Thursday, May 26, 2011

Tort Reform


You've managed to get me interested in what you refer to as "tort reform". I've never really liked that term. It sounds a little euphemistic for an ideological notion which in reality advocates sweeping, unprecedented changes in our system of law. Nowadays, we're applying that ideology to health care. Yet it has been repeatedly advanced in the past as a sort of cure-all for many other problems - some genuine, some not. And to my mind this presumed cure has often been worse than the disease.

Largely, what we have is a philosophical divide between consumer advocates and advocates of free enterprise . An iconic moment arrived in 1994 when one Stella Liebeck, a 79 year old lady from Albuquerque sued McDonald's for burns she suffered when she spilled a cup of their coffee on herself - and won. Now be honest Steve, isn't it true that you, like myself, have always considered the "McDonald's Coffee Case" to be an almost perfect metaphor for what's wrong with our legal system?

The popular view is that some bumbling person spilled coffee, got a little inconvenienced by a few minor burns, hired some high powered "ambulance chaser" attorneys, and came away with millions she didn't deserve. Thus, because Ms Liebeck absolutely refused to accept personal responsibility for her own actions, the rest of us now pay more money for what is now disagreeably lukewarm coffee from McDonald's. And, if even a fraction of other similar iconic anecdotes are correct, this common avoidance of personal responsibility has resulted in an outburst of excessive and unwarranted litigation which every year adds billions to the price of everything from soup to nuts.

Don't bother denying you've bought into the McDonald's story - I won't believe it. Heck, I bought into it myself.

Truth is, when Stella Liebeck spilled that coffee, she suffered 3rd degree burns which initially required 8 days of hospitalization, skin grafts, and a subsequent 2 years of additional medical treatment. During her stay in the hospital, she lost 20% of her body weight and exited the hospital at 79 pounds.

But doggonit, coffee is hot, isn't it? Sure, Ms Liebeck's injuries were more severe than what has been popularly assumed, but so what? She spilled the coffee - how is that McDonald's fault? Well, the jury of 12 citizens decided it was 80% the fault of McDonalds and 20% that of Ms Liebeck. Why? Ms Liebeck's attorneys were able to prove that: 1, McDonald's knew the temperature at which they served coffee was too hot (according to their own internal investigations), 2, during the previous 10 years, McDonalds had settled over 700 complaints of similar injuries for a total of a half million dollars and 3, even their own internal quality control manager had confirmed the coffee was too hot - but that this did not constitute a problem worth addressing.

Or, in other words, Ms Liebeck's lawyers were able to prove that McDonald's knew they were serving coffee at a temperature much hotter than what was considered a safe, industry standard, but perceived this gave them a competitive advantage which outweighed the cost of paying for the inevitable injuries their customers might sustain. And what's more, a jury of twelve honest citizens agreed.

Now, as to why this particular case is absolutely relevant to our discussions on health care and tort reform...

First, this case is probably the most notorious of many others which have been used to establish in the public's mind the image of a legal system gone off the rails. Don't get me wrong - I have no doubt there are probably other cases where the litigants received unjust or excessive settlements. But even in those latter examples, there is another aspect of the Liebeck case which bears examining:

Before Ms Liebeck even retained an attorney she offered, on her own, to settle with McDonald's for the sum total of $20,000.00 - which amounted to nothing more than her medical costs and lost income. Yet McDonald's counter offer was only $800.00. This offer presented Ms Liebeck with only one option if she wanted fair, dollar for dollar compensation: to go out and hire an law firm on a contingency basis. Now think this through Steve...

Whatever law firm Ms Liebeck retained would have to face going to court against the expert legal team of a multi-billion dollar corporation. Without any prior guarantee of success, they would have to invest their own money in countless hours of research, issuing subpoena's, preparing depositions, obtaining testimony from a variety of experts - not to mention all the additional court costs and fees necessary to pursue a case like this. Furthermore, one is hardly justified in assuming such a firm should be required to do all this work pro bono - after all, McDonald's lawyers weren't.

Although the initial award due Ms Liebeck and her attorneys came to over two million, the suit was eventually settled for an undisclosed figure less than $600,000.00 - hardly the catastrophic, industry changing amount most people assume - and possibly not much more than the total costs of litigation incurred by Ms Liebeck's team.

Now let's do the math. Suppose someone had sued McDonalds 10 years prior to Ms Liebeck - and thereby added $600,000.00 dollars to the cost McDonald's pays for preparing coffee (which by the way they were selling at the rate of 1.35 million dollars a day). Its entirely reasonable to assume this would have prevented the subsequent 700 injuries. And, if those injuries resulted in medical costs and lost wages at even a quarter of Ms Liebeck's, consumers would then have been saved a total of a little over 3 million dollars. Not a bad trade-off, don't you think? Here's the wrap up:

I mentioned before that in the rush to enact "tort reform", we're basing the potential savings on what amounts to either biased or anecdotal evidence. Furthermore, as in the iconic Liebeck case, we're ignoring the possible benefits - and savings - the present system is capable of producing. And finally, the ideology is sometimes based on faulty initial assumptions - the most frequent of which is this:

The "McDonald's Coffee Case" would never have reached the public's attention, indeed, would never have aquired its sensational reputation, if McDonald's had promptly acted with appropriate concern for its customers. Remember, it was Ms Liebeck herself, not some "ambulance chasing attorney", who came to them first and asked for reasonable compensation.

In an age where we often tend to view lawyers and litigants as little more than money grubbing opportunitists, why shouldn't we at least take the time to determine how many of these high profile cases only got off the ground - and for that matter, became a financial burden - because of a defendant's initial refusal to even consider modest and fair compensation at the outset?



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