Pricing Pain and Suffering : Business and Consumer Groups Square Off Over Tort Reform

Karin Smith died Wednesday, and her friends in Washington could think of no better reason to continue their fight against tort reform.

Smith died of cervical cancer--a disease that has a remarkably high survival rate when detected in time. Smith’s diagnosis was missed because three separate, faulty tests at a Wisconsin laboratory failed to reveal the problem. She sued the lab and won a $6.3-million settlement. Until shortly before her death at age 29, Smith continued to fight for consumer protection laws so that other women might be spared.

At Citizen Action, a consumer group that opposes the overhaul House Republicans have charted for laws pertaining to civil suits, Smith’s death was hard to take. To them, she was a hero in the battle to preserve laws and punitive damage awards they say hold businesses’ feet to the fire.

The reforms being considered by the House this week would would put aspects of torts--civil lawsuits in which someone’s actions are blamed for another’s injury--under federal, not state law. They would put a cap of $250,000, or three times the amount of certain damages, on punitive damage awards.

In cases with multiple defendants, such as some of the fraud and product liability cases of the past, the reforms would lessen the plaintiffs’ chances of recovering non-economic damages (such as loss of fertility, disfigurement, lifelong pain or loss of eyesight). Already, the House has passed a “loser pays” provision that opponents say would force plaintiffs to accept low-ball settlement offers rather than risk having to pay the defendants’ legal bills.

Manufacturers and businesses say they need the reforms, especially limits on what can be sky-high punitive damage awards, to reduce the costs of doing business and stay competitive. They cite the famous McDonald’s case, in which a judge last year reduced to $480,000 a New Mexico jury’s initial $2.7-million punitive damage award to a woman who was severely burned by spilled coffee.

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Small companies also suffer, said Paul Huard, lobbyist for the National Assn. of Manufacturers, one of the main business groups backing the reform measures.

“I have members with 50 employees, and when they spend $50,000 in legal fees to defend against a frivolous lawsuit, that’s a lot of money that doesn’t get given out in Christmas bonuses, raises or used to buy new machinery,” he said.

Huard said businesses particularly like provisions of the legislation that would limit damage awards in injury cases if the injured person altered or misused the product in question or was intoxicated or abusing drugs at the time. “And if you’re going to impose punitive damages, they have to bear some relationship to the underlying injury,” he said. “We call that common sense.”

Consumer groups cite Karin Smith’s experience, and warn that the proposed changes would limit ordinary folks’ access to the civil justice system and allow businesses to continue dangerous, shoddy or negligent practices.

“This is a one-way street that has a never-changing red light for consumers seeking to use their legal rights, and a never-changing green light for corporations to behave any way they want,” said Cathy Hurwit, legislative director for Citizen Action.

Taking away a jury’s power to determine when a defendant’s actions have been egregious--and to assess a fine intended not to compensate the plaintiff, but to punish the wrongdoer--would be a severe blow to consumers’ rights, trial lawyers and consumer groups say.

“One of most important things about punitive damages is that they have not been set in stone,” said Mary Griffin of Consumers Union, the activist group that publishes Consumer Reports. “The threat of damages is a very powerful incentive for companies to make sure they produce the highest quality and safest products, and act responsibly.”

Punitive damages at the $250,000 cap may be a powerful enough incentive to small companies, consumer groups say, but such an amount would be no more bother than a gnat to a large corporation. In the past, several high-profile product liability cases have spurred changes in product design or resulted in warnings on packaging. Some have led to products being withdrawn from the market.

“We’ve always been strong proponents of safe products. Regulatory agencies are being scaled back, their enforcement power cut, at the same time Congress is making cuts in regulation,” said Griffin. “And now (with the reforms), they are pulling the safety net out from under workers, women, children and seniors.”

The opponents take issue with those who say such lawsuits are responsible for court backlogs. The real caseload growth, they say, is in lawsuits between businesses. Torts amount to 2% of all court cases and 9% of all civil cases, according to a 1992 report by the National Center for State Courts. Punitive damages are awarded in less than 1% of all cases. Some states already prohibit or limit punitive damage awards; the House legislation would not require them to allow such awards.

Organizations of trial lawyers--the attorneys who usually represent individuals in tort cases--have been fending off congressional reform efforts for 14 years. Their adamant opposition to such changes are likely to have little impact, however, on the new Republican majority. Once the legislation goes to the Senate, said Huard, “we may have to settle for half a loaf, but that looks a lot better than zero, which is what we’ve been getting.”

The American Bar Assn., which also counts as members the lawyers who defend companies in product liability and other tort claims, opposes placing under federal law what until now has been the province of state courts and legislatures.

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Although it opposes broad federal tort legislation, the bar favors legislating some limit on liability and damage awards in rare instances, such as the massive product liability case against asbestos makers.

Another organization, Alliance Against Intoxicated Motorists, also opposes provisions in the legislation that would exempt retailers or sellers of products from liability. The group wants to maintain prohibitions against selling liquor to intoxicated persons.

* DAMAGES CURBED: House votes to limit awards in medical malpractice suits. A4

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The Stakes in Tort Reform

As part of their “Contract with America,” House Republicans are championing an overhaul of the legal system to limit damage awards in tort cases, such as personal injury and product liability suits. Business contends frivolous suits and excessive verdicts undermine commerce. Consumer advocates say tort cases and punitive damage awards exert an important check on corporate excess.

LITIGATION SURGE EBBS

The number of tort cases filed in a sampling of 16 state court systems, including California’s, has stabilized over the last decade. Cases, in thousands:

1993: 303.6

WHO WINS

In some categories of tort cases, defendants--typically businesses or professionals--prevail in court most of the time. Data is from a study of 762 tort cases decided by trial verdict in 27 state trial courts from July to October, 1989.

In In Plaintiff’s defendant’s Tort Type favor favor Medical malpractice 29.3% 70.7% Professional malpractice 44.4 55.6 Product liability 46.2 53.8 Automobile tort 63.8 36.2 Personal injury 57.0 43.0 Property damage 48.0 52.0 Libel 59.1 40.9 Fraud 68.0 32.0 Total 56.6 43.4

HOW TORT REFORM MIGHT HAVE CHANGED NOTED CASES

* In the biggest product liability litigation ever--over materials containing asbestos--awards to thousands of victims have included huge punitive damages, and lawsuits have driven a number of manufacturers into bankruptcy. Current proposals would eliminate damages not based on actual economic losses; also, victims would be unable to collect awards based on a bankrupt company’s liability.

* Plaintiffs suing manufacturers of defective heart valves--makers shown to have known the product was likely to cause injury--would have been able to collect no punitive damages, because the device had been approved by the Food and Drug Administration. Multimillion-dollar settlements reached in the cases would have been unlikely under the House “losers pay” bill.

* Exxon was ordered to pay $5 billion in punitive damages after the spill of 11 million gallons of oil in Alaska’s Prince William Sound by the Exxon Valdez tanker. Under House proposals, the maximum that could have been imposed would have been three times actual economic damages, or less than $1 billion.

Sources: National Center for State Courts, Time reports. Researched by JENNIFER OLDHAM / Los Angeles Times