90. Torts and thinking by metaphor

The Kansas City Star has a story about the president of the national Chamber of Commerce (memorialized in Dylan's "Tombstone Blues") going on about "tort reform."  The reach of tort law has expanded enormously since the days of McPherson v. Buick Motors, of course.   But it's grown in two different dimensions: horizontally (as new causes of action are invented and judicial inhibitions against things like premises liability are swept away) and vertically (big dollar awards).

From the point of view of an insurance company, the horizontal expansion of tort liability is an excellent thing.  The more theories of liability, the more market for insurance products.   Indeed, judges say that the very reason they expand tort liability is to encourage the sale of insurance.  As the Connecticut Supreme Court put it recently, in holding that a snowtubing park's disclaimer of liability was against public policy,  "the defendants are in a better position to insure against the risk of their negligence and to spread the costs of insurance to their patrons". 

On the other hand, the vertical expansion of tort liability - the occasional all-the-gold-in-Ft.-Knox verdict - is problematic for insurance companies.  Bureau of Justice Statistics show that tort awards are, on average, very modest indeed.  But - it might seem ironically - it's the very rarity of enormous jury awards  that makes them problematic for insurance companies.  As an actuarial matter, it's awfully difficult to plan for lightning strikes.

So insurance companies are in favor of the robust expansion of tort liability horizontally, but opposed to vertical expansion.   It would seem self-evident that a business person worried about insurance costs would have a much different perspective.  For the business person, the real problem area is horizontal expansion, because the recognition of new theories of liability - the judiciary's imposition of incentives for buying more insurance - will definitely affect the bottom line.  By contrast, the risk of being on the receiving end of a big-bucks payout is statistically slight, and a business can minimize even that small risk by refraining from behavior calculated to incense a jury.

Yet here is the president of the Chamber of Commerce running around the country making speeches in favor of damage caps - a "reform" intended to stop the vertical expansion while allowing the horizontal expansion to continue unchecked.  One can understand why the C of C's members would be unhappy about the amount of money they pay in insurance premiums, but what could possibly persuade them that the solution to that problem is the one advocated by the people taking their money?  It's like catching someone siphoning your gas tank, only to accept his explanation that the reason for your poor mileage is a dirty fuel filter.

During the first years of the Clinton administration, doctors fell into the trap of believing that the insurance companies were looking out for the doctors', as opposed to the insurance companies', best interests.  Ten years later, Chamber of Commerce types are repeating the doctors' mistake.  It seems almost incredible.

The explanation, I think, is our  ingrained habit of thinking by metaphor.  (See post 10.)  We're so used to thinking of the political world as a straight line, with a left and a right.  Trial lawyers are on the left, insurance companies are at the right - their pattern of political contributions proves it.  So if you're a small business person used to voting Republican, it can only mean that insurance companies are on your side.  But what if the real shape of the political universe is triangular?  Or, say, something more like this?

Comments

[Snake48]

What about coverage limits on insurance policies? Granted, insurance companies are in business to garner premium payments and investment gains, not pay benefits, but they are hurt when they can't assess risk accurately, and so under-price their policies or over-price themselves out of the market. It is the insured which bears the risk of a damage reward exceeding policy limits (although granted, many cases get settled for policy limits). If neither insured nor insurer can determine what dollar amount is actually at risk (vertical escalation), neither can judge how much insurance or reinsurance, as the case may be, is prudent. Arbitrary and capricious is grounds for setting aside a judicial or administrative decision. Remittitur should be available to correct the problem when the jury is being capricious with other peoples' money, but when the plaintiffs' bar supplies the trial judges, there's no balancing force. Hence the legislative attempts to limit judical power.