards at the federal level, this bill does not usurp state prerogatives. Rather, it only moves intrastate class actions with more than $5 million at issue to federal court. I believe it’s this kind of approach–focused more on procedure than caps, respectful of our federal system–that can garner the Democratic votes needed to enact meaningful tort reforms.

At the state level, Ohio is a good example of this approach, as Steve Schneider explains in our Parting Shots (page 46). From asbestos to silica to other civil justice reforms, the focus on new procedures that would strike most people–aside from plaintiffs’ lawyers, of course–as truly fair. And the one hard cap, a generous $500,000, applies only to pain-and-suffering awards in noncatastrophic cases. It will be interesting to see whether other states will be able to replicate these reforms. The model is certainly in place.