Economics of Tort Reform—Intended and Unintended Consequences 

Dale R Funderburk
Texas A&M University-Commerce

     In recent years almost every state has enacted some form of tort reform, and there has been a highly contentious battle to expand such reform to the national level.  First as Governor of Texas, and later as President of the United States, George W. Bush has pushed an agenda of tort reform.  While the term “tort reform” has been used historically to describe virtually any change in the U.S. civil law system aimed at improving the efficiency of that system, it is commonly understood today to describe a movement to rein in tort litigation and damages.  In the political climate of the day, the term and the movement are almost universally understood to represent an attempt to curb the plaintiff side of civil litigation. There is little doubt that the major concern (and thrust) of the “tort reform” movement of the last decade has focused primarily (if not exclusively) on the outcomes of the process as opposed to the efficiency of the process.  That is the sense in which the term is used in this paper.
Arguments and Impetus for Reform
     Led by the medical establishment and the insurance industry, tort reform advocates mounted a well financed and skillfully crafted campaign to bring about desired changes.  By painting the family physician (as opposed to, perhaps, the auto industry) as the victim and “greedy plaintiff lawyers” (as opposed to “irresponsible jurors”—a characterization that risks offending the voting public) as the villains, the tort reformers were able to frame the battle in terms of a sympathetic victim versus a villain that could more safely and easily be demonized.1
     While the major thrust (and successes) of the tort reform movement has been at the state level, it has also been argued that the tort “crisis” is a national problem that must be addressed at the federal level.  In that vein, tort reform advocates have argued that there is little or no uniformity to tort law in the United States, with the applicable laws varying widely from state to state.  Consequently, they argue, tort reform can most effectively be accomplished only through federal legislation.  That has certainly been the message and the goal of the current Bush Administration. They argue that under the current system there are still too many frivolous lawsuits clogging the courts.2 They contend that the system has been responsible for the development of a “lottery mentality” that has led to unrealistic expectations on the part of injured parties (or even parties who had suffered no injuries or damage).  This in turn, they argue, has led to an unfavorable business environment that stifles product development and innovation. No lesser an academic luminary than Harvard Business School professor Michael E. Porter (1990), a U.S. competitiveness icon, has argued that “product liability is so extreme and uncertain as to retard innovation [and, in the process, the legal and regulatory climate] places firms in constant jeopardy of costly and…lengthy product suits.”  Porter further asserts that the existing approach “goes beyond any reasonable need to protect consumers….”
     Perhaps the poster child for frivolous lawsuits and excessive awards was the famous 1992 Liebeck-McDonald’s spilled coffee case.  Stella Liebeck, of Albuquerque, New Mexico, was severely burned when the coffee that she had ordered at a McDonald’s drive-through window spilled into her lap.  The jury awarded Liebeck $200,000 in compensatory damages (an amount that was reduced to $160,000 because the jury found the 79 year old woman 20 percent at fault in the spill), but it also awarded $2.7 million in punitive damages (which was equated to approximately two days of McDonald’s coffee sales).  Though the trial court subsequently reduced the punitive award to $480,000 (three times the compensatory damages), few ever knew the final ending of the case.  Nor did many ever know that McDonalds acknowledged that it kept its coffee at between 180 and 190 degrees Fahrenheit, or that during discovery it produced documents showing more than 700 claims by people burned by its coffee between 1982 and 1992.  The “fact” that some woman received almost $3 million for spilling coffee on herself became the mantelpiece for the cry for tort reform. (Lectric Law Library)
     The area that most tort reform advocates have viewed as especially ripe for reform is that of medical care.  They argue that the open floodgates for non-meritorious lawsuits have forced physicians to pay exorbitant premiums for malpractice insurance, to practice defensive medicine (ordering numerous expensive and unnecessary tests), causing many doctors to relocate in search of jurisdictions with less unfavorable tort laws, or others even to leave the profession.  The ultimate impact, they contend, is to raise the cost of and reduce access to quality healthcare.  President Bush (2004) asserted that “We need national medical liability reform.  Frivolous lawsuits drive up the cost of health care.  The Congress passed a good bill.  It is stuck in the Senate.  The most powerful lobby in Washington, D.C., in some estimates, are the trial lawyers.  We need to make sure that doctors don’t get run out of business and health care costs don’t get run up because of these frivolous and junk lawsuits.  Congress has got to pass medical liability reform.”
     In a recent Research Report entitled “The Perverse Nature of the Medical Liability System,” the Joint Economic Committee (2005) concluded that the system does not serve well either the doctor or the negligently-injured patient.  “In practice, the medical liability system departs dramatically from its two central goals of punishing negligent doctors…and compensating patients with negligently-caused injuries.”  The report contends that merely being sued entails substantial costs (both monetary and nonmonetary) aside from any payment to claimants, but that the vast majority of negligently-injured patients do not file liability claims.  As evidence of the tort reformers’ almost exclusive focus on their desired outcomes (as opposed to efficiency and equity of the process), it may be noted that they focused heavily on one facet of the problem whiletotally ignoring the other.3
     In general, tort reformers argue that the current system of tort law is too expensive, and that it is not even-handed because tort costs vary widely from state to state.  Additionally, they contend that the present tort system has led to a climate of regulation through litigation, arguing that litigation often is used to achieve regulation that Congress is unwilling or unable to pass.  Tobacco use, gun control, and unhealthy “fast foods” are oft-cited examples of this.
