The Great “Tort Reform” Overreach

There's been some recent news coverage that you don't see everyday.  In all the frenzy to placate special interest lobbyists who want to cut off the rights of average folks to go to court, state and federal lawmakers often overreach big-time, passing truly destructive laws that greatly limit the accountability of wrongdoers – a.k.a “tort reform.”  It's not that this is anything we don't already know, but the media gets it wrong so often that we're always happy to see some honest assessments.

First comes a great editorial from the St. Louis Post-Dispatch about the terrible law passed in 2005 that made worse Missouri’s “cap” on medical malpractice compensation for injured patients, the constitutionality of which is now before the Missouri Supreme Court.  And we quote:

Medical malpractice lawsuits long had been in decline in Missouri when the law was enacted. The best evidence of what was behind the destructive gyrations of premiums costs were boom-and-bust cycles caused by the insurance industry itself.

Nevertheless, the insurance and health care industries saw the chance to save a buck by gaming the system. They used the “crisis” to cut off an entire class of medical negligence victims — capping damages no matter how egregious the injury or reprehensible the malpractice.

With their risk now contained, they have little incentive to settle claims, no matter how legitimate. They are sure to use superior resources and delays to discourage even the most deserving claims. That’s how medical malpractice claims are defended in Missouri’s courts. Anyone familiar with how things work knows this to be true.

Next we have Gary Weiss writing in the business blog Porfolio that Congress screwed up badly when, in 1995, it enacted the Private Securities Litigation Reform Act that made it more difficult for defrauded investors to bring lawsuits.  As a result, “class-action suits haven’t been playing their traditional role in the financial crisis, especially as a means of ferreting out what really happened during the crisis." In fact, there is new data showing that “investor class-action lawsuits declined 24 percent in 2009.”  Pretty terrible timing for that to happen.  He writes:

Class actions ordinarily play a role in the fight against fraud in two ways. One is as a deterrent, to presumably give corporate execs second thoughts before doing stuff they shouldn’t. The second is that class actions result in the discovery process, making it possible for plaintiffs to extract documents and take testimony.

…

It’s a shame that class-action lawsuits are needed at all. In an ideal world, we should have well-motivated regulators ferreting out improprieties by tobacco companies, securities firms, and public companies that cook the books. But the sad fact is that our regulators have become increasingly somnolent in recent years, with the Securities and Exchange Commission and prosecutors bringing far fewer cases during the Bush administration than they did in years past. The SEC is trying to reverse this trend, but it has a long way to go.  Congress can help greatly by rethinking the 1995 law.