Lawyers and Reforming the U.S. Legal System

By | March 22, 2004

The first thing we do, let’s kill all the lawyers.” Shakespeare’s 400-year old barb aimed at the legal profession (Henry VI, part 2) is an early, if somewhat drastic, call for tort reform. It certainly wasn’t the first exasperated cry aimed at curbing lawyers, and it still strikes a chord. There’s even a Web site——that specializes in legal humor. The street buzzes with rumors about reforming the tort system. The latest barb—Hank Greenberg’s accusation blaming “terrorist trial lawyers” for blocking class action reforms—made headlines and provoked outraged cries from the legal community.

Lawyers have been the bane of the common man—and the insurance industry—for as long as anyone can remember. However, recent calls for reform of the U.S. legal system indicate, at least according to the callers, that the problem is getting worse. While Shakespeare’s jibe is humorous—it was after all uttered by a thug seeking regime change—there’s nothing funny about the billions of dollars soaked up every year by the American legal system. A study by Tillinghast Towers Perrin released early last year estimated that by 2005 litigation outlays would reach $298 billion.

Two of the loudest cries for reform have come from Greenberg, who announced a campaign aimed at convincing businesses to avoid states whose tort laws are deemed “unfriendly,” and Lord Peter Levene, who’s attacked the subject in every speech he’s given since becoming Lloyd’s chairman in December 2002. He points out that tort costs are equivalent to a 5 percent tax on wages, and ended a speech at Chicago’s Union League Club last year with the admonition that “We cannot allow ourselves to create a culture in which you have everything to fear—unless you are covered by insurance and have a good attorney.”

The movement has spawned its own lobbying group, the American Tort Reform Association (ATRA) in which industry representatives, including lawyers, have a strong presence. ATRA doesn’t advocate the mass extermination of the legal profession. Its purpose is to bring some of the more blatant judicial iniquities to the attention of legislators and the public in hope that they can be corrected. ATRA has a lot on its plate, including the increasingly arbitrary damage awards ordered by courts in jurisdictions across the country that it has labeled “Judicial Hellholes.”

While the phrase is provocative—conjuring up images of forked-tailed demons with pitchforks tormenting the damned—in many cases it appears totally justified. ATRA’s recent report, Bringing Justice to Judicial Hellholes, goes over the many egregious decisions in detail. It singled out 13 areas last year as those most frequently named by its members.

How has civil justice in the U.S. reached such a state? Even though few people realize it, the American system of justice is unique. Although its roots go back to English Common Law, it has evolved far beyond the original.

The U.S. was the first country to actually have a written legal document, the Constitution, as its founding premise. The U.S. is also a country of immigrants. The law, symbolized by the blindfolded symbol of Justice, was called upon early and often to settle disputes between people from widely different cultures and backgrounds. As the only common reference point they could turn to, the law, and the lawyers who practiced it, became the generally accepted forum for regulating the country’s affairs. It was a well-established American phenomenon by the end of the 18th century, and it has been a dominating factor ever since.

No other nation is even remotely as dependent on legal decisions as the U.S.—hence the immense number of lawyers. There are more attorneys in Los Angeles County (or in any big metropolitan area) than there are in all of France. While all those lawyers are busily engaged in practicing law, they also need to make money doing it. The personal injury lawsuit is a great way to do that thanks in large part to insurance. As Insurance Journal’s Publisher Mark Wells observed in a recent interview (see IJ Magazine, Oct. 20), “The P/C insurance industry is a lawyer’s dream come true.”

It’s also grounded in intentional ignorance. Recoveries for personal injuries in the U.S. are predicated on ignoring the true nature of lawsuits. While the nominal defendant is the person or company accused of negligence or other wrongdoing, the real defendant is the insurance company. It frequently hires the defense lawyers and ultimately pays the cost of the verdict. Everybody knows this, and everybody ignores it, unless the case is brought directly against the carrier. Judges and juries therefore feel free to reward the plaintiff without fear of ravaging the defendant because they know the insurance company will be the ultimate payer. In addition, the U.S. allows a system to exist that permits the plaintiff’s lawyer to obtain part of the proceeds from the lawsuit through the contingency fee arrangement. Most countries don’t permit this, as they fear exactly the kinds of abuses which bedevil the U.S. tort system, and which ATRA is trying to reform.

Despite the buzz on the street about the billions of dollars that could be saved by taming the tort system, it isn’t going to be replaced any time soon, for a number of reasons. First, even though the inalienable right to sue is not specifically enshrined in the U.S. Constitution per se, it might as well be. Second, short of adopting the Shakespearean solution, what would you do with millions of redundant lawyers? Not only the personal injury ones, but also their opposite numbers on the defense side. By some estimates, insurance companies pay more money to their lawyers than they do in agents’ commissions. Third, lawyers comprise roughly two-thirds of all legislative bodies in the U.S., including Congress. They’re not about to support any plan that envisions their demise.

ATRA and others are therefore working within the system to try and level the playing field, a more reachable goal. After all, the same Constitution that implies the right to sue also specifically guarantees “due process of law” and “equal protection of the laws.”

The tort reformers are seeking relatively small, and certainly not unreasonable, changes that could improve the system. They’re at least more socially acceptable than slaughtering lawyers, and a great deal more practical. If some of the major ones are enacted, damage awards might actually decrease. While the street may see it as an industry goal, it should also be a public goal. The costs of outrageous verdicts and aberrational awards are eventually passed along to the carriers’ policyholders in the form of higher premiums and higher deductibles, until ultimately coverage for certain risks simply becomes unavailable at any price.

The author is a sustaining member of the State Bar of California.

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