Suing God, Doctors, and the Kitchen Sink Without Risk

 Ice and Earth in Tibet - photo by JoAnn Sturman

Scott Sturman
fliesinyoureyes.com

Perhaps I exaggerate a bit with the title, after all attorneys incur some financial risk when they are forced to pay their employees to type and file their accusations.  Yet for the most part, they are free to concoct every imaginable offense without fear of being sued themselves for such outrageous conduct.  More often than not, the defendant is relieved just to leave the nightmare behind, knowing full well the ordeal had little to do with the plaintiff's Constitutional rights and much to do with billable hours and histrionics.

Imprimis Newsletter is known for outstanding essays, but the latest written by John Gordon Steele, “Economic Lessons from American History,” in the July/August 2012 issue is exceptional and answers a longstanding question.  “With regard to legal fees, why did the American legal system discard the ‘loser pays’ provision which is the standard among common law countries throughout the rest of the world?”  Here’s Mr. Steeles’s answer: 

The American Rule came about as what might be called a deadbeat’s relief act. The Treaty of Paris (which ended the American Revolution) stipulated that British creditors could sue in American courts in order to collect debts owed them by people who were now American citizens. To make it less likely that they would do so, state legislatures passed the American Rule. With the British merchant stuck paying his own court costs, he had little incentive to go to court unless the debt was considerable.

The American Rule was a relatively minor anomaly in our legal system until the mid-20th century. But since then, as lawyers’ ethics changed and they became much more active in seeking cases, the American Rule has proved an engine of litigation. For every malpractice case filed in 1960, for instance, 300 are filed today. In practice, the American Rule has become an open invitation, frequently accepted, to legal extortion: “Pay us $25,000 to go away or spend $250,000 to defend yourself successfully in court. Your choice.”

Trial lawyers defend the American Rule fiercely. They also make more political contributions, mostly to Democrats, than any other set of donors except labor unions. One of their main arguments for the status quo is that the vast number of lawsuits from which they profit so handsomely force doctors, manufacturers, and others to be more careful than they otherwise might be. Private lawsuits, these lawyers maintain, police the public marketplace by going after bad guys so the government doesn’t have to—a curious assertion, given that policing the marketplace has long been considered a quintessential function of government.

The reason for this is that when policing has been in private hands, self-interest and the public interest inevitably conflicted. The private armies of the Middle Ages all too often turned into bands of brigands or rebels. The naval privateers who flourished in the 16th to 18th centuries were also private citizens pursuing private gain while performing a public service by raiding an enemy’s commerce during wartime. In the War of 1812, for instance, American privateers pushed British insurance rates up to 30 percent of the value of ship and cargo. But when a war ended, privateers had a bad habit of turning into pirates or, after the War of 1812, into slavers.

Predictably, the American Rule has spread exactly nowhere since its inception at the same time as the decimal coinage system. There is not another country in the common-law world that uses it. Indeed, the only other country on the planet that has a version of the American Rule is Japan, where a very different legal system makes it extremely difficult to get into court at all.

The United States has more lawyers and more lawsuits, per capita, than any other country. But lawsuits don’t create wealth, they only transfer it from one party to another, with lawyers taking a big cut along the way. Few things would help the American economy more than ending the American Rule. Texas reformed its tort law system a few years ago and the results have been dramatic. Doctors have been moving into the state, not out of it, and malpractice insurance costs have fallen 25 percent. And remember, good ideas always spread.

Pundits argue how to bring down the costs of health care and save Medicare.  Some of the solutions will not work and others are inordinately complicated with savings and financial goals realized far in the future.  Here is a simple way to reduce the cost of medicine and most businesses by 20% across the board overnight:  Tort reform where loser pays, attorneys are liable for frivolous law suits, and non criminal cases are arbitrated by judges in a non jury environment.  These reforms should apply to the health care industry and to every businessman and woman in the country, who live under the threat of an overly aggressive and punitive legal system.

Imagine the boost to the American economy if suddenly the cost of all goods and services plummeted by 20%.  Attorneys could continue to file law suits, but by assuming a reasonable amount of risk with each action, the balance would be restored, and it would not be open season on the American public.