Previous Page | Next Page | Agenda 2006 Home Page

Government Regulation
Tort Reform

There is a legitimate need for lawsuits. Citizens should be able to go to court and get fairly compensated for the harm caused by negligent acts of individuals or businesses. However, the civil justice system is being abused. Plaintiffs receive damages beyond what is necessary or appropriate. Individuals and businesses that should never be sued find themselves paying large attorneys' fees to defend against frivolous lawsuits.

North Carolina has several specific problems that should be addressed. First, there is a medical malpractice crisis in the state because physicians are paying exploding premium costs. These increases only serve to drive up the costs of health care for patients. Second, businesses and other defendants are forced to pay large sums of money for non-economic damages that go well beyond compensating victims. Third, the tort system has rules in place that are grossly unfair to defendants. Significant civil justice reform (or tort reform) is a critical way to alleviate the extensive legal costs that ruin businesses and stifle innovation.

Medical Malpractice Crisis

According to the American Medical Association (AMA), North Carolina is one of 21 states that have a medical liability crisis. The AMA, describing the problems in North Carolina, identified the tripling of the annual number of settlements greater than $1 million in medical liability cases between 1993 and 2002, the massive increase in liability insurance premiums (see chart, "Base Premium Rate for N.C. Medical Professional Liability Insurance"), and the fact that the state does not cap non-economic damages.

Voluntary Medical Treatment

A young child is in an automobile accident and there is extensive bleeding. Fortunately for the child, a doctor was in the area and can help to stop the bleeding and address other medical problems needed to stabilize the child before the ambulance arrives. If the doctor does not help, the child certainly will die on the way to the hospital.

Should the doctor help the child? This silly question has to be posed because of the ridiculousness of the legal system. In North Carolina, only individuals in very narrow circumstances, such as providing voluntary help at or for a local health department, a nonprofit community health center, or a free clinic have protection from liability in these emergency situations. There is no true "good Samaritan law" that protects doctors or, for that matter, the lay person from liability when trying to help at the scene of an emergency. The next time you save someone from choking to death at a restaurant, be careful not to hurt his ribs.

Non-Economic Damages

Generally, there are two major sources of damages in tort cases, compensatory damages and punitive damages. First, compensatory damages, which are designed to compensate plaintiffs for their losses, generally consist of economic damages and non-economic damages. Economic damages represent the actual economic harm that has been or will be sustained by plaintiffs, such as lost wages and medical expenses. Non-economic damages are awarded to plaintiffs for issues such as pain and suffering, loss of consortium, and mental anguish. Second, punitive damages are awarded to punish a defendant for severe behavior such as intentional torts.

In 1995, North Carolina took a big step to reform the civil justice system by placing a cap of $250,000 on punitive damages. However, the state also needs a cap on non-economic damages. Non-economic damages are a subjective way to measure an individual's pain and suffering. As a result, excessive sums often are awarded, based mostly on subjective emotional factors. Non-economic damages are not supposed to be awarded to punish a defendant, like punitive damages, but to help make the plaintiff "whole."

A 2004 JLF report summarizes the need for a cap on non-economic damages: "But a cap of two times that amount [two times $250,000] (as exists in Maryland, for example) would preclude jury awards of '$1 billion in pain and suffering,' as sometimes happens when juries are precluded (as they are in North Carolina) from granting huge punitive awards. A cap on non-economic damages, in other words, prevents 'pain and suffering' from becoming an end run around caps on punitive damages, such as North Carolina's. Such a cap is thus sorely needed in the Tarheel State."

Unfair Tort Rules

There are two rules in particular that create a grossly unfair system for defendants. First, there is the collateral source rule. North Carolina's collateral source rule prohibits a judge or jury from considering the fact that a plaintiff may have received compensation from a third-party (usually a plaintiff's insurance company). As a result, the plaintiff can receive money twice, from the defendant and the insurance company. Juries and judges should be required to consider compensation from collateral sources as well as any subrogation rights of third-party collateral payers (rights that require the plaintiff to pay back the compensation).

Second, there is the rule of joint and several liability. This rule requires a defendant who may be found by a jury to be 5 percent responsible for the harm caused to the plaintiff to pay 100 percent of the damages, if the other defendants are not able to pay the plaintiff. Defendants should only have to pay a proportional amount of the damages based on the harm they caused — in other words, their fair share.

Generally, the defendant on the hook for 100 percent of the damages can sue the other defendants to try to get money from them. That still is an extreme hardship on the defendant, however. Some argue that repealing this rule would hurt plaintiffs. It is unfortunate when plaintiffs are unable to recover damages from defendants, but this does not justify the government requiring a defendant paying more than his fair share.

Recommendations

1. North Carolina needs civil justice reform across the board, including to address the medical malpractice crisis
2. The state needs a real "good Samaritan law" so that, absent gross negligence, anyone helping at the scene of an emergency will not fear liability for his actions.
3. Non-economic damages should be capped at $500,000.
4. The collateral source rule should be repealed.
5. The rule of joint and several liability should be repealed.

To view higher quality graphs, download Agenda 2006 [2.7MB Acrobat].