Tort Reform

By Walling, Alastair J. | Regulation, Fall 2006 | Go to article overview
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Tort Reform


Walling, Alastair J., Regulation


The court system is generally transparent--perhaps a little too transparent for those whose dirty laundry gets aired in public court documents. But the courts are only the very small public tip of the mostly concealed tort iceberg.

While no one is exactly sure about the actual numbers, experts in this area estimate that 90 percent of potential tort cases are never even filed, and perhaps 90 to 95 percent of the filed cases never see the light of court. What happens to all of those cases? Most of them are settled quietly and discretely; we never get to observe the agreements or how they are reached. Thus, as perhaps 99 percent of the human behavior within the tort system occurs out of court and out of sight, it becomes difficult to measure the effects of tort reforms.

The hidden negotiations that dominate the tort system make reform a lot like Forrest Gump's metaphorical box of chocolates: You never know what you're going to get. It might be that years after it is implemented, we would discover that "reform" only adds to the nation's litigation headaches.

Take, for example, the "reform" of prejudgment interest. Common law did not allow injured parties to earn interest that would have accrued between the time of their injury and final award or settlement. Worried that the parties and their lawyers were drawing out trials and settlement negotiations and unnecessarily clogging the courts, early tort reformers hit on the idea of charging defendants for the interest that plaintiffs would have otherwise enjoyed if they had been paid at the time of their injury. According to the American Tort Reform Association, however, contrary to the reformers' expectations, the award of prejudgment interest actually impeded settlement and also led to overcompensation.

In the various states, tort reformers are trying other rule changes in the hope that they will reform perceived problems within existing tort systems. The problem is, like the experience with prejudgment interest, until the rules are in place and affecting real people, it seems we will not know how effective they will be at actually improving the fairness and efficiency of the courts.

Or will we? New experimental research offers a promising alternative to the trial-and-error testing of reforms in the real world. My George Mason University colleague Kevin McCabe has designed tort reform experiments that link parties representing plaintiff and defendant attorneys by computer and have them negotiate settlements. McCabe assigns parties a different mix of variables, including the strength of the case and the settlement's maximum and minimum possible compensation values. If the two parties come to an agreement during the allotted time, then the case is settled and the experiment repeats. However, if the parties fail to agree, the computer charges both parties "court fees" and imposes a settlement.

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