Recent
Developments in Assessing Damages in Environmental Accident/Pollution
(“Mega-Hazard”) Insurance Cases
NON-PECUNIARY LOSS: The Insurance Theory of Tort Compensation
The “occurrence”: the
earthquake or the building collapse?
Continuing
Pollution Damage: Triggers and Manifestation
Joint and Several Liability between Polluters over time
This paper will attempt to
consider certain damages issues which arise in environmental accident/pollution
(“mega-hazard”)[1] cases, with
particular reference to Australian court decisions and practices. Some of these
issues have been discussed recently in Australian journals.[2]
Wetterstein[3]
has suggested that the analysis of damages by courts in environmental
accident/pollution insurance cases is complicated by 3 factors:
1.
technical, physiological
and medical uncertainty[4];
2.
uncertainty as to rules of
liability and their applications;[5]
3.
the time aspect, which
makes assessment of technical risk and legal risk difficult.[6]
The USA has substantial
experience in these types of cases.[7]
Federal legislation has been introduced in the USA requiring compulsory
insurance to cover potential clean-up costs of hazardous wastes in landfill,
which has resulted in substantial litigation.[8]
Similarly, European countries have some experience in the litigation of such
claims.[9]
The lack of an insurance market for environmental insurance in Australia
(pollution damage, for example, in Australia, is usually covered, to the extent
not expressly excluded, by a public liability policy, or potentially a transport/marine
carrier policy[10]) suggests
that international experience may be of some assistance.
The paper will consider issues
which may affect the assessment of damages by Australian courts in the
litigation of such events.
The thesis of the paper will be
that the Australian courts (and insurers) are likely to develop practices based
on USA and European experience, to deal with the increasing incidence of larger
environmental accident/pollution damage mega-hazard claims.
The damages potentially arising
out of a mega-hazard claim might include any or all of the following:
·
clean-up costs
·
rectification of damage to
property
·
medical expenses
·
economic loss
·
pain and suffering
There is a debate as to the
extent, if any, that non-pecuniary
losses should form part of damages recoverable from a tortfeasor/insurer.
Pryor[11]
examines the insurance theory of
compensation and expresses the view that it fails as a primary guide in
determining the appropriate compensatory sums[12].
She notes that the insurance theory of compensation places no value on the
deterrence nature of payment for loss. Pryor notes that the theory arises from
the “quite defensible observation”[13]
that most “societal compensation programs, including the tort system, currently
function to a large extent as insurance programs”[14]. Pryor comments that tort law may be pictured
as “a port of entry into an insurance program paid for and provided by members
of the community for themselves”[15].
Pryor notes that
proponents of the insurance theory of compensation[16]
suggest that it makes sense to construct compensation guidelines that follow
insurance principles[17].
She notes that insurance theorists posit that the optimal compensatory sum is
the amount of insurance that individuals would have purchased in an
“actuarially fair insurance market”. Pryor rejects this basis for measuring
compensation, as it does not take into account non-monetary losses[18]. Non-monetary losses, in this context, include
losses such as pain, anguish, physical impairment (inability to play sport),
disfigurement, etc[19].
Pryor refers to an example given by Professor Shavell[20]
of the loss of an irreplaceable family portrait, which might result in a
significant emotional loss, but not loss which affected the family members’
earning capacity. Professor Shavell suggests that the loss of this article
would not affect the family members’ “need for money”, the loss would not
increase the marginal utility of money, then the purchase of insurance coverage
for that loss cannot increase expected utility, and is therefore inefficient.[21]
Pryor notes that some
insurance theorists[22]
suggest that non-pecuniary losses might, in fact, reduce/increase the marginal utility
of money. For example, an injured person, post-accident made poorer, may have
decreased demand for goods and services. Such an individual might anticipate,
post-accident, being less willing to spend in the post-loss state than before.
