Liability of Many Kinds

     Almost everyone seems to be aware these days that medical liability, malpractice and malpractice insurance have become extremely serious problems in this country. While many of the headlines have gone to malpractice and malpractice insurance, this is just one facet of a larger problem—the liability problem in general. This has become more acute in the malpractice field because the financial base of potential “payers” (doctors) is much smaller here than in other areas such as auto liability and personal injury, common carrier liability, and the rapidly worsening problem of product liability.

           NOTE  Of course, patients are really the payers of the doctor's malpractice premiums. Doctors consider their malpractice premiums in setting their fees. If and when malpractice insurance premiums so squeeze a doctor's net income that he decides to change jobs (just like anyone else in this position would) this becomes obvious. This has already occurred in obstetrics and other fields.

Useful information, applicable to malpractice as well, may come about by looking at the larger liability problem for a moment.

     One of the problems often mentioned is that in many areas of liability only 16% of the money paid in, for example through insurance premiums, is actually paid out to people who sued for damages. Most of the rest apparently goes for lawyers for the plaintiff and lawyers for the defense, and the remainder for insurance company overhead, expenses, investigations, testimony, and etceteras.

     For a number of years malpractice insurance rates were doubling every two years. Using this as a rough criterion of the magnitude of the liability problem in general, that would mean that if we were to totally eliminate all payment of money to people other than the people who are suing for the injuries, i.e., eliminate all lawyers fees, all overhead, all investigative costs, etc., that in between 5 and 6 years we would still be back where we are now—and of course still into this thing at an ever increasing rate. While a payout of only 16% is certainly a problem, the fault must lie deeper.

     There is also a problem in the way awards are made. Two men went into surgery at a hospital each to have a forearm amputated. The result of the injury, amputation, was the same in both cases. The only difference was that one arm was injured by a machine and the other arm was injured by a doctor accidentally injecting Pentothal into an artery when he thought he had put the needle for injection into a vein. Both required simple amputation but the award was twenty times as high against the doctor. Arbitrary awards are certainly a part of the problem.


Money for Non-Money Damages

     Another part of the problem is the awarding of monetary damages in situations where there can be no rational basis on which to base a monetary award. Some things simply cant be made up for with money and to attempt to do so is essentially a waste thereof. "Pain and suffering” is certainly one of these. There is definitely pain and suffering in the world, even when there is no liability involved, and I really doubt that it can be compensated rationally with money in either case. Any awards for "pain and suffering" should be limited to cases in which the negligence is 'semi-deliberate' such as drunken driving and should be limited in amount.

     Now hold on to your hats. Legislators, urged by Trial Lawyers’ Associations, have even proposed to allow monetary compensation for "Loss of Consortium" (companionship) to take care of jacking up the award and therefore the plaintiff lawyers fee where they could not get awards for "pain and suffering” because the death was instantaneous!


Liability for Self

     As individuals we can be injured in three ways. We can sustain injury as the result of our own actions or negligence. We can sustain injury as a result of what I will refer to as "Acts of God" in which no person is really at fault. And we can sustain injury as the result of the actions, including negligence, of others. This covers all the possibilities of how we can be injured. And all possible degrees of injury can occur from any of the three causes.

     How do we protect ourselves from the results of monetary losses as the result of the first two causes, i.e., our own actions or "Acts of God? Well if the losses are very minor we just pay for them. It's as simple as that. But if the losses should be major, we do have a means of minimizing our maximum loss. This of course is through insurance.

     Insurance is a method of trying to minimize the maximum possible loss by spreading the risk of unlikely, but very severe, losses among a large group of people who are exposed to the possibility of such losses. It is unlikely that any one house will burn down but since it is such a financial disaster to any homeowner to whom it happens, most homeowners buy fire insurance.

     The insurance which we use to protect our actual and potential earning power is life insurance and disability income insurance.