One major tort reform advocacy organization, the American Tort Reform Association (ATRA) sums up the problem thus:  “These lawsuits are bad for business; they are also bad for society.  They compromise access to affordable health care, punish consumers by raising the cost of goods and services, chill innovation, and undermine the notion of personal responsibility.”  Interestingly, ATRA apparently sees few if any safety benefits arising from product liability litigation, nor net health benefits stemming from additional (which they term “defensive medicine”) diagnostic testing.
     The major culprit in this broken and abused system, according to tort reformers, has been the greedy, trial (plaintiff) lawyer, spurred on by the system of contingency fees.  They argue that this leads to an unending search for plaintiff-favorable venues, corporate defendants with “deep pockets,” and outrageous demands for non-economic damages such as pain and suffering, “hedonic damages,” punitive damages, and class action opportunities.
The Players
     While few would argue against fairness and efficiency in our tort system, the debate and the battle over tort reform divides along some rather clearly defined lines.  Generally, business interests support tort reform, with labor and consumer advocacy groups more often opposing it.  It also quickly became a very partisan issue.  While there are notable exceptions, Republicans tend to support tort reform; Democrats oppose it.  For example, George W. Bush made tort reform a centerpiece in his successful run for Texas governor (an agenda that was continued—with considerable success—during the tenure of Republican Governor Rick Perry, who replaced Bush when he resigned the office in 2000), and made similar legislation a high priority for national legislation once he became President.   President Bill Clinton, on the other hand, vetoed legislation in 1996 that would have placed limits on the amount of punitive damages that could be awarded in products liability cases and which also contained procedural measures that would have made litigating these cases more costly.  In the 2004 presidential election, John Edwards was heavily criticized by Republicans for having made his living representing plaintiffs in lawsuits.
     At the forefront of tort reform movement is the above-mentioned American Tort Reform Association, co-founded in 1986 by the American Medical Association and the American Council of Engineering Companies.  ATRA describes itself as “the only national organization exclusively dedicated to reforming the civil justice system.”  Their sample list of members includes medical and pharmaceutical associations and businesses, architectural and building interests, and major life, health and accident insurance companies.  The Manhattan Institute, the Lynde and Harry Bradley Foundation, and the John M. Olin Foundation are also counted as major supporters and financial contributors to the cause of tort reform.  Additionally, there are many state organizations that mirror in terms of mission, membership and funding sources the national organization.  ATRA claims to have affiliated coalitions in more than 40 states.  For example, in Texas, the organization, Citizens Against Lawsuit Abuse (CALA), bills itself as founded on the belief that fairness, not greed, should control the system of justice.
     At the other end of the spectrum, the American Association for Justice (AAJ) (formerly the Association of Trial Lawyers of America) has taken the lead in opposing tort reform.  AAJ’s membership consists primarily of plaintiff lawyers.  And just as the ATRA has a number of state level counterparts, so does AAJ.  For example, the Texas Trial Lawyers Association has much the same type of membership and goals as does the national organization.
     Finally, it is interesting to note that while plaintiff lawyers generally opposed tort reform and supported Democratic candidates for public office (as well as judgeships in Texas, where judges are selected through partisan elections),4 those firms that represent defendants in tort litigation generally lined up with their clients in the battle.  For example, Texans for Public Justice (TPJ) 5 note that while Rick Perry received “comparatively little money from plaintiff lawyers” in his quest for the Texas governorship, he received very sizeable contributions from defense lawyers.  It is also interesting to note that ATRA launched a “Legal Reform Champions” program in 2003 for the purpose of “recognizing defense lawyers who have distinguished themselves by their dedication to end lawsuit abuse and promote a fair predictable legal system.”  While it would not be difficult to explain the behavior of plaintiff attorneys merely in terms of enlightened (financial) self-interest, the motivation behind the actions (and contributions) of defense firms is less clear in terms of pure economic interests.
