Tort reform in jeopardy

Chief Executive, The, June, 1995 by Jon Christensen

FORCEFUL LEGAL REFORMS PASSED BY THE HOUSE OF REPRESENTATIVES WERE WATERED DOWN BY THE SENATE. THE BUSINESS COMMUNITY MUST SPEAK NOW TO SUPPORT TOUGH-MINDED MEASURES - OR HOLD ITS PEACE.

After 15 years of fruitless effort, Congress finally grabbed the reins of the runaway legal system. By passing the Common Sense Legal Reform Act in March, the House of Representatives moved to eliminate the frivolous lawsuits that have clogged our judicial system for far too long. The success was powered by a host of new members who were committed to pulling government off the backs of job-creating industries. This vital legislation went before the Senate, where there was a difficult fight. Nevertheless, strong legal reforms such as those approved by the House are critical to the nation's business community anti to the country as a whole.

A LEGAL SYSTEM RUN AMOK

In a cautionary tale told by the Hartford Courant, a drunken wedding guest at Mohawk Mountain Ski Area in Cornwall, CT, left the festivities to call a friend for a ride home. While talking on a pay phone, he fell over a guardrail into a stairwell and was permanently injured. He sued, and the jury awarded him $7.47 million in damages. Who paid? Was it the bride and groom? Was it Mohawk Mountain's managers, who built the lodge? Was it the carpenter who made the guardrail eight inches too low? Of course not. The phone company, Southern New England Telecommunications, footed the whole bill.

As any businessman knows, the legal system in America has gone seriously awry. A University of Texas study conducted by finance Professor Stephen P. Magee found that the economic damage and direct and indirect costs of litigation drained 10 percent from the nation's gross domestic product during the 1980s - a cost of about $1 million per lawyer. The current product-liability process, just one corner of the tort system, costs the nation between $80 billion and $120 billion a year. For individual companies, the problem can be a recurring nightmare; Wilmington, DE-based DuPont Chemical, for example, typically battles 4,500 lawsuits annually for a total cost of $75 million.

STRONG MEDICINE

The legislation passed in the House would change the way our legal system works by limiting outrageous punitive damage awards and adopting commonsense "loser-pays" and "fair-share" lawsuit reforms. The legal reform package comprised three bills:

* H.R. 988, the Attorney Accountability Act, requires losers in many federal cases to pay the winners' legal costs to cut down on frivolous lawsuits.

* H.R. 1058, the Securities Litigation Reform Act, fixes the "strike-suit" problem in which aggressive lawyers sue companies for huge sums, nominally on behalf of shareholders, when their stocks decline.

* H.R. 956 limits punitive damages in all civil cases and ensures that defendants pay only their "fair share" of damages.

Some pro-business freshmen and senior members expanded these measures from simple product-liability limits to include all civil cases. This business-friendly move extends the bill's protections to nonprofit organizations, such as the Little League, which have complained about the exorbitant costs of liability insurance. That broadens support for the bill and spreads its benefits to everyone. In addition, I was an original sponsor of an amendment to limit non-economic damages in medical malpractice cases. This expanded legislation is strong enough to bring the courts back under control and turn the tide of frivolous lawsuits.

Early on, House Speaker Newt Gingrich (R-GA) predicted the debate over the originally proposed, relatively modest reform measures would be a "brawl," the "most contentious" fight of the 100-day Republican agenda. Instead, as a result of the House's work, the agenda - with measures that would radically reshape the court system, end the rule of personal injury lawyers, and stress common sense - passed in the end with strong, bipartisan support. Members of both parties agree the legal system must be repaired; as a result, the broader the reform, the more backing a measure can engender.

THE BATTLE IN THE SENATE

Business leaders must realize that all the hard work done in the House has come into question. In the Senate last year, proponents of product-liability reform fell just three votes short of breaking a filibuster on their solid, but limited, reform proposal. With 11 new Republican freshmen in the Senate, legal reformers had been confident of their ability to pass strong legislation in this Congress. When push came to shove, however, it seemed the pro-business revolution in the House may not have swept the Senate so markedly.

Just as it began in the House, a moderate product-liability bill was introduced by Sens. John D. Rockefeller (D-WV) and Slade Gorton (R-WA). This bill contained alternative dispute resolution mechanisms, limits on the liability of product sellers vis-a-vis injuries caused by the products they sell, and a two-year statute of limitations. The caps on punitive damages contained in the bill applied only to product liability.