Can Courts Undo What the Courts Have Done?

Liability: The Legal Revolution and Its Consequences, by Peter W. Huber, New York: Basic Books, 260 pages, $19.95

The Product Liability Mess: How Business Can Be Rescued from the Politics of State Courts, by Richard Neely, New York: The Free Press, 181 pages, $24.95

Those who have generally opposed government regulation and redistribution programs and, instead, championed individual rights now face a dilemma. Rights are not what they once were. In tort law, traditional contract principles—whereby risk could once be assigned by stipulation between buyer and seller or between insured and insurer—have been set aside. Two recent books, Peter Huber's Liability and Richard Neely's Product Liability Mess, provide some insight about this transformation.

Huber's book offers a particularly readable and instructive general survey. Tort law was once preoccupied with intentional and malicious injury, then with reckless or grossly negligent conduct. In the past 20 years, however, tort law has come to be preoccupied with connecting "deep pockets"—those with financial resources to pay compensation claims—with accident victims in search of compensation. To impose the connection, tort has torn up traditional contract principles based on agreements between buyer and seller or between insured and insurer.

The result in many fields, as Huber notes, is that insurers have demanded vastly higher premiums or refused to offer insurance on any terms. In addition, valuable products and services—like vaccines against serious diseases—have been driven from the market. Other products and services have survived but now sell at substantially inflated prices to cover insurance costs.

The story Huber tells is strikingly similar to accounts, by the public choice school of economics, of what typically happens with public regulatory or redistribution programs: though reforms in tort were originally encouraged by well-meaning academic theorists, they were quickly seized and directed by self-seeking legal practitioners, who have indeed proved to be the main beneficiaries. Thus, theorists of extended liability emphasized the need to encourage safety by punishing wrongdoers with heavy, punitive damage awards. But the current system does very poorly in distinguishing prudent risk from recklessness, because as Huber complains, the same product, though it may have been cleared by a regulatory agency, can be "tried" again and again by tort lawyers and finally driven from the market by one or two adverse judgments.

Still more perversely, as Huber notes, the burden of liability in the current system tends to fall disproportionately on newer and generally safer products, simply because the risks they entail are less well known. Similarly, extended liability was praised by academic theorists as a necessary recourse for unfortunate victims. However, it turns out to be extremely inefficient as a compensation system, channeling barely a fifth of the money involved to victims and managing to "spill" most of the rest on attorneys. Huber thus urges a return primarily to reliance on insurance to compensate accident victims and on administrative regulation to reduce the frequency of accidents.

But Huber is surprisingly vague about these alternatives. He celebrates "contractual," or voluntary, approaches, while simultaneously renouncing the "harshness" of 19th-century individualism. He doesn't say whether government should require insurance or provide it directly or let people make their own choices and live with the consequences. He doesn't say whether current regulatory programs should be extended and intensified. Neither does he express any opinion on the common complaint that regulatory agencies—such as the Food and Drug Administration—are already acting with excessive caution and choking off valuable new products. And Huber scarcely addresses at all the question of how we get from here to "there," though he seems to hold out the hope that courts can be persuaded to undertake reform on their own, as they realize the mess created by their credulous embrace of deluded academic theories.

In The Product Liability Mess, Richard Neely has one overriding diagnosis that corresponds to a resolute strategy for reform. Like Huber, Neely writes in a brisk, witty style, but his book is much more focused and limited. Neely, himself a state supreme court judge and prolific writer, emphasizes that state court judges—who handle the vast bulk of tort cases—have no incentive to concern themselves with the costs and consequences of overly generous liability verdicts when, as frequently happens, the needy plaintiff is a citizen of the judge's own state and costs and consequences will fall on an out-of-state corporation. Even if a particular judge is inclined to worry about burdens on innovation, he cannot trust state judges elsewhere to do so and therefore gets dragged into a "competitive race to the bottom."

This analysis does not explain why state judges held to a so-much-more-restrained view of liability before the 1960s, nor does it explain why federal judges have so far gone along with the trend in state courts. But it does launch Neely toward a simple and seemingly quite plausible remedy: let the federal courts step in and impose some sensible national standards to limit tort liability. Though the book ends with a suggestion that Congress might authorize this by statute, Neely seems to place more hope in the possibility that the Supreme Court can be persuaded to impose such national standards on its own, as it already has, he notes, with state libel law under the rubric of the First Amendment.

It is a measure of Neely's disdain for formal legal discourse that he does not even bother to sketch the terms of a constitutional argument for limiting tort liability. But he is no doubt right in his assumption that clever lawyers can be counted on to work up such an argument, if the Supreme Court can be persuaded on policy or political grounds that this is the best course to follow.

The paradox of both these books is that they look to courts to get us out of problems created in the first place by courts. Perhaps this is fitting, since, as Judge Neely emphasizes, courts have the greatest power of initiative in our log-jammed political system. But if Huber is right, it was just this sort of argument that persuaded judges to expand tort liability over the past two decades to remedy the failure of the political system to provide sufficient safety regulation and sufficient compensation for victims. In the meantime, moreover, the system has created powerful constituencies—not least the trial lawyers themselves—and they may have the strength to persuade legislatures to curb unilateral judicial retrenchments in this field.

People who seek a less wasteful and burdensome system for coping with the hazards of modern life have a lot of persuading to do. Both these books are worthy contributions. But it won't be sufficient simply to persuade judges.

Jeremy Rabkin teaches in the Department of Government at Cornell University.