Elements of Tort Reform
     ATRA asserts that since its founding in 1986, more than 45 states have enacted some portions of their legislative agenda.  While the exact elements addressed in tort reform packages have varied from state to state, most have included some or all the following:  limits on class action lawsuits, curbing or the elimination of the common law rule of “joint and several liability,” caps on non-economic damage awards—especially with regard to medical malpractice, raising the standard required for awarding punitive damages, and the handling of collateral source moneys.  Some of the specifics include:
     Class Action Reform – Hailed as President Bush’s first significant tort reform success at the national level, the Class Action Fairness Act (CAFA) was signed into law on February 18, 2005.   The act has the effect of forcing most class action lawsuits (those with plaintiffs in multiple states) into the federal courts, which have a reputation for being more hostile to class actions than state courts.  It is considered more difficult and time consuming to gain class action certification at the federal level than in most states. Additionally, since federal courts tend to have more crowded dockets, the transfer makes it less likely that the case will ever be heard.  Arguments put forward by those advocating class action reform versus those opposing it delineate the basic problems and disagreements.  Tort reform advocates generally paint class action lawsuits as merely a means by which greedy lawyers are able to shop for a friendly state court venue and in the process enrich themselves without really helping plaintiffs.  Trial lawyers, on the other hand, point out that class action is the only effective and efficient way in which many small claims can be handled.  For example, in one Washington case, an attorney represents some 40,000 Wal-Mart workers, each of whom stands to gain, on average, a few hundred dollars in allegedly unpaid wages.  While that few hundred dollars may be significant to the individual worker who is earning just over the minimum wage, it is unlikely that an attorney is going to be willing to take on the nation’s largest retailer in an individual claim.  Thus, argue trial lawyers, if that small claimant is denied access to the courts through class action, he/she is denied access to civil justice.
     Joint and Several Liability Reform – The common law rule of joint and several liability makes each defendant in a tort lawsuit liable for the entire amount of the plaintiff’s damages, regardless of the defendant’s relative degree of fault or responsibility.  The rationale behind this common law fairness doctrine is that if one wrongdoer is insolvent or cannot pay their share, the other fully-responsible wrongdoers must pick up the tab, to make sure that the innocent victim is fully compensated.  Tort reformers allege that the impact of this rule has been to send plaintiff lawyers out in search of “deep pockets” that they can scare into out-of-court settlements.  Generally, tort reform advocates have argued for the substitution of a “proportionality” rule that would hold each defendant accountable for only the share of damages caused by their own negligence.  Plaintiffs argue that if a bank or credit card company can hold one spouse financially responsible for debts incurred by the other spouse under the jointly and severally liable theory, then why shouldn’t corporate wrongdoers also be held to the same standard in order to insure that the injured party is fully compensated?
     According to ATRA, 37 states have enacted some form of joint and several liability reform.  The exact nature of the reform rules vary from state to state with some requiring more stringent liability requirements, with others limiting the types of case covered.  For example, in New York, a party who is less than 50 percent at fault will not be subject to joint and several liability, while California retained joint and several liability for economic damages only, but required that damages for pain and suffering be paid according to fault.
     Caps on Damages – A damages cap is an arbitrary ceiling on the amount an injured party can receive in compensation by a judge or jury, irrespective of what the evidence presented at a trial suggests compensation should be.  A cap is usually defined in a statute by a dollar figure ($100,000, $250,000, etc.) or by tying the cap to another type of damages (e.g., three times compensatory damages).  Because caps take away the authority of judges and juries to decide compensation based on the evidence in each specific fact situation, several states have declared caps unconstitutional.
     Most states that have imposed damage caps have applied them to punitive or other “noneconomic” elements of damage, such as pain and suffering, disfigurement, etc.  Many states specify the types of cases to which damage caps apply.  For example, in 2003 Texas established a cap of $250,000 per claimant on noneconomic damage awards in medical malpractice cases.6   Further, since damage caps had earlier been ruled unconstitutional in Texas, voters also approved—in what was billed as the most expensive constitutional battle in Texas history-- a 2003 constitutional amendment to eliminate potential court challenges to the new caps.  Additionally, while the public debate over the constitutional amendment focused almost entirely on the issue of medically related caps (and the cost and accessibility of health care), the 2003 constitutional amendment also included a less discussed and noticed, but broad sweeping, authorization for the legislature to determine limits on noneconomic damages for “any claim or cause of action based or sounding in tort, contract or any other theory or any combination of theories of liability.”
     Collateral Source Reform – The collateral source rule prevents a wrongdoer from reducing its financial responsibilities for the injuries it causes by the amount an injured party receives (or could later receive) from outside sources.  Payments from outside sources are those unrelated to the wrongdoer, like health or disability insurance, for which the injured party has already paid premiums or taxes.  The collateral source rule also prevents juries from learning about such collateral payments, so as not to unfairly influence the verdict.  According to a Congressional Budget Office study (2004), at least half the states have modified the collateral source rule, with typical reforms either permitting evidence of collateral source payments to be admitted to the jury, allowing awards to plaintiffs to be offset by other payments, or both.
     Contingent Fee Reform – A contingent fee is a lawyer’s fee based upon a percentage of the money awarded the client.  Tort reformers typically portray contingent fee arrangements as one that invites abuse, charging that it encourages lawyers with a financial interest in the outcome of a case to try meritless claims and/or ask for unreasonably high awards.  Plaintiff lawyers normally defend contingent fee arrangements as the only way that many low income plaintiffs can afford legal representation, and argue that it reasonably compensates them for the risks they assume in trying cases.  ATRA’s stated position on contingent fee reform is that it supports legislation that limits (caps) the use of contingent fees in cases where a “legitimate” risk of non-recovery exists, and requires an hourly fee in cases where no such legitimate risk of non-recovery exists.  They list 25 states that have enacted some form of contingent fee limiting legislation, ranging from Alaska, which requires that contingent fees be calculated exclusive of punitive damages, to Wyoming, which limits such fees in medical liability cases according to how soon the case settles after the filing of the lawsuit and the amount of the recovery.
