Corrective Versus Distributive Outcomes in Tort Actions
Is cash money sufficient to make a victim of harm that was suffered at the hands of another, “whole”? Is cash money, today or in perpetuity, sufficient to “restore” one back to the position they were in before such harm; before loss?
When is it acceptable for the State to intervene in the ordinary course of social and legal affairs involving the duty of care and the breach thereof? Such affairs involve all individuals physically in America, no matter of status as Citizen or not. More formally, all individuals physically in this country are compelled by the law of Tort to exercise due care in their affairs in society. When may a Legislative body substitute a statutory or administrative mechanism that usurps the normal workings and typical consequences of the American tort law system? That is the topic of this reflection essay.
In the wake of 9/11 U.S. Congress established the “Victim’s Compensation Fund” (VCF), which statutorily skips trial for potential 9/11 tortfeasors, instead fast-tracking taxpayer funded payouts for victims. Fundamentally, VCF employs an assumption, which underestimates the efficacy of the tort system to discourage future social-risk taking by would-be tortfeasors. Specifically, it is flawed to assumed that recovery of “full economic loss” is equivalent in value to “full recovery”. See Culhane, 55 Rutgers L. Rev. 1027 (2003).
Economic loss may be recovered fully by distributive policies Id, but allowing taxpayers to fund the VCF has the effect of forcing taxpayers, and other third parties, to bear the cost of social risk associated with events like 9/11—not the parties responsible for causing the harm. Id. Policies like VCF cripple the powerful effects of social control that flows from the omnipresent and implicit threat of tort liability that all individuals face in their affairs in this country.
The implicit threat of tort litigation is a thing of value just like cash money, and it has real behavioral affects. When employing distributive policies like VCF to remedy tort harm Congress ignores this powerful policy tool, that is, the tool of letting tortfeasors and victims of harm use the Court system to enforce the duty of care, work things out themselves, and hold tortfeasors accountable. When Congress uses distributive policies, the corrective affects of tort law of are undermined. Additionally, it puts tortfeasors in a “dominant strategy” position. Picker, "An Introduction to Game Theory and the Law" (Coase-Sandor Institute for Law & Economics Working Paper No. 22, 1994). In other words, it makes committing a tort very cheap to the tortfeasor because the taxpayer is paying the tortfeasor’s damages, while the tortfeasor walks away without cost in some cases.
The tools of game theory can provide one framework, which shows that the distributive or corrective policy implemented affects how tortfeasors and victims may act in response to the costs that these policies impose on tortfeasors. See below Nash Matrixes:
Exercise Due Care Not Exercise
Exercise Due Care - $10 M - $10 M -$10 Mil - $100 M
Not Exercise $0 - $110 M $0 - $100 M
In general, we expect others to behave in a reasonable or ordinary manner, and, on the basis of those social expectations we behave a certain way or make a certain choice. This logic applies to victims and tortfeasors. If the only way to prevent a tort is by ensuring that both parties exercise due care, then unless there is a policy, partially distributive in nature or not, which corrects tortious behavior, society will be unfairly forced to bear the social risks of tortfeasors in the future.
This is visualized in the Distributive Policy matrix. On the left side in green represents the tortfeasor. Assume the terrorist expects to survive and knows the cost structure of a VCF-like policy in her jurisdiction, and that exercising due care costs either party $10 million. Because the VCF-like policy alleviates the tortfeasor of liability for damages, her cost is reduced to zero. More importantly, because $0 is cheap for damages there is no incentive to exercise due care and no incentive to regard or anticipate whether the victim is also exercising due care. This creates a greater likelihood of social harm, in turn creating more payouts from the victim’s fund. The tortfeasor’s position is one of strategic dominance because exercising due care doesn’t matter, they don’t bear the costs. That is to say, the compensation fund policy has stripped tort law of corrective efficacy.
Finally, consider how the cost allocation and relative behavioral incentives change as the law changes from one distributive in nature, to one corrective. Remember, the tortfeasor is represented on the left hand side of the matrix.
Exercise Due Care Not Exercise
Exercise Due Care - $10 M - $10 M -$310 M - $100 M
Not Exercise - $300 M - $110 M - $300 M - $100 M
Corrective policy permits classic tort litigation and/or statutorily assigning strict liability to the tortfeasor, and there is a greater incentive to exercise due care. For example, assume treble damages, in this case, the assumed loss to the tort victim is $100 M in the matrix. Should a jury find treble damages, the negative cost of minus $300 million exists in every scenario except when the (potential) tortfeasor exercise due care. If the victim can rely on the (potential) tortfeasor to exercise due care, then both parties are in an Nash Equilibrium. Thus, the corrective tort policy shifted the cost of bearing social risk back from the taxpayers to the tortfeasor.
In conclusion, policies like VCF create hidden costs and double injustice; unnecessary tax burdens and tacit acceptance of free riding tortfeasors in American society.