If properly informed, that person might purchase less insurance, to keep more
dollars for use in the pre-loss state. Alternatively, where, for example, an
injured person was inclined to substitute travel, or symphonies, for
pre-accident participation in sport, the marginal utility of money might be
increased.[23] Pryor draws
a series of conclusions about optimal insurance coverage depending on the
non-pecuniary effects of an injury, and the marginal utility of money.[24]
Pryor notes that though
some commentators embrace the need to address deterrent concerns via some fine,
surcharge, or modification of the compensatory-insurance measure, even those
proposals would make use of the insurance theory to set the compensatory level
of compensation.[25]. She
suggests that the two most important features of insurance theory are the
question of marginal utility in relation to specific losses and the distinction
between pecuniary and non-pecuniary losses.[26]
Pryor concludes that the
insurance theory, despite its failings, at least focuses attention on the
compensatory role of payments for loss, and the extent to which monetary
payments benefit a person who has experienced illness or injury.[27]
Feldman[28],
like Pryor, concludes that the insurance theory of tort compensation is
inadequate. She notes that large numbers of USA States have introduced
statutory limitations on certain damages in tort[29],
noting further that “against this political backdrop”, certain legal economists
have advanced the insurance theory of tort compensation to justify the
elimination of tort damages for pain and suffering.[30] Feldman notes the central premise of the
insurance theory: that accident victims should not recover damages for injuries
in relation to which it would not have been economically rational to insure.[31]
Feldman comments that such
results would seem to contradict two traditional goals of tort law: making tort
victims whole, and discouraging excessively dangerous conduct or products by
requiring injurers to internalise the full costs of the behaviour of goods.[32]
Feldman notes that “insurance
theorists” accept that eliminating damages for pain and suffering would
compromise deterrence, but urge other measures[33]
to restrain inefficient risk-taking.
Feldman argues that first party
preferences for insurance have no relevance to the tort damages that ought to
be available. She suggests a “framework within which to think fruitfully about
the relationship between pain and suffering awards and the goals of tort
compensation”.[34] Feldman
argues that we should resist statutory elimination or restriction of
non-economic damages.
Feldman comments that the
insurance theory argument against tort damages for pain and suffering depends
on the claim that pain and suffering do not increase one’s need for money.[35] Feldman also notes that the traditional tort
system requires a tortfeasor to pay for damages for pain and suffering as well
as for loss of wages and medical expenses. She notes the insurance theorists’
argument that rational purchasers of first party insurance would not seek
coverage for pain and suffering. This, according to the insurance theorists,
means that the tort sytem overinsures
victims, permitting them to recover for a type of loss against which it is
irrational to insure.[36]
Feldman comments that while the
insurance theorists say it may be irrational to insure against this loss, it is
not irrational to avoid. It is important, says Feldman (and possibly all
commentators?) to inhibit people from imposing pain and suffering on others.[37]
Feldman rejects the insurance theory of compensation that equates wellbeing with preference satisfaction,
and contends that money cannot genuinely repair pain and suffering.[38]
Feldman comments that the courts
have traditionally stated the purpose of tort damages as being to make the victim whole.[39] She suggests that this aphorism is not to be
understood through economic analysis. Feldman traces the development of damages
theory through the courts noting that modern courts have “wholeheartedly adopted”
the formulation of “making the victim whole”. Feldman notes that this is a
“metaphorical aspiration, not a literal one”.[40]
She observes that, in fact, the State does not require tort victims to use
their damages to contract to regain their previous position.[41].
Feldman concludes that the insurance theory of compensation, based on the
contractual view of first party preferences, is inappropriate in the assessment
of damages in tort, which arises from a failure to observe a socially mandated
level of care or safety, and redressing resultant injuries.[42]
So what then does this mean for
the assessment of damages in mega-hazard cases in Australia?
The position in Australia
is that exemplary damages are available to plaintiffs in civil actions. The
leading authority in this respect is usually considered to be Uren v John Fairfax & Sons Pty Ltd[43]
in which the High Court declined to follow the House of Lords [44]
in restricting the instances where exemplary damages could be awarded.
McTiernan J reasoned:
The
law of exemplary damages as it was before it was altered by the decision of the
House of Lords in Rookes v. Barnard
(1964) AC 1129 is compendiously stated in Mayne
& McGregor on Damages, 12th
ed. (1961), p. 196:"Such damages are variously called punitive damages,
vindictive damages, exemplary damages, and even retributory damages. They can
apply only where the conduct of the defendant merits punishment, which is only
considered to be so where his conduct is wanton, as where it discloses fraud,
malice, violence, cruelty, insolence or the like, or, as it is sometimes put,
where he acts in contumelious disregard of the plaintiff's rights."