     Appeal Bond Reform – In the past, many states established laws requiring the posting of a supersedeas bond before a party could initiate an appeal of a final judgment.  The intent of the bond requirement was to protect a plaintiff against the risk that a judgment could not be enforced because the defendant became insolvent.  In some states the bond requirement was statutorily defined and could be as high as 1.5 times the judgment amount.  While plaintiff lawyers tended to favor the requirement on the grounds (1) that it helped to protect them from the risk of post-judgment insolvency on the part of the defendant, and (b) it acted as an added deterrent to filings of weak, or meritless, appeals.  ATRA lobbied for appeal bond reform based on the argument that in an era when billion dollar verdicts are no longer uncommon, appealing a jury verdict can force a person, company, or even industry, into bankruptcy—meaning that some defendants effectively are barred from their fundamental right to appeal.
     The National Association of Mutual Insurance Companies (NAMIC) joined ATRA in campaigning for appeal bond reform.  Reform advocates list some 35 states that have enacted legislation to reform appeal bond requirements.  Most involve appeal bond caps (e.g., Arkansas sets an upper limit of $25 million), while others specify types of damages that may or may not be subject to appeal bond (e.g., Idaho applies new limit to punitive damage amounts).
     Other Reforms – In addition to those discussed above, there were many other reforms enacted by various states over the last few years.  Almost without exception, these have been supported and lobbied for by defendants and defense friendly groups, and lobbied against and resisted by plaintiff groups. Examples include new laws that apply only to specific industries or types of litigation, e.g., asbestos/silica litigation, and architects and professional engineers, but also new rules concerning contributory negligence, early settlement offers with rules and consequences for refusing to accept, frivolous lawsuit sanctions, “Good Samaritan”7 protection, limits on prejudgment interest, product liability requirements and protections, requirements for assessing punitive damages, seat belt evidence admissibility, and venue.
One Last Element
     According to Frankel (2006), a critical domino in the anti-tort campaign came in the form of change in the makeup of state judiciaries.  In response to a 1986 Texas Supreme Court ruling that ended contributory negligence in state courts (allowing plaintiffs to recover damages even when juries found them to be partially responsible for their own injuries), a coalition of businesses and doctors formed the Texas Civil Justice League (TCJL).  The sole objective of this lobbying group was making the state’s civil justice system less friendly to plaintiffs.  Again according to Frankel, “business interests learned that if state judges didn’t vote their way, they could replace those judges with others who would.”  Following the TCJL model, ATRA and the Institute for Legal Reform began in the mid-1990s to nurture statewide groups that would simultaneously lobby in state legislatures and campaign against judges backed by trial lawyers.
     George Christian, a lawyer and lobbyist in Austin, who became the TCJL’s first general counsel, is quoted as declaring, “We were able to win in 1988, then we got a couple more [justices] in 1990, 1992, and 1994.  By 1994 the old court was pretty much replaced.”  Today, the Texas Supreme Court is 100 percent Republican.  In addition to Texas, TCJL-type organizations in states including Mississippi, Alabama, Arkansas, Illinois and Ohio were able to make substantial changes in the makeup and leanings of state judiciaries.  The net result, according to Frankel, is that “Tort reformers have packed state judiciaries with judges amenable to their agenda.”8
     In the climate of Daubert9 and similar state court decisions that make judges the gatekeepers in deciding on the admissibility of expert/scientific testimony, control of the judiciary has become a crucial piece in a high stakes chess match.
Intended Consequences
     Stated goals and promised outcomes and benefits of the tort reform movement in general centered on ending frivolous/unmeritorious lawsuits and reining in “excessive damage awards.”  Major goals for and claimed benefits of the various specific elements of tort reform—as enunciated and promised by tort reform advocates—include (a) unclogging the civil courts, (b) improving the overall business climate (c) controlling medical costs, and (d) curbing the “lottery mentality” wrought by plaintiff lawyers under the pre-reform rules.  Results relative to these stated goals and promised outcomes are taken in this paper as representative of the “intended consequences” of the tort reform movement in general, and of the various elements of reform.
     While it is difficult to access the specific outcome of each individual tort reform measure, it is clear that the major, overriding objective of the tort reform movement—achieving real climate change—has largely been achieved.  In reporting “How Business Trounced the Trial Lawyers,” (Orey, 2007) Business Week (BW) concludes that the result has been “an extraordinary turnabout [for the worse] for the plaintiffs’ bar,” adding that “in large areas of the country, that ‘reform’ has taken place, and business has emerged triumphant.”  BW notes that courthouse doors have slammed shut on a wide variety of claims, noting, for example, that Michigan has virtually wiped out all lawsuits against drug makers in the state, that six states have passed laws seriously restricting the kinds of asbestos suits that can be filed, and that 23 states now have statutes that shield fast food eateries from being sued for making one fat.  Further, it argues, damage limits in many states have “rendered medical malpractice litigation nearly comatose.”
