Wednesday, May 06, 2009

Reasons to Love New Zealand, Part III: Tort Reform

The list is getting longer for the reasons to love New Zealand:
  1. New Zealand is the new home of capitalism.
  2. They speak English in New Zealand.
  3. Fat nurses unwelcome in New Zealand. Gotta love that! Helloooooooo Nurse!
  4. How about Miss New Zealand? (at right)
  5. And now: Tort Reform!

Actually, this is not news. Tort law was eliminated forty years ago in New Zealand. Peter Schuck at Yale wrote a great description of the Kiwi replacement for tort law -- it is worth quoting from at length:

When ordinary Americans think of New Zealand (which is hardly at all), they probably envision the breathtaking mountains, glaciers, and lakes panoramically depicted in the film version of Lord of the Rings. For legal scholars, however, it is radical tort reform that distinguishes New Zealand.

Sounds over-the-top and all... but no:

New Zealand, after all, essentially abolished tort law more than three decades ago, and its people seem quite happy with the result. In stark contrast, the American tort system continues to expand and flourish, while representing (depending on whom you ask) the essence of popular justice or a symbol of all that is wrong with our law.

At this point, I'd like to pause and point out a few famous tort lawyers:

  1. John Edwards: Ann Coulter has a good summary of his tort law experience. Go read it if you haven't already.
  2. Texas attorney Reed Morgan. Not familiar? You know him by his other name: the McDonalds Coffee Crotch Burn Attorney. (In all fairness to Reed, he did attempt to settle for far less than his client eventually received. It is the system that is screwed up.)
  3. Erin Brockovich (Ok, technically not an attorney.)
  4. Every attorney that made partner in his firm by getting you a coupon from a class action settlement. Here’s but one infamous case: In a settlement of a class-action suit against Blockbuster, plaintiff attorneys received $9.25 million while each class-action member received two coupons for movie rentals and one $1 off coupon. The case was about late movie return charges.
  5. Every lawyer in a story over at

Sure, these are champions of the people. The champion of the little guy. They make a living suing the deep pockets. They made a connection between someones supposed suffering and some deep pockets. That's all -- the suffering does not have to be real, the connection does not have to be real. The Tort Bar does not care.

There are some stunning examples, as in the supposed silicosis tort boon, the 'next asbestos'.

In 2003 alone ... U.S. Silica [a company that mines and sells sand] was served with nearly 20,000 lawsuits claiming it had caused silicosis -- a serious, if rare, lung disease. The tort bar saw silica as the "new asbestos," says Mr. Ulizio, and he had visions of his century-old concern going bankrupt, along with dozens of others.

Instead what ensued was a legal thriller, in which the defendants not only beat the suits, but exposed a mob of lawyers and doctors who were fabricating cases, and who are now under investigation. This year his company has been hit by only one silicosis claim. "We hoped the truth would prevail eventually," he says, back in the conference room of the company's modest headquarters. The realist adds: "It worked, but it didn't have to."

And that might be the most disturbing part of Mr. Ulizio's tale. "When you have an entire system that condones these lawsuits, that does nothing to police its own, where there are no consequences, right or wrong has nothing to do with it. It's a coin flip."

And guess what: It came out that two-thirds of those claiming to have silicosis had previously claimed to asbestosis -- a near medical impossibility. It was just fraud. So, tort attorneys may -- or may not -- make a 'contribution to society' (is that coupon for a dollar off of a Blockbuster rental meaningful?) but they all got rich on tort law. And, US Tort costs are the highest in the world, amounting to 2.2% of Gross Domestic Product (GDP).

More from Schuck about the New Zealand approach:

In 1972, the National Party government...pushed through the Accident Compensation Act. It enjoyed bipartisan support and passed quite easily - a fact that will astonish any American lawyer observing the endless struggles over even the mildest tort reforms in the U.S.

I'm thinking about making the fact that this legislation passed easily as Reason Number 6 on the list of Reasons to Love New Zealand. Read on from Schuck about the New Zealand Accident Compensation Corporation:

The ACC provides generous no-fault benefits, including hospital and medical costs; wage replacement starting only one week after injury and at a rate of 80% of average weekly earnings; rehabilitation and transportation costs; and lump-sum payments for permanent loss or impairment, surviving spouses and children, and certain other losses. Pre-approval is not required for most medical and dental services, and service providers, not the victims, do the paperwork for the ACC.