"Such damages" the learned authors said at p. 197 "are
recognized to be recoverable in appropriate cases of defamation." (at
p122)………..I would adopt the statement quoted above from Mayne &McGregor on Damages as a summary of the decisions of
this Court as to the circumstances giving rise to a claim for exemplary
damages.[45]
The traditional test
appears from the judgment of Taylor J:
Prior
to Rookes v. Barnard …….. the law
relating to exemplary damages both in England and in this country was that
damages of that character might be awarded if it appeared that, in the
commission of the wrong complained of, the
conduct of the defendant had been high-handed, insolent, vindictive or
malicious or had in some other way exhibited a contumelious disregard of the
plaintiff's rights….. (emphasis added)
This broad view has been
restated on several occasions by the High Court.[46]
On 24 March 1989, the
Exxon Valdez grounded on Bligh Reef near the coastline of Alaska. It spilt 11 million gallons of oil into the
sea. Five years later an action commenced
in the USA Federal Court.
For convenience, the trial judge
divided the case into four phases:
1. At the conclusion of the first phase, in June 1994, the
Federal Jury determined that Exxon and Mr (formerly Captain) Hazlewood had
acted recklessly.
2. During the second phase, ending in August 1994, the jury
decided that Exxon’s contention that a drop in the herring and salmon numbers
could not be entirely attributed to Exxon, and awarded approximately 10,000
fisherman the sum of $286.8 million in compensatory damages (approximately a
third of the amount sought).
3. The third phase was to determine punitive damages for
about 34,000 fishermen, 4,800 Alaskans and several thousand more Alaska
residents and land owners and others who claimed that they had been harmed by
the spill. On 16 September 1994 the
Federal jury ordered that Exxon pay $5 million in punitive damages. The jury also ordered that Captain Hazlewood
to pay $5,000 in punitive damages.
4. The fourth phase was to decide whether to award $300
million in damages to crab fisherman and other specialised groups who are not
included in the earlier trial.
On 16 September 1994 a
Federal Court jury awarded $287 million in compensatory damages, and $5 billion
in punitive damages against Exxon Corporation in respect of the spill. To date this amount has not been paid.
Many newspaper reports and
comments have been written in respect of Exxon
Valdez and the delay in dealing with the punitive damages award in the
Federal Court[47]. Prior to the award of the punitive damages,
Exxon had already paid substantial damages.
It had paid $2.2 billion for the clean up, $1 billion to settle state
and federal civil charges[48],
and $300 million for lost wages to 11,000 fisherman and business
operators. Exxon is presently contesting
both the size of the punitive damages and the manner in which the $287 million
compensatory damage award was calculated.
The number of plaintiffs
who would share the punitive damages award is still unclear. [49]
At the time that Exxon was
ordered to pay the $5 million punitive damages, it had reported revenue of
$111.2 billion and net earnings of $5.28 billion. In fact, the amount asked of the court had been $20 million.[50]
There were also related insurance claims.[51]
There is an issue on appeal as
to whether a group of Seattle seafood processors is entitled to a share of the
$5 million punitive damages award. Interestingly, the seafood processors had
previously reached a $70 million settlement with Exxon. Under that agreement,
the processors’ share of the $700 million punitive damages, would be returned
to Exxon. The plaintiffs presently
contend that Exxon would hardly be punished if it could pay a share of those
damages to itself.[52]
The plaintiffs, in response had argued that while out of court settlements are
favoured, they are not supposed to be secret and public policy did not favour
double-crossing plaintiffs. They
suggested that a “class could not include parties whose interests are contrary
to the class”.[53] Exxon
argued that the agreement should be enforced saying that the processors should
only get what they bargained for and that public policy favoured out of court
settlements.
The trial judge concluded that
the agreement was “an astonishing ruse” and held it to be void on the ground of
public policy.
In Food Lion v ABC [54] the Court awarded punitive damages of
$5.5 million. In Gore v BMW of North
America[55]
the US Supreme Court struck down a $2 million punitive damages award (reduced from
$4 million by the appeal court). The US
Supreme Court that the damages award was so grossly excessive as to violate the
14th amendment due process clause.