     Citing the case of Texas, which BW deems the most remarkable case of climate change resulting from the tort reform movement (“No other state’s trial bar has suffered a greater reversal of fortune”), it quotes a partner in one of the state’s most successful pre-reform plaintiff firms (and one of the five plaintiff firms that represented the state in its suit against the tobacco companies—thereby sharing in $3.3 billion in attorney fees as a result) as declaring, “If today we were relying on personal-injury cases in Texas, we would be bankrupt.”
     In addition to the reversal of fortune wrought upon the plaintiff side of the bar through legislation, the courts have dealt further blows to plaintiffs.  BW quotes one Alabama lawyer as noting that during its 2004-05 session, that state’s Supreme Court reversed 27 of 31 plaintiffs’ verdicts.  It also cites Texas Watch (an Austin-based consumer advocacy group) figures pointing out that during the Republican dominated Texas Supreme Court’s 2005-06 session, the Court decided against the consumer in 57 of 69 cases, or 83% of the time.
     Relative to the impact of specific tort reform measures, many of the reported statistics tend to be suspect—made questionable by timing issues, statistical/methodological problems, and even outright source bias.  However, it seems clear that as a result of medical malpractice tort reform, that area of tort litigation has turned decidedly unfavorable to the plaintiff’s side of the bar, and that at least some of the outcomes sought by reformers have been achieved.  Considering the case of Texas, for example, it is clear that the number of malpractice claims is down, that the American Medical Association dropped the state from its list of states in medical liability crisis, medical malpractice insurance rates were cut by several major providers in the state, and new insurers have entered the state.10 At least, according to Governor Perry, the effort was a success.  His assessment:  “In the one year since we passed major medical liability reforms, patients are experiencing better access to healthcare, communities are recruiting new physicians, insurance costs are down significantly for many hospitals and some doctors, and lawsuits filed against healthcare providers have declined dramatically.”
     On the other hand, did tort reform head off a major national economic crisis—one that threatened the competitiveness of the American economy and raised the price of virtually every good and service bought by the American consumer?  There is little or no evidence to suggest such.  In fact, some critics of tort reform suggest that in the aggregate, much of the noise concerning the tort law crisis was merely rhetoric, and that much of the agenda was more politically than economically or equity motivated.  For example, many have suggested that Republicans saw trial lawyers and their bulging wallets as a troublesome source of Democratic political funding, and viewed tort reform as a convenient and effective way of dealing with the problem. While few would argue that there was no need for changes in the tort system in many states, it is a different question as to whether there was a true tort “crisis” threatening to cripple the national economy.  According to  Business Week  (France, 2005), there are no reliable aggregate data about the system, suggesting that “Nobody knows how many cases are filed each year or how they turn out—especially since the vast majority are settled out of court.”  This means that any macroeconomic conclusions are merely speculative (something quickly pounced upon by defendants’ lawyers when they see the opportunity to exclude evidence at trial).  It further suggests that President Bush’s claim that the nation’s annual “litigation tax” is $246 billion is little if anything more than a guess.11 BW ultimately concludes that “To the extent that reliable data do exist, they show no signs of broad systemic breakdown.”  In support of that conclusion, they cite Bureau of Economic Analysis statistics indicating that legal services accounted for less than 1.5% of gross domestic product in 2003—“a slightly lower share than in 1990.”
And Some Unintended Consequences
     Several facets of tort reform clearly have had some consequences that were not the intent of most legislators.  For example, one of the most widely adopted elements of tort reform, and one that President Bush has pushed hard for on both state and federal levels, is that of caps on noneconomic damages—especially in medically related cases.  Regardless of intent, such caps invariably work to the detriment of victims who are very young, very old, disabled, poor, or even female.  Consider, for example, the current situation in Texas.  If a minor child dies as a result of medical malpractice by a physician—no matter how egregious the breech of medical standards—the maximum that can be recovered (exclusive of burial expenses, etc.) almost certainly is $250,000.  Much the same would be the outcome were the victim a retired worker, a disabled person, a very low wage earner, or even a female with little or no history of attachment to the labor force.  If, on the other hand, the victim had been a person with an established history of high earnings, and who also had a family, the $250,000 noneconomic cap would not be quite so limiting relative to recovery (and perceived equity).
     With regard to severe injury, but not death, resulting from malpractice (or, for that matter, any other cause for which damages caps are in effect), plaintiffs who have little or no history or evidence of pre-injury earning capacity are likely to find themselves out of luck.  In effect, the cap law says that in the case of significant pain resulting from an injury, “We will allow for your pain medication to be paid for, but otherwise, suffer in silence.”  For the loss of enjoyment of life associated with, for example, quadriplegia, the law says, “We will allow for the payment of your wheelchair, your medications, and even for what you would have earned in the future, but too bad that you will spend the rest of your life immobile from the neck down.”