          NOTE  We also carry other specific insurances on properties that we own. We also have health insurance (so-called) but this is in general so botched up that it would require a separate article to consider it and will not hurt this discussion if it is left out.

It is possible to get disability and life insurance to cover perhaps three quarters of the potential total income that we would earn up to our life expectancy of around 70 years. But almost no one does this. Why? Simply because it is more expense than most people are willing to pay. They would have very little income left to spend on other things they consider important (more important). Most people would rather take some of the risk themselves than spend such a large chunk of total income on insurance premiums.

     Thus we cover the risk of income loss from disabling injury and death due to our own actions or "Acts of God" with disability income and life insurance. How do we cover the risk of injury from others?


Liability for Others

     For this, in addition to our own insurance, we have tort Law. When another injures us he may be held liable at law to repay or otherwise compensate us for the damages he has caused. He is held responsible for his actions. This principle has evolved into the present liability system. This system now comes complete with liability insurance that others take out (for our benefit) to spread the risk of causing us severe injury which could result in high cost to them to compensate us. These others are taking out this liability insurance for the usual reason, the spreading of the risk of the unlikely but severe event.

As we have commented above there is a severe problem here. The premiums for this type of insurance (of which medical malpractice insurance is only one form) are rapidly increasing. As stated above, medical malpractice insurance for some time doubled every two years! Auto liability insurance, even the no-fault type, has been skyrocketing and so have other forms of liability insurance such as product liability. Something is wrong but what?


Fault:  How Much?

     Let's go back to the idea of fault for a little bit. Fault implies that we are responsible for our actions, which indeed we are. Suppose you are carelessly handling an object and while not paying attention you knock a little child's ice cream cone into the dirt. It would not seem unreasonable that you would offer to buy the child another ice cream cone to make up for the damage you did to him. At least that will cover the monetary damages. Of course there is no easy way you could make up for the tears that he will shed because of the loss of his first cone but that's the way it goes.

     On the other hand, if you were driving along a high-country road in Colorado and the sound of your very noisy, backfiring car caused an avalanche which wiped out a town below, there is no way in which you could afford to pay for the results thereof. (If you did this deliberately of course there would be criminal law brought into play against you.)

     Obviously there is some point in between the ice cream cone and the destroyed town where you switch from being expected to make total monetary restitution to the point where this is no longer feasible. And even with insurance the total restitution through liability may not be feasible just as we showed that ‘total restitution’ of losses to ourselves resulting from our own actions and “Acts of God” through life and disability insurance (coverage equal to total expected earnings from now until around age 70) is not regarded as feasible since the vast majority of households carry nowhere near that much insurance.

     The present liability system seems to have the hidden implication that there is an infinite reserve to be tapped to compensate for damages when some poor faultless soul has been injured by another. Obviously the reserve to be tapped is not infinite. It is possible to keep the current system going to where 90% or more of everyone's income would go to pay insurance premiums to supply the supposedly "infinite" reserve.


A Limit is Mandatory

     We thus see that a limit must be placed on liability. We need to decide on a rational basis for the limitation of liability as a result of the injuries caused to us by others just as we limit the amount for which we insure our earning power against the results of acts caused by ourselves or “Acts of God” because that's all most of us choose to afford. Such limits have been proposed in the past, although these proposed limits were probably picked arbitrarily.

           NOTE  There is already an old precedent for limitation of liability in the rule of the International Civil Aviation Organization which limits liability of an international airline in case of death of passengers in a crash to a specific amount for each passenger death.

     I suggest that statutory limits on what one party (individual or corporation—the “deep pocket” doctrine is basically dishonest) owes another for injury be imposed based on what insurance most citizens carry to compensate themselves for injury by their own negligent acts or “Acts of God”. In plain English, if most Americans insure themselves for $X,000 or less, what moral right do they have to expect others to 'insure' them, through liability, for hundreds or thousands of times what they insure themselves for. If in general we choose (wisely) not to show 'responsibility' to cover ourselves for all the income we might earn the rest of our lives, why should we expect others to do so.