There have been several
instances of similar pollution accident cases, which have not yet resulted in
litigation.[56] In
addition, natural environmental accidents[57]
raise similar potential damages issues (in the absence of a polluter, the
insurer may be available, as for example in the Newcastle earthquake).
Potentially the cost to insurers of natural environmental disasters could be
immense.[58] The
Longford gas explosion was the subject of a recently released report by the
Royal Commission comprising Sir Daryl Dawson and Mr John Brooke.[59]
The accident was widely reported in the press.[60]
Many groups have emerged
in response to the present trends in punitive damages.[61]
In recent years, in many US states, new procedures have been introduced and
tort reforms enacted including limitations on joint liability, class actions,
contingency fees, and punitive damages.[62]
Corporate
Purpose / Calculated
Risk
Stone[63]
refer to causal stories to explain
government action, politically driven, dealing with problems as they occur,
leading historically to responses which might include prohibition of an
activity, direct compensation of victims (through social insurance or special
funds) and mandated compensation of victims (through litigation).[64]
Stone theorizes that the concept
of risk has become a “key strategic weapon” for pushing a problem out of the
realm of accident into the realm of purpose (“evil motive” actions). She
suggests that where harms associated with an action or policy are predictable,
then business and regulatory decisions to pursue a course of action in the fact
of that knowledge appear or can be made to appear as a calculated risk.[65] In short, says Stone, predictable stochastic
outcomes have been transformed by reformers into conscious intent. “Courts are
willing to hold companies liable for calculated risks.”[66]
Stone refers to the Ford Pinto case [67]
as an “especially notable” example, where the court construed Ford’s business
decision to trade off safety for costs as:
“…..conscious disregard
of the probability that (its) conduct will result in injury to others….(and
therefore as)….malicious intent... “[68]
Stone notes that “calculated
risk” was also the crux of the Plaintiff’s argument in the asbestos and the Agent Orange
litigation. Stone suggests that defendant corporations would prefer to show
inadvertence, rather calculated risk: “carelessness and neglect do not look
very good, but they are probably better defences than plan or designed
failures.”[69] Stone suggests that the preferred defences
to an (“evil motive”) action are, in order:
1.
that the defendant had no
intent, the damage was caused by “nature” (Stone notes that Union Carbide’s
defence of a leak at its West Virginia Plant began with a story about failed
safety valves and a malfunctioning computer)
2.
that the problem was caused
by someone else (Stone suggests that this is second best, the “someone else” is
likely to “fight back and resist the interpretation”)[70]
3.
that the damage was caused
through inadvertence.
Interestingly, Stone suggests
that the strategy may become to suggest that damage was the result of a complex structural cause, which can only
be “solved” by larger institutions.
For example, in the Manville asbestos litigation, Stone
suggests that: “…By insisting that the federal government deal with
compensating victims, Manville attempted to spread out the costs onto society at
large.” And in relation to the widespread adoption of workers’ compensation in
the early twentieth century: “…. a successful move by employers, who were
increasingly losing liability suits, to define ……. industrial accidents as
………the natural result of modern technology and to socialize the costs through
insurance.”[71]
Stone suggests that the tort
suit is a primary vehicle in the United States for asserting a causal theory
about harm and demanding a remedy. The
Agent Orange cases, for example, in
addition to being individual claims, are an organised protest by Vietnam
Veterans against their treatment during and after the war.[72]
Wright[73]
comments that life is basically business.
He suggests that the present Federal Government is premised upon a belief
in the universal application of market principles, individual choice and
responsibility as the foundation for social policy. He notes the three general principles in the present Victorian
government’s Report of the Victoria
Commissioner of Audit[74],
namely departments and ministers responsible for policy setting being separate
from the organisation responsible for providing those goods and services, the
aim to purchase designated outcomes, competition.[75]
Wright compares this to governmentality
as understood by Foucault, which is primarily about how to govern in the “name
of truth”.[76] According
to Foucault, Wright suggests, to govern is to manage people and to have them
manage themselves.[77]
It may be fair to say that we
have not, yet, experienced huge awards of exemplary damages in mega-hazard
cases. In the USA, where huge damages awards have occurred, there is presently
a continuing academic (and political) debate as to whether punitive damages are
effective, should be abolished, and/or how they should be calculated.