     In addition to the impact that these caps have on the victims of medical malpractice, it must be expected that there will also be some negative consequences on the practitioner side of the market. By placing caps on (as well as other obstacles to filing, finding and collecting) medical malpractice damage awards, this inevitably—and presumably unintentionally—has the effect of lowering the cost of malpractice.  Intended or not, it must be understood that reducing the cost/price of a good or activity may be expected to increase the volume of same.  Thus, the inevitable consequence of the caps will be to increase the amount of malpractice.  Unfortunately, inasmuch as medical malpractice is not a self-reported activity, nor is it as easy to detect and publicize as baseball errors and box scores, the magnitude of that increase will not be measurable.  Generally, the problem must be ferreted out, identified and proven through a costly process.  And since medical malpractice damage caps reduce the financial incentive for the legal system to engage in such fact finding, less malpractice (that does exist) will be detected.
     Finally, with regard to medical malpractice tort reform, it should be noted that if a hospital dismisses (or denies privileges to) a physician who is prone to malpractice, that hospital faces the threat of wrongful termination (or similar) litigation—that is not subject to damage caps.  In effect, there is simply less incentive for the hospital to detect and deal with the messy problem of malpractice.
     In addition to the negative effects that caps may inflict on some injured plaintiffs, there is also a possible drawback to placing caps on punitive damages.  Punitive damages are those awarded not in order to compensate the plaintiff, but in order to reform or deter the defendant and similar persons from pursuing a course of action such as that which damaged the plaintiff.  While recent reform legislation has even raised the bar for assessing punitive damages against defendants, generally the requirement has been that the defendant’s conduct must be found to be intentional, or willful, wanton or malicious.  Only under these circumstances would the courts permit an award of punitive damages in addition to compensatory damages.  However, if such risk to the defendant is capped at $25 million (as is the current case in several states), how much deterrence does such a threat hold for a multi-billion dollar corporation?  Where there is an absolute cap that does not make allowance for the financial wherewithal of the defendant, the risk is that the threat of punitive damage penalties can be an effective deterrent for egregious acts by smaller firms—that presumably harm smaller numbers of innocent parties, but not for giant firms (perhaps a General Motors, a Ford, or a Merck)—that are in a position to do harm to larger numbers of persons.  Was that the intent of tort reformers?
     Another (herein assumed so) unintended consequence of tort reform was the negative impact on the fortunes of lawyers and law firms practicing primarily (or exclusively) on behalf of defendants.  While plaintiff lawyers were intentionally (and strategically) demonized in the battle and their fortunes targeted for a “comedownance,” so was not the intent—or, at least, stated intent—relative to defense lawyers and their firms.  And while solid, reliable data are not available concerning the impact of tort reform on the work load and income of defense firms, there is much anecdotal evidence that it was quite significant.
     Business Week tells of a Fulbright & Jaworski  partner (who was at the time engaged mainly in handling medical malpractice) recounting the story of having heard some younger lawyers at the firm cheering after the first round of liability limits passed in Texas.  “Well guys, if nobody’s going to be filing lawsuits, what do you think you’re going to be doing?”  BW indicates that that partner now does intellectual property litigation for another firm that practices commercial litigation.  BW also reports that Gwinn & Roby, a Dallas medical malpractice and product-liability defense firm, closed its Fort Worth office in March, and that Houston’s Beirne Maynard & Parsons, which also worked in those areas, is retooling some of its 90 attorneys.  A recent ABA Journal piece also notes that defense firms were bruised by the same club of tort reform that Texas wielded at plaintiffs, but reports that most are not eager to discuss the impact publicly.  “More than a dozen prominent Texas defense lawyers declined to respond to repeated requests for interviews…and a few who did would not be quoted on the record.  They said they fear losing what little work they’re still getting if they cross the health care industry by criticizing the new laws.” (Carter)
     While the fallout from tort reform has sent many plaintiff lawyers in search of new ways of replacing lost revenue sources (e.g., commercial damage litigation, added emphasis on economic damages vis-à-vis noneconomic damages, workers compensation cases in states that allow it), many defense lawyers have been forced to do the same.  As noted above, some have moved into alternative lines of legal practice.  Others have found ways of squeezing added revenues from their old lines of practice.  By engaging in additional discovery, filing more motions—including Daubert challenges—and appealing more cases, the defense firm can build up added billable hours. And though tort reform measures often are justified on grounds of judicial efficiency (ending “frivolous” lawsuits and unclogging the courts), little tort reformer attention has been paid inefficiencies arising from the defense side of the bar.  For example, one seldom or never hears or sees tort reformer complaints of “frivolous appeals” or “frivolous Daubert challenges.”12
     Though lawyers can be sanctioned for filing nonmeritorous or “frivolous” appeals that have a low probability of success and are intended primarily to delay and/or inflict added costs onto the opposition, such action is hardly common.  Kravitz (2002) asserts that “Though federal and state courts possess ample authority to impose sanctions for frivolous appeals—in order to punish those who file them, deter others from doing likewise, and compensate the victims of such tactics—appellate judges have long shown a surprising reluctance to use the tools at their disposal.”  And this is hardly a new problem.  To illustrate, as early as 1928 the Columbia Law Review notes that, “an appellant who creates the appearance of good faith is likely to avoid the statutory penalty even though there is little merit in his appeal.”  Little seems to have changed.  That risk seems to be little diminished today.  Grignon and Jaltorossian (2006), while warning that the California Court of Appeal can and does sanction attorneys for filing frivolous appeals, noted that the justices “appear to have the patience of Job and rarely exercise their discretion to sanction attorneys before them….”  Zimmer (2007) notes that the Wisconsin Supreme Court has ruled that the court of appeals should not find an appeal frivolous without first giving the offending party notice and an opportunity to respond.   By “reforming” pre-judgment interest standards and appeal bond requirements, the cost associated with low merit appeals is reduced further.13
     In the case of Daubert challenges (while recent changes in the makeup and leanings of the courts have increased the probability for success), many experts and plaintiff lawyers note that they have experienced an increased incidence of seemingly frivolous challenges, or at least ones with a low probability of success.  Is that a likely (perhaps unintended) consequence of recent tort reform?  Why would a defendant file such a challenge?