So, everyone that is injured is compensated? How much does this cost? In New Zealand, the annual budget for the Accident Compensation Corporation is about $1.5B NZD, or about $858M (see page 5 of Schuck). In New Zealand, they deal with tort claims with (at the official exchange rate) a scant 0.6% of the New Zealand GDP. That is about a quarter of the 2.2% of GPD we spend in the US.

Why the US will never adopt the New Zealand system: Many is the tort case that concludes "let's send the big guy a message -- let's change the system!" Come a little closer, I'm going to share a secret. Torts are the remora of the legal world. Suits filed under tort law usually don't kill the shark -- and forget about punitive damages teaching those bad corporations a lesson -- tort lawyers would never want to dam the river of pain and suffering from which their income flows. And, that is the reason that the US will never adopt the New Zealand system, because too many lawyers make too much money from the current system; the power rests not with the people but with the tort attorneys.

No, the New Zealand system isn't perfect. But it is a lot better than what we have, and now we have another fine reason to Love New Zealand: Tort Reform.


Jack Yan said...

One problem with ACC (as told to me when I was at law school) was that the funding isn’t as good as it was in the 1960s, when the payouts could really sustain someone properly. Still, our legal system isn’t clogged up with vexatious cases, although the previous Labour government did put up the filing fee so justice is more out of reach of everyday New Zealanders (which also reduced the amount of cases the courts would hear!). I would prefer our system to the US one, so I’d have to go along with your enthusiasm.
   If we can just get rid of some of that reality TV crap we import from you, this would be a better country still.

Trialdog said...

Love your site. Read it everyday. Disagree with this post. I'm a "tort" lawyer. I practice in personal injury and worker's comp. I represent plaintiffs and claimants. I formerly represented insurance companies. I've got a decade on each side.
Sorry I don't have time to read all the links. I recognize some of them though.
Let me give you some things to think about. First, worker's comp is very much like the New Zealand no fault system you describe. What happens when someone hasn't healed yet but the government system wants to cut them off? What happens when someone cannot return to work in their former capacity and earning level and we have a dispute about the loss of future earning capacity? How will those disputes be resolved?
Second, with respect to tort law, why should the tortfeasor be let off the hook and the burden of the tortfeasor's actions become a public responsibility? Think hard about this one. Shouldn't the tortfeasor have to buy insurance to cover his mistakes? Is there an incentive for safety to keep insurance rates down? Isn't that a good thing for society as a whole? Isn't that the free market capitalist way? If so, why do "conservatives" despise "tort" lawyers so?
Third, and finally, remember the agenda of your information sources. Insurance industry front groups for "tort" reform do, in fact, exist. They push many of their horror stories for a couple of reasons. One reason is to poison potential jury pools on a grand scale and the other is to maximize their profits. Now, maximizing profits is good, and I don't have a problem with that. Yet, when it is done by harming someone else, whether it be the policyholder or claimant, then the person harmed should have a right of recourse. And please don't fall for the industry claims that their defense attorney expenses constitute part of the "costs" of tort law in this country. The insurance defense bar is totally out of control and will do anything to harm the average Joe so the carrier doesn't have to pay anything. This is all pretty basic simple stuff.
So, if you think socializing the "tort" system will help, then advocate socializing it. In fact, why the heck don't we socialize everything? Seems to be the trend these days.

OBloodyHell said...

> Many is the tort case that concludes "let's send the big guy a message -- let's change the system!" Come a little closer, I'm going to share a secret.

Awww, bob. That last part is just wrong. It should be:

"... come a little closer. I'm going to share a 2x4 with you..."

Heyyyyyyy, batta batta shvinnnnngggg!


P.S. -- so, Carl, what is your opinion of the Kiwi system? Most particularly, what do you see as problems with it?


OBloodyHell said...

> If we can just get rid of some of that reality TV crap we import from you, this would be a better country still.

Dude, some of us wish it left when we export it.

LOL. verif is "hunger"

OBloodyHell said...

> If so, why do "conservatives" despise "tort" lawyers so?

Trialdog, I think the "Blockbuster" example given is an example of what is despised about the system. And it's not just "conservatives" -- the average man-on-the-street despises this crap. It's only the libtards who love it.

It's not self policing.

It doesn't remove or even adequately repudiate attorneys for bringing baseless cases in an attempt to extort money where no problem exists (and this goes for the other, non-tort side, too -- far too many prosecuting attorneys can get away with threats forcing plea bargains than should occur)

In reality, the main problem we actually have is that our rules for the medical and legal professions are ass-backwards -- we strongly restrict medical personnel from being trained, while we give anyone and his grandmother a stab at a law degree.

The result is too few doctors, driving medical costs through the roof, and a buttload of excess attorneys looking everywhere for some kind of hook that will make law school pay off.

We should have doctors looking for additional work to pay the bills, and attorneys in scarce enough supply that they have juuuuust barely more work than they can handle. Then they wouldn't have time to invent frivolous crap cases like the Blockbuster one (and no, I REALLY don't give a f*** about the details of the case -- the results alone say all that needs be said)

Finally, the real fact is, our legal system as a whole has become largely CRAP. It does all too much of what it has no business doing, and all too little of what it is supposed to do. The idea that Jury Nullification is suppressed knowledge is outright bullshit. That I cannot challenge a law or defacto law (i.e., a regulation) as unconstitutional unless I can show substantial damage to *myself* as a result of it is outright bullshit.

And that attorneys don't fight to fix ANY of these problems is outright bullshit.

You don't police yourselves, you don't police the system. And it just keeps spiraling out of control, while ignoring the real problems in our society -- too many bullshit laws and regulations, too many coerced "convictions", and too little real attention to individuals actually harmed and too many frivolous suits with the sole intention to extort money from deep-pocket companies. John Edwards isn't rich as f'ing shit for nothing. And it's not like it was from a single case.

"Oh, that's just a single example" -- Bull f'ing sh*** -- Edwards is a dozen examples wrapped into one. The system should have tossed him out years ago saying "you've earned enough 'justice'... let someone else have a whack at it"

And don't even GET me started on the tobacco lawsuits, the "fast food" lawsuits, and the attempt (failed, so far anyway... such things are never OVER) to bring suits against gun manufacturers.

If the system was working properly all of these should have been laughed out of court. No company's attorneys in any of the cases should have been required to spend more than a single day in the court asking the judge, "Why are we here?" and having the judge respond, "I concur. You, you, the idiot for the plaintiff -- stop practicing law if you don't know what a valid case basis is. Case dismissed. I hope you don't ever show up in my court again, sir/madam, and so do you. Court is adjourned".

LOL. word verif is "reverse".


Bob in Los Angeles said...

Jack Yan: >" If we can just get rid of some of that reality TV crap we import from you, this would be a better country still."

Jack, I'm thrilled to have a Kiwi Lawyer reading and especially this thread. I hope to visit NZ this year. I do not watch TV. I also don't have a cable bill. To watch sports, I go somewhere. Is there anything worth watching on TV?

Bob in Los Angeles said...

Traildog -- to your points:
1. The primary source of information for this post is the Yale Law & Policy Review, Vol. 27, No. 1. It is one item I suggest you do read. The secondary source is the Wall Street Journal on the fraud perpetrated by law mob. These sources can hardly be classified as insurance industry fronts.

To your second point, you want to know 'why should the tortfeasor be let off the hook and the burden of the tortfeasor's actions become a public responsibility?' The answer is that in NZ it works out better that way. In NZ, you can still sue for gross negligence and willful misconduct. But everyone makes mistakes and we don't need a pack of ambulance chasers to compensate for accidents. As both OBH and I have already pointed out -- the Tort Bar cares not whether or not an attorney has scruples. Perhaps is the bar threw out the trash it would be a different story...

To your first point, those are basic criticisms of a plan that is not formed. In the case of NZ, they have answers to those questions and there are others better qualified than I to answer them. Perhaps Jack Yan can take a stab at the answers to your point one.

TrailDog: Many many people have told me, and continue to tell me that I should have been a lawyer, and that I should go to school and litigate. I never will do that, because I would never be happy in a system that does not promote justice. It promotes attorney fees. Lawyers are not even required to tell the truth in court. Just my opinion.

Bob in Los Angeles said...

Trialdog -- to your point on 'socializing the tort system' it does seem to be the trend these days, and I firmly support smaller government. It is out of control. However, 2.2% of GPD is difficult to defend as a societal expense when 0.6% of GDP will suffice. I'm sure there are ways to improve the Kiwi system though, as you point out there are a lot of questions I cannot answer about it.

To your point about he insurance industry defense bar being totally out of control -- you would be in a better position to know than I would. I wonder what that bar would say about the bar you currently hang your hat at?

Thanks for reading and commenting.

Jack Yan said...

Bob, I should quickly mention that I don’t practise law, though I do hold an LL B—I seem to have too much on elsewhere.
   Trialdog, as far as I know, the compensation is paid out for the full period, but the amounts are not as generous as they were when the programme was first passed. If someone cannot return to their former capacity, I believe there are bigger payouts, though I am no specialist. Some of what I do know of ACC practice is hearsay (e.g. from friends who have had injuries), so please take this with a grain of salt.
   One of the motives (this is law school memory going back a while) for ACC was to allow victims to have a swifter recourse. In terms of the national expenditure, Bob has quoted the percentage of GDP, and I believe that’s correct. (Our nationalized healthcare is also a lower percentage, I believe.) I remember reading the arguments for and against ACC at the time, but it was many years ago, so I can’t be as expert a commentator on this as I would like. Other areas of tort, e.g. negligence, are still alive and well in New Zealand—ACC only goes so far as covering accidents and puts a bar on the legal claims. (In short, there are no ambulance chasers here, and that’s a good thing, considering how bad the driving is.)
   There’s not much on TV here, either, though Miss New Zealand 2007 Laural Barrett, whose photograph you have used, will appear on a new network show. It might be the only thing worth watching in that case. As she is half-South Carolinian, this is one area where Kiwis have to thank the United States.

Trialdog said...

Thanks Bob in LA. Hey, I don't have much time today, but must say that there is nothing wrong with becoming a lawyer. Of course, you have to suffer through some tough indoctrination. If you go, whatever you do, don't challenge an ACLU professor - especially on an exam - just stick to the talking points. You will want good grades and ACLU professors like diversity of color not diversity of thought.
Anyway, regarding the point about lawyers having to tell the truth in court. This is why you would probably enjoy being a litigator. The best and easiest way to win is by telling the truth and always being honest. Let your opponent fudge the facts, misrepresent, and lie. Then, expose the lie, gently of course, letting the jury reach the conclusion your opponent is a liar and cannot be trusted. Keep coming back to the lie to show how it infects every aspect of your opponent's case. You win and win big. Justice. This is why the jury system is so great. 12 people having to work together toward a common objective truth virtually always find that truth. The same cannot be said when you have to deal with hearing officers and administrative law judges. People are people and they come in all different stripes. I think it is better to present my case to 12 jurors or an objective state court judge than to an often eccentric state bureaucrat in a job he cannot get fired from no matter how little he works or poor his work product.
Now, there are reasons why class action cases are important. Suppose your internet provider is charging some small $1 fee fraudulently. On a grand scale, they make millions off the scam. No individual can do anything about it. A class action lawyer can. Thus, the class action suit provides a great social benefit. Can such cases be abused? Sure, especially when the government gets involved as they did in smoking cases. Can the lawyers be overpaid? Yes.
So, let's fine tune how the cases are brought and how the lawyers get paid by balancing the need to encourage such suits with the need to make sure the cases are not abusive.
I don't have all the answers. I am concerned about throwing out the baby with the bath water. Take your simple auto accident case. The biggest problem I have on such cases is the perception many potential jurors bring with them to the courthouse. It is a preconceived notion my client is just in it to make a buck and the insurance company is the victim. 99% of the time that is not true. I know, as a former insurance defense lawyer, that the insurance defense bar can find a doctor for $1500 to say the injured person only suffered a temporary injury and actually recovered but still complains about symptoms despite the recovery. That stuff plays into the carefully nurtured public relations efforts of the insurance industry painting all plaintiffs as malingerers and their lawyers as greedy. Yet, to really understand the full scope of how viscious the insurance industry is, it has to happen to you or a loved one. That's when you see how devastating it is to be called a liar or a faker by paid professional witnesses and crafty defense lawyers. You would be surprized to learn how many people are scared to death to be dragged through the mud by the insurance company lawyers not matter how honest and true their case is. I have a guy right now who once sat on a jury and remembers very well how the jurors thought about the plainitff. He's got a very legit case with serious injuries but absolutely does not want to go to trial. The insurance company will get out of it for probably 50 cents on the dollar. Is that fair? Now multiply that by thousands and think how much the industry gets back on its public relations and defense costs.
A government program would do no better, and perhaps worse, for my guy.
Finally, and I would love to discuss more because these are interesting social issues, please be aware that the insurance industry is huge and extremely profitable. Do you think they really want to be cut out? Understand how it works. Huge private companies getting billions in premium dollars, investing it, keeping the profits (even after paying themselves quite well), and paying out on the back side. Tort reform to the insurance companies means they keep more profits. It does not mean that premiums go down. Try to find one instance where premiums have gone down after tort reform. After you can't, think about why that is.

Carl said...

I've only dabbled in tort law (defense side) and the law of New Zealand (telecom, not tort law). So I'm no expert. Still, I do favor tort reform.

That being said, I think I agree more with Trialdog than with Bob in LA in this respect: socializing risk isn't the way to go--it's communitarian and unfair. As Posner, Coase and others have shown, tort law tends to promote marketplace efficiencies.

The problem, as I see it, is punitive damages. While the possibility of some such awards might be a salutary check on behavior society should discourage, huge punitive awards go well beyond any economic justification and more closely resemble a jury "sticking it to the man." That can be unfair and uneconomic, for example holding asbestos manufacturers liable for conduct years before the science was established, and the silicon boobs nightmare, in which the industry was bankrupted despite a later panel of experts exoneration (kudos to that panel by the way).

New Zealand is a perfectly pleasant place, but hardly an industrial powerhouse. It's possible to argue that the strength of the American economy reflects, in part, the absence of such spread social costs--just look at the relative problems of California. But, in any case, I doubt the New Zealand model would work here.

Bob in LA is a libertarian, and as such, I would have thought he'd be the first to object taxpayer funded payments made (in some cases) despite full disclosure of risks or (in others) when there has been clear wrong-doing. At some level, the question is: which system would be cheaper? The evidence of New Zealand hardly settles the question. I'd be most interested in comparative statistics, especially if one could estimate the effect of limiting punitives to (for example) 3X actual economic loss.

OBloodyHell said...

> It's possible to argue that the strength of the American economy reflects, in part, the absence of such spread social costs--just look at the relative problems of California.

While I often agree with your analysis Carl, this point is probably specious.

1) Until around the late 70s, I believe NZ was one of the most socialist of the post-UK-empire nation states. It's probably still recovering from that. It is now classed, I believe, as having one of the highest rankings on the economic freedom scale. I haven't seen stats but suspect their economic significance has been headed rapidly north, without much hesitation, ever since.

Second, I agree that, as Cali gets more and more socialist they dig deeper and deeper holes, but last I checked the size of their economy (which is what you were using to compare the USA to NZ) is hardly trivial.

What's the figure -- "If Cali were a nation it would be the 10th most economically significant nation in the world"?

Something like that. So your mentioning of Cali is also sort of something to look askance at. It's relevant but has an upside to counter the downside you mention, for the purposes of economic argument.

Carl said...


Don't get me wrong--I yield to no one in my general admiration for New Zealand's marketplace economy (indeed, by assisting in their mid-1980s telecom reform, I hope I advanced it). Yet, New Zealand still imports much of its goods, meaning it has a reduced industrial production sector as compared with the United States. So arguably, the salutary incentives of product liability are less important there. So what I'm suggesting is that their model wouldn't necessarily be applicable here.

Bob in Los Angeles said...

As TrailDog says "these are interesting social issues, please be aware that the insurance industry is huge and extremely profitable." There are many points to think about and perhaps write about again, but let me address just two of them. One raised by TrailDog: "Suppose your internet provider is charging some small $1 fee fraudulently. On a grand scale, they make millions off the scam. No individual can do anything about it. A class action lawyer can." True -- and the benefit to the class action lawyer in such a suit could be moderate or huge. The benefit to the consumer is de minimus.

To Carl's question as to 'why is a libertarian opining in favor of a seemingly socialistic agenda'? I answer as follows: The cost of such a system is apparently much smaller societal cost overall, a point I already made.

More importantly, to the capitalist, the US Climate creates uncertainty which itself is a burden on capitalism. The NZ system provides some measure of certainty on the level of expense due to accidents. In the US system such expense is practically unlimited. In addition to lowering uncertainty and therefore risk, the NZ sytstem also frees up capital for investment that would otherwise be spent on insurance or defending law suits.

Jack Yan said...

To OBloodyHell and Carl above: the free-market reforms of the 1980s, which led to New Zealand being the poster boy of the monetarist movement, haven’t necessarily resulted in a better economy or wealth overall for Kiwis. There are many factors at play there. Taking the political equation out of it, both left and right tend to agree that the reforms were done so rapidly that New Zealand industry was never poised to take advantage of the change. On that subject you are both correct.
   One down side in this tug ’twixt left and right is that the previous Labour government had some pretty punitive measures for employers, making it effectively illegal to fire someone. While I sympathize that there are people who lose their jobs unjustly, for a nation that has predominantly SMEs, those laws made life very difficult indeed. So while costs in paying lawyers over workplace accidents headed south, costs for hiring employment lawyers headed north.
   Bob, I like your conclusion: that the New Zealand system ‘frees up capital for investment that would otherwise be spent on insurance or defending law suits.’ As a businessman here, that is surely correct. If National sorts out our employment laws and has something fairer for both employer and employee, we might have quite a good system after all.

Carl said...

The WSJ reports on another issue needing tort reform.