There is a substantial degree of
empirical data collected in the USA on punitive damages.[78] This data suggests that, in the USA,
(contrary to popular opinion?):
·
punitive damages are
awarded in only a small percentage of personal injuries cases (in California,
less than 2 % of personal injury trials);
·
where punitive damages are
awarded at trial, are often reduced or reversed on appeal, or are otherwise not
paid;
·
in certain categories of
punitive damages, the median of awarded punitive damages is much lower than the
mean (suggesting the odd extremely high, but rare example)
·
despite the punitive and
deterrent purposes of such damages, there exists a high correlation between
punitive damages and economic loss[79]
The appropriateness of punitive
damages has been examined in a number of USA reports[80]. An early American Bar Association committee
has concluded[81] that
punitive damages are appropriate subject to a number of recommendations for
legislative reforms and trial court criteria. In contrast, the American Tort
Reform Association argues that punitive damages should be reformed.[82] This debate has been around for some years.[83]
The 1986 American Bar Association committee concluded that there was no
punitive damages crisis, but did make a number of recommendations, including:
1. a threshold requirement that the defendant exhibit a
conscious disregard for its actions;
2. a standard for awarding punitive damages be clearly
articulated for juries;
3. increased burden of proof on the plaintiff (“clear and
convincing evidence” rather than “mere preponderance”).
4. more active role in pre-trial and post-trial motions by
trial courts;
5. discretionary bifurcation of liability and punitive
damages, where appropriate;
6. the size of the award for punitive damages be scrutinised
by reference to factors such as degree of reprehensibility, risk undertaken,
actual injury, reform by the defendant….[84]
The US Supreme Court considered
punitive damages in four cases between 1988 and 1993[85].
The issues raised before the Supreme Court included, inter alia, issues of Due
Process, the Excessive Fines, Double Jeopardy and Takings Clauses contained in
the Constitution and various Amendments.
A number of issues have come
before the US courts including:
·
whether punitive damages
are covered by a general liability policy provision such as “to pay on behalf
of the insured all sums which the insured shall become legally obligated to pay
as damages….”, in the absence of any express exclusion of punitive damages;
·
the extent and/or validity
of an express exclusion of punitive damages within the terms of a particular
policy;
·
whether a policy which
unambiguously covers punitive damages involves an inherent conflict between the
punitive damage goals of punishment and deterrence and the liability insurance
concept of indemnification for the insured, and is therefore invalid as against
public policy[86].
The public policy arguments have
included, for example:
·
whether, in fact, punitive
damages actually punish and deter wrongful conduct or are generally ineffective
as a device to do so;
·
whether “pecuniary damage
coverage” does not refer to the goals of punishment and deterrence because
state criminal sanctions do not do so;
·
whether insurance coverage
does not frustrate these goals because punitive damage do not result in
consequences that punish and deter such as harming the wrong doers reputation
and increasing his insurance rates[87]
The US courts have been
concerned to protect freedom of contract: where an insured and an insurer
construct an agreement whereby the insurer will indemnify the insured for such
damages, the contract should be given effect unless there is a “clear violation
of public policy”.[88] Some US courts have noted that the
insurability of punitive damages awards is further supported by the doctrine of
estoppel, precluding coverage denial because insurers voluntarily accept the
risk and collect premiums based on their exposure to such risks.[89]
In some US states, the purpose of punitive damages is said to be not only
punishment, but also to enlarge compensation, and thus is not inconsistent with
public policy.[90]
Viscusi[91]
suggests that punitive damages have come to symbolize the problems of (the USA)
courts. He suggests that punitive
damages are often substantial, and highly variable. He suggests that there is often no clear-cut basis to predict the
likely size of the punitive damages award, even knowing the compensatory
damages amount. He suggests that the
high stakes and the high variability of punitive damage awards are of
substantial concern to companies, to the point where punitive damages may pose
a catastrophic threat to corporate solvency.[92]
Viscusi quotes US Supreme
Court Justice O’Connor, in her often-quoted dissent in Pacific Mutual Life Insurance Co v Haslip :