     Writing in For the Defense (a publication of the Defense Research Institute, which bills itself “The Voice of the Defense Bar”), the authors offer the advice relative to Daubert challenges to economic expert testimony, “Challenge early and often.”  Why not?  Not only is there little downside risk to filing a challenge that has little chance for success, the defense attorney can bill for the time.  Even the NFL charges a time out against the coach for an unsuccessful challenge of an official’s call.  Yet the recent tide of tort reform apparently saw little or no need to address this source of judicial inefficiency by removing what amounts to a set of imbalanced, perverse incentives.
     The economics of filing low merit appeals, motions and challenges, or even superfluous discovery, is interesting.  While the law firm has an economic incentive to do so—they can bill for the time—the ultimate defendant, often an insurance company—still incurs a cost.  So, why do they allow such?  Partly, the answer almost certainly involves the economic concept of “asymmetric information.”  Asymmetric information is the condition in which the two sides of a transaction (decision) possess different amounts of information.  Thus one possible explanation for the filing of a low merit action is that the law firm may be aware of the low probability of success, while the ultimate payer (defendant and/or its insurance company) does not.  A second possibility is that the filing is a form of “signaling.”  The theory, developed by Nobel Prize winning economist Michael Spence, says that in some economic transactions in which inequalities in access to information upset the normal market outcome, one party could get around the problem of asymmetric information by sending a signal that would reveal some piece of relevant information to the other party.  That party would then interpret the signal and adjust their behavior accordingly.  Applying this theory, it is possible that the ultimate payer, perhaps the insurance company, understands the low probability of success of a particular motion or other action, but uses the action to signal the opposition (plaintiff side) of its intent to take whatever steps necessary to reduce the return for pursuing this—as well as any future--court action against the defendant.  An additional consideration, however, is that in the case of insurance companies that employ their own salaried in-house lawyers, the marginal cost of superfluous discovery, challenges and appeals tends to be low.14 Without doubt, the burden and costs associated with responding to a superfluous motion or challenge tends to be much more onerous than the costs of filing such.
Conclusions
     Following more than a decade long bitter and costly battle over tort reform, most of the changes sought by tort reform advocates have been achieved in many of the key, high target states such as Texas.  The movement has met much less success at the national level, where only class action restrictions were won.  Whether the changes improved the efficiency or fairness of the judicial system is more an issue of value judgment than of statistical measurement.  It is clear that the plaintiff side of the bar views itself as much less well off than it was a decade ago.  It is less clear whether the defense side of the bar views itself as better off.  In general, business—and especially the insurance industry, the medical industry, asbestos firms, and a few others—finds itself better off for its efforts.  It is not clear whether consumers consider themselves better off than before the reforms were put in place.  Some legislators who helped to pass tort reform measures are now heard verbalizing a concern as to whether they went too far.
     The consequences of the tort reform movement have been varied.  Some of the promised and/or hoped for changes did result.  However, some of the consequences that were not promised—or perhaps even intended—also followed tort reform.  Perhaps the major overall conclusion that can be offered is that overall the effects appear to have been more redistributional (making some better off at the expense of others who were made worse off) than macroeconomic.

Notes

1. One must credit tort reformers with remarkable marketing finesse.  While managing to demonize plaintiff attorneys, blaming “trial lawyers” for the raft of frivolous lawsuits and “excessive awards,” they were able to accomplish that feat apparently without offending the general public (electorate) that makes up the jurors that ultimately award the “excessive” amounts to supposedly undeserving plaintiffs.  It has also been pointed out that while serving as Governor of Texas—a state that has capital punishment—both Bush and Perry expressed the utmost confidence in the ability of juries to assess the death penalty fairly and without error, but showed much less trust in the ability of juries to listen to testimony in trial and fairly assess damages against corporate defendants.  This strange dichotomy seems to have escaped the attention of the media and the public during the tort reform campaign.
