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 serve only to drive up the costs of health care for patients. Second, businesses and other defendants are forced to pay large sums of money for noneconomic 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 a 2007 report by the American Medical Association (AMA), North Carolina is one of 17 crisis states "where medical liability insurance rates force physicians to retire early, eliminate high-risk procedures or leave the state." The AMA, when previously 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 below, "Base Premium Rate for N.C. Medical Professional Liability Insurance"), and the fact that the state does not cap noneconomic damages.

Noneconomic 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. Noneconomic 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 noneconomic 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. Noneconomic 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 noneconomic 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 noneconomic 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. In addition, for fairness purposes, they also should be required to consider any subrogation rights of third-party collateral payers (rights that require the plaintiff to pay back any compensation to the collateral payer, such as an insurance company, before the plaintiff receives any 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, for example, 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 reform to address the medical malpractice crisis.

2. Noneconomic damages should be capped at $500,000.

3. The collateral source rule should be repealed.

4. The rule of joint and several liability should be repealed.