“Punitive
damages are a powerful weapon. Imposed
wisely and with restraint, they have the potential to advance legitimate state
interest. Imposed indiscriminately,
however, they have a devastating potential for harm. Regretfully, common law procedures for awarding punitive damages
fall in the later category…”[93]
Viscusi proposes a societal
benefit-cost approach: whether the adverse effects of punitive damages are so
great that punitive damages do not pass a benefit-cost test. He concludes that punitive damages should be
abolished.[94]
Viscusi argues that the kind of
fine tuning to punitive damages awards, suggested by law and economic scholars,
required to ensure a constructive role for punitive damages “does not account
for how juries actually behave”.[95]
He notes that none of the state reforms of punitive damages have incorporated
the suggested “subtle economic criteria for awarding and setting punitive
damages”, but rather have focused on simple approaches such as damages caps.[96]
Viscusi suggests that the
assessment of desirability of punitive damages requires a thorough assessment
of whether, in fact, they serve any
constructive deterrent function. He
concludes that there are no systemic differences in the safety and environment
performance between states with punitive damages and states without them.[97]
Viscusi reviews certain damages
awards in respect of toxic chemical accidents (selected, he says, for their
localized character), toxic chemical release risks, in respect of facilities
reporting reductions in toxic release inventory, forms reporting reductions in
discharges, reduction in service water discharges, and reductions in total
releases, and “accidental vitality rates”. In each of these areas, he argues
that there is no statistical evidence (based on his comparisons between
punitive damages states and non punitive damages states) suggesting a deterrent
effect.
Viscusi concludes: “states with punitive damages are not safer”.[98]
Viscusi looks at insurance
premium differences, and notes that punitive damages are often uninsurable
under standard insurance policies, and further, that 18 of the 46 states that allow punitive damages
explicitly prohibit insurance of punitive damages assessed directly against an
insured for its own actions.[99] He suggests that if punitive damages deter
from making risky decisions, then risk levels should decline, lowering the
associated premium levels. He
concludes, however, that overall there is no net significant relationship borne
out in the insurance premium levels, irrespective of the state punitive damages
regime or the insurability of punitive damages. He argues that, consistent with the views expressed by punitive
damages critics, random and unpredictable awards do not, in fact, have a deterrent
effect.[100]
Viscusi then examines the
corporate risk decisions that are the subject of his study, and argues that,
though punitive damages can influence these risk decisions, by increasing the
financial sanctions for adverse outcomes of risky decisions, if experience
shows that punitive damages awards are unpredictable or unlikely, there will be
less deterrence. He reviews the conceptual rationales for punitive damages that
have been offered in the law and economics literature, and suggests that such conceptual
rationales all deal with highly specialised circumstances, which often involve
economic judgments likely to be beyond the juries competence. Further, he suggests, market forces and
regulatory incentives are more powerful and more appropriate means to provide
the necessary deterrence incentives.
Viscusi expresses the view that
there are substantial concrete economic harms that occur when indiscriminate
legal sanctions are levied without a sound economic basis.
Viscusi examines the principles for
corporate risk decisions, suggesting significant uncertainty in the assessment
of such risks. He refers to the McDonalds
Coffee Cup case[101],
in which a woman received $160,000 awarded for compensatory damages after
spilling hot coffee in her lap, and $2.7 million in punitive damages.[102]
Viscusi examines the sources of information regarding the risk available to
McDonalds, including uncertain factors such as, for example, the extent of
consumer carelessness. Viscusi similarly refers to the “low risk”, in fact,
from British beef due to mad cow disease, noting that fatalities estimates had
ranged from 500 to 500,000 deaths in Britain[103]. He further notes the uncertainty surrounding
the catastrophe involving TWA flight 800, where after months of investigation
it was still not clear whether the cause of the accident was a bomb, a missile
or a mechanical failure.[104] He points to risk decisions which affect
peoples’ lives daily.[105]
Viscusi concludes that there is,
in fact, substantial uncertainty as to the analysis of such corporate risks.
Viscusi comments that economic
resources are limited, to the point where it would not be economically feasible
to cover all risks. He refers to the potential cost of reducing risks to a zero
level, quoting Justice Breyer on the “90-10 principle”, referring, in one
Superfund claim, to the last piece of contamination clean-up, at a cost of
$9.3m, which purchased extra safety which had no discernible effect.[106]
Viscusi suggests that, in fact, market forces promote safety, together
with the government regulation. He notes that the existence of government
regulations specifying standards of corporate behaviour can often serve as a
reference point for efficient corporate actions.[107]
He refers, however, to one company penalised $210m for a chemical spill that
was within EPA standards and took no land out of agricultural use.[108]
Viscusi argues that punitive damages cause economic harm. Interestingly, in discussing the Ford Pinto example, recording the
liability/safety cost comparisons made by Ford preceding their decision not to
recall the car, Viscusi says: “Ford clearly erred in such calculations by
undervaluing safety. However, the
company should be applauded for its efforts to at least systematically deal
with the costs and safety implications
of its actions. Indeed, in the wake of
this experience we now know how Ford erred in the value of its safety
benefits”.[109] Viscusi suggests that the courts create a
“chilling atmosphere for analysis” and will therefore “suppress the type of
systematic think about risk that, in the long run could enhance our safety much
more than clandestine, qualitative decision making”.[110]
Viscusi argues that:
·
punitive damages promote
counter-productive spending and wasteful precautions (for example, expenditure
of substantial sums on regulatory efforts to save lives might be used more
efficiently to pay for better food, better medical care, housing, etc., if the
money was spent in this manner, more lives would be saved than from those
regulatory efforts)[111]
·
punitive damages discourage
innovation (he gives the example of the wave of litigation against vaccine
producers, leading to a more than 50% reduction in the number of manufactured
vaccines since 1968)[112]
·
statutory limitations on
punitive damages do not solve the problems (where legal policy is fundamentally flawed, it should be eliminated
rather than restricted)
·
punishing malicious
behaviour is more relevant to individual action, rather than to corporate risk
decisions
·
enforcement error is not a
salient problem for corporate actions which are typically readily identifiable
in the case of large-scale losses for which punitive damages might be awarded.
Viscusi’s arguments are not
without challenge.
Luban[113],
in a response to the Viscusi article, suggests that punitive damages and the
retributive aims of punishment are just as important as its deterrent
aims. He says that Viscusi simply
leaves out the retributive points of punishment.[114] Luban suggests that Viscusi fails to
identify all the potential benefits of punitive damages, fails to establish
that punitive damages are an effective deterrence, and fails to acknowledge any
significant social harms addressed by punitive damages.[115]
Luban suggests that, in fact,
punitive damages are not out of control. He suggests that studies confirm that
punitive damages are awarded in only a small proportion of accident cases (in
the vicinity of 2-4% of plaintiffs’ victories).[116]
Luban says, further, as to the size of punitive awards, means are much higher
than medians, signifying a split-level structure with a handful of very large
awards and a much larger number of modest awards. Luban argues that punitive
awards are not especially unpredictable, referring to empirical studies by
Eisenberg.[117]
Luban suggests that in addition
to jury self-restraint, an important constraint on punitive damages is the
power of the judges, who, in fact, reduce punitive awards more than half the
time.[118]
Luban says that Viscusi’s
figures, which compare the 4 USA states which do not have punitive damages with
the remaining 46, are flawed in that most corporations operate across state
borders. He suggests that, in fact, the 4 non-punitive states are riding on the
back of the deterrence provided by punitive damages in the remaining 46 states.[119] He disputes Viscusi’s assumption that
chemical spills are essentially local in character.
Luban does not suggest that
punitive damages deter firms, but rather: “…absent hard data, I remain
agnostic”.[120] He simply
argues that Viscusi’s natural experiment, comparing the 4 non-punitive damages
states, shows nothing about the effectiveness of punitive damages.
Luban argues that there are
other aims of punitive damages, including:
·
punitive damages encourage
settlement (where defendants and insurers wage a war of settlement
negotiations, the plaintiffs have only one effective counter-weapon, to raise
the stakes)[121]
·
the bounty hunter effect
(the high cost of potential private litigation reduces the burden on
bureaucratic enforcement)[122]
Luban disputes Viscusi’s proposition that random and unpredictable awards will not have a deterrent effect. He says that he largely agrees with Viscusi that zero risk is a financially impractical goal.