     First off, only actual monetary damages should be considered. This would be lost earnings, most health care costs (again, up to a point) and property damage. We have to get rid of "pain and suffering". "mental anguish". and certainly "loss of consortium"! These can not rationally be measured and probably cannot be afforded.


A Rational Method

     The amount of the statutory limit on liability could be gauged by the average amount of disability and life insurance carried by the breadwinners of the country in relation to their potential life expectancy income or their usual average annual earnings. I would like to suggest a specific method for evaluating these limits.

     Many years ago it was found that one of the better methods for establishing speed limits in areas where there are no hidden hazards is to use the 85th percentile. Hidden clocking devices checked the speed of each vehicle driving along the area in question under conditions of daylight and good weather and it was found that about 85% of the drivers were going at or below what the safety experts felt would be a reasonable posted speed limit and only 15% of the drivers were going above this point.

     This is another way of saying that at any given point or time about 85% of the population are taking care of themselves in a reasonable manner. If 85% of the heads of households are willing to “award themselves—through life and disability income insurance they purchase—such and such a percentage of their average yearly income for self-inflicted and "Acts of God" injuries, then let that percentage (adjusted periodically for any changes in insuring patterns) multiplied times the average annual U.S household income be the maximum award for death or total disability caused by another party. Other injury would be compensated proportionately less.

           NOTE  A side benefit would be that there would probably be less hassling and therefore less expense on awards to be made. This would result in lower fees on both sides, since the amount at risk would not be astronomical and need not be defended to the death as it has to be when someone sues for millions of dollars.

     What if the injured party is (was?) very wealthy and will suffer more loss? Or for that matter, what if the injuring party is very wealthy and therefore might have more money with which to pay? If you believe we are are created equal before God, or even if you don't, our fault is injuring another. We should shoulder responsibility for this but the responsibility should not depend on the "luck of the draw" as to who we injured or by whom we were injured.

           NOTE  A side benefit would be that there would probably be less hassling and therefore less expense on awards to be made. This would result in lower fees on both sides, since the amount at risk would not be astronomical and need not be defended to the death as it has to be when someone sues for millions of dollars.

Therefore fault should depend on what happened and not on to whom it was done or by whom it was done.

           NOTE  If we deliberately later continue to do things in a manner likely to cause injury to others when we could reasonably prevent such injury, that is something else entirely—not what we are speaking about here—and might well come under criminal law.


"But I'm Worth More"

     What if someone thinks he's worth or should receive more than this amount if he were to be killed or injured by someone else's negligence? Fine. Let him buy the extra coverage. How could this be done? The simplest way of course is to increase one's life, disability income, and health insurance coverage. But if one was more concerned with coverage for acts caused by others than for those due to his own actions or “Acts of God”, then the insurance industry, if there were enough such people, would be happy to accommodate him with special insurance in this direction.

     One possibility is to carry increased insurance coverage for all accidental death or disability. It is relatively inexpensive. Or one could carry separate extra increased coverage for accidental death or disability caused by other parties.

     Another method is for the insurance companies to offer people insurance that pays off on some multiple of damages actually awarded. For example, if the courts decide that $32,000 is the maximum liability which a party must pay because he caused a fatal injury, then if the injured party carried such a policy it might payoff 2.5 times (equals $80,000), or 3 times (equals $96,000), or whatever multiple the policy called for.

     Double indemnity written into many present life insurance policies which pays off twice as much in case of death while a passenger in a train, plane, bus, or other common carrier is a partial example of this method. Airline trip insurance is another example.

     There might even be a similar form for hospital “trip insurance” which would pay off if any mishap not usually occurring with the procedure occurs. There are numerous possibilities along these lines limited only by the ingenuity of the insurance companies and the eagerness of the citizenry to protect themselves with excess coverage from the results of other party caused accidents and incidents.


In Summary

     We citizens have shown by our life insurance and disability insