Tort Reform Advocates Strike While Iron is Hot

By | May 5, 2003

Only weeks ago it seemed that a series of well-publicized doctor walkouts across the nation had led not only to political pressure to enact malpractice award caps in crisis states but action at the national level as well. Now it appears that class action reform is the hot ticket in Washington, D.C., and insurers are tickled pink.

The Senate Judiciary Committee has voted to send to the floor S. 274, which would allow class action suits with $5 million or more in dispute to be moved to federal court. The bill, which also specifies that class actions are not eligible for removal to federal court if two-thirds of the class members are from the same state as the defendant, was held up in committee by Sen. Dianne Feinstein (D-Calif.).

Once her amendments to raise the threshold from $2.5 million and tighten the diversity restrictions were accepted, it was passed. This has given hope to many that Feinstein’s approval will bring S. 274 the necessary Democratic support to reach the 60 Senate votes necessary to avoid a filibuster and ultimately land it on the president’s desk.

Avoiding ‘jackpot justice’
The business community generally, and insurers in particular, hope that offering the federal option in large-amount cases will avoid what is termed “jackpot justice” in particular state jurisdictions that have awarded huge settlements to plaintiffs, such as Madison County, Ill., in which Phillip Morris was recently ordered to pay $10.1 billion in damages.

The new legislation, if passed, “might undermine or it might reduce those occurrences where cases are brought into what we all term as hellholes that are truly of a federal nature and that are brought and locked into state court where the defendant cannot receive justice,” said Brian Bauman, president of Lawyers for Civil Justice (LFCJ), a partnership of the major defense bar organizations.

“And it would enable those cases to be tried in federal court that is better suited really to try that type of case where you have such an enormous number of plaintiffs. A secondary impact will be that this will lead to greater predictability in terms of … (enabling) insurers to have a greater sense of comfort level in forecasting what their losses might be. It will remove some of the unpredictable elements we’ve had where these cases have gone to state court, seem to be without merit, and still companies seem to find themselves on the losing side.”

This sudden momentum in the Senate comes on the heels of the U.S. Supreme Court’s 6-3 April 7 decision in State Farm Mutual Automobile Insurance Co. vs. Campbell et. al. to draw the line on punitive damage awards way out of line with compensatory damages. The plaintiffs in the Utah case were awarded $1 million in compensatory damages and $145 million in punitive damages. Justice Anthony Kennedy wrote for the majority that “few awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.”

While medical liability caps of $250,000 on non-economic and punitive damages passed the U.S. House of Representatives, a bill is still awaiting action in the Senate. Meanwhile, Sen. Orrin Hatch (R-Utah) has held hearings on how to structure an asbestos litigation solution, but nothing has yet emerged.

Insurance industry representatives, defense bar lobbyists and tort reform activists agree that the soil is fertile for major changes now.

Playing the political chips
“In my 20-plus years in this business, I don’t remember a situation where both at the federal level, where the political makeup of the House and Senate (even though the margins are narrow) were majorities for the conservative side and public sentiment have lined up at the same time,” said Joseph J. Annotti, a spokesperson for the National Association of Independent Insurers, a trade group that represents 715 property/casualty carriers. “This improves the chances of getting meaningful reforms enacted. We’ve all learned our lessons from the past. You’ve got to use your political chips when you have them.”

And the chips most certainly are being played. The American Tort Reform Association has publicized the results of a poll it financed in which the 800 respondents, across party lines, overwhelmingly agreed there are too many lawsuits, greedy lawyers are to blame, and they’d punish politicians who did not vote for reform by voting against them.

Specifically, 83 percent of those polled agreed there are too many lawsuits in America, and 45 percent support tort reform as opposed to 6 percent who oppose it. More impressively, 67 percent of the respondents said they’d be more likely to vote for a politician who favored tort reform and 64 percent said they’d be less likely to vote for a candidate who opposed it.

The raw numbers seem to support popular opinion. A study by the actuarial firm of Tillingham-Towers Perrin found that U.S. tort costs increased 14.3 percent from 2000 to 2001, the largest single-year increase since 1986. Total costs for 2001 were tallied at $205 billion, compared to $179 billion the year before.

Big boys at bat
Meanwhile, the heavy hitters in the industry have come out swinging. At the recent Risk and Insurance Management Society Inc. (RIMS) conference in Chicago, AIG CEO Maurice “Hank” Greenberg came out in favor of a U.S. Chamber of Commerce scheme to target jackpot justice states by appealing to investors not buy their municipal bonds.

“Clearly it is out of control,” Greenberg said. “We have to fight this battle on a state-by-state basis.” AIG famously had to take a surprise $2.8 billion charge in February to strengthen its casualty reserves in light of a large number of class action suits against corporate directors and officers.

Meanwhile, Lloyd’s of London Chairman Lord Levene, also in Chicago for RIMS, sounded the alarm bells.

“To a foreigner like me,” he told an audience at the Union League Club, “the drain that this system has on the U.S. economy is unbelievable. … I am delighted this issue is firmly back on the political agenda. I hope that Congress does act against excessive damages. I hope too that frivolous or groundless class actions, which reward the lawyer more than the plaintiff, become a thing of the past.”

Ric Gass, incoming president of Lawyers for Civil Justice, said all three items—class action, medical liability and asbestos—”have an excellent chance of getting through this Congress. All three are moving ahead at the same time and that is going to provide impetus for all of them. The coalition and the relationships that are moving the medical bill ahead are going to help build the coalition on each of the other ones and vice versa.”

Walter Olson, a senior fellow at the Manhattan Institute’s Center for Legal Policy and author of The Rule of Lawyers: How the New Litigation Elite Threatens America’s Rule of Law, said class action reform always struck him “as the most likely to pass, because with class actions you don’t have any traction for the trial lawyers’ arguments.”

Because the bill does not aim to change any “substantive legal rights,” as LFCJ’s Bauman said, but only how and when cases can be removed to federal courts, it seems like less of a radical change to lawmakers. In addition, Olson said, trial lawyers cannot argue that the matter should be handled at the state level, as with medical liability. By its very nature, it is a matter for Congress to settle.

Texas tort reform in trouble
It’s not only Capitol Hill that’s seeing movement on tort reform. Of course, a flurry of states have adopted malpractice liability reforms, but tort reforms are in the works as well. Democrat-controlled California sees no prospects for reform, but the Texas House of Representatives has combined its malpractice liability caps with a number of tort reforms (HB 4), which passed the House and is now in the Texas Senate.

The tort reforms include: limiting plaintiffs attorney fees to 25 percent in class action suits, immediate appeal to the Texas Supreme Court for class certification, forbidding the plaintiff from recovering fees if a trial award is 10 percent or more less than a defense settlement offer, loosening products liability statutes, making it easier to change venues, abolishing joint and several liability in favor of proportionate liability, and capping appeal bonds at 50 of the defendant’s net worth and at most $25 million.

The bill is currently in the Texas Senate State Affairs Committee, and is “going to be significantly modified by the time the Senate gets done with it,” according to Wayne Mason, a lawyer for the Dallas-based firm of Sedgwick, Detert, a national trial practice that primarily defends corporate America in catastrophic injury cases and commercial litigation matters.

Many of the tort reforms have run into significant opposition, especially from the plaintiffs bar. Mason said the proportionate responsibility rule was a particular object of fodder. Groups such as Texans for Lawsuit Reform pushed to have the tort reforms and medical liability issue combined into one bill on the hopes that they could be pushed through the legislature on the strength of sympathies toward doctors, Mason said.

“I think time will tell whether it was a smart move or not,” he added. “I think it was a riskier move. As it relates to the medical issues, the trend and the view of society as it stands now would probably be to give some relief to doctors in the medical community with these other matters. It complicates approval of the entire bill.”

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Insurance Journal West May 5, 2003
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