2. While fostering the impression that the crowded court dockets are due primarily to individuals suing doctors and other businesses, tort reform advocates tend to ignore the fact that general civil filings (business disputes, contract claims, foreclosures, etc.) account for a much larger share of total filings than do tort lawsuits (including personal injury of all types, property damage only, medical malpractice and wrongful death).
3. For example, a 1999 study by the Institute of Medicine of the National Academy of Sciences (not a part of the tort reform battle) cited statistics concluding that from 44,000 to 98,000 people die annually due to errors in inpatient hospital treatment.  Interestingly, tort reform advocates were able to frame the battle in terms of there being too many medical malpractice lawsuits without ever having to address the question of whether there was too much medical malpractice—and if so, how to deal with that problem.
4. According to the Wall Street Journal, January 29, 2007, over the last decade, more than 90% of trial lawyer donations have gone to Democrats.  In return, according to the Journal, the Democratic Senate caucus has been a bulwark against tort reform.
5. Texans for Public Justice (. http://www.tpj.org/docs/2002/10/reports/perry/page7.html.) describes itself as a non-partisan, non-profit policy and research organization that tracks the influence of money and corporate power in Texas politics.  TPJ also notes that the alcohol industry made sizeable contributions to Perry’s election, and even that the organization, Texans for Lawsuit Reform, was founded by an alcohol vender.
6. In cases with multiple defendants, the cap is set at $250,000 for non-economic damages against all physicians, and $250,000 against one hospital or $500,000 against two or more hospitals for a total of $750,000.  President Bush has proposed similar national caps on medical malpractice lawsuits.
7. Between the Texas Supreme Court (ruling in McIntyre v Ramirez, June 26, 2003) and the Texas Legislature (H.B. 4, 2003), the meaning of the term “Good Samaritan” has been expanded considerably beyond the traditional understanding of the term.  The Good Samaritan doctrine in law now covers emergency room physicians providing care within a hospital setting.  According to Laurie Higginbotham, an attorney who represented plaintiff Debra Ramirez in a malpractice suit against Dr. Douglas K. McIntyre, involved in the 1998 emergency delivery of the Ramirez infant, “Our position all along has been there is a big difference between a doctor providing emergency care in a ditch along the side of the road and a doctor providing emergency care in a hospital.  The court has said there is no difference.”
8. Accordingly, it appears that court decisions tend to reflect the changes in their composition.  For example, by count of Alex Winslow of Texas Watch, while civil defendants won favorable rulings in 52 percent of the cases in the Texas Supreme Court’s 2000-01 term, that rate had soared to 82 percent by the 2005-06 term.  Additionally, University of Texas at Austin law professor David Anderson found that during the Texas Supreme Court’s 2004-05 term, 87 percent of lawsuit defendants received favorable rulings, with those decisions often turning on “determinations that have little precedential value or jurisprudential significance.”
9. Initially view as an “anti-junk science” measure, Daubert v. Dow Merrell Pharmaceuticals, Inc., a 1993 Supreme Court decision made judges the gatekeepers of expert testimony submitted to the jury.  In that decision, the Court provided four, non-exclusive factors to consider in determining admissibility:  (a) Can the theory be tested? (b) Has the theory or technique been subjected to peer review and publication? (c) Is there a known or potential error rate? And (d) Has it been generally accepted by the relevant community?   In two follow-up decisions, Joiner (1997) and Kuhmo (1999), the Court granted judges increased latitude in excluding expert testimony.  Many state courts followed suit with similar rules.  For example, Texas’s 1995 Supreme Court decision in “Robinson” adopted, but expanded, the Daubert-Joiner-Kuhmo test for expert testimony admissibility.
10. Some studies have presented persuasive evidence that the “spikes” in medical malpractice premiums in Texas were not caused by rising payouts on claims or rising jury verdicts—calling into question the legitimacy for at least part of the tort reformers rallying cry for medical malpractice tort reform.  One such study, “Stability, Not Crisis: Medical Malpractice Claim Outcomes in Texas, 1988-2002,” published in the July 2005 peer-reviewed Journal of Empirical Legal Studies, employed the dataset maintained by the Texas Department of Insurance.
11. President Bush apparently adopted that figure—without question—from a 2004 report by Tillinghast-Towers Perrin, a consulting company whose clients include most of the nation’s largest insurance companies.  Because of numerous methodological problems—centering especially on the issue of what constitutes a “cost” of tort litigation—the study has been rather thoroughly discredited.
12. Because plaintiff lawyers work on a contingency fee basis—thus having no one to bill for work involving motions or appeals with a low probability of success—they have less incentive to engage in such.  Defense lawyers, however, more often bill by the hour and are thus in a position to be compensated for the extra work.
13. An internet search suggests that penalties for filing frivolous appeals are more likely to be levied in cases involving taxes and the IRS, commercial litigation, or public interest issues such as toxic waste, as opposed to personal injury/wrongful death cases.
14. Also, it is becoming increasingly common for insurance companies to negotiate flat fee arrangements with law firms to handle their litigation work.  This too results in a lower cost for “extra” motions, challenges and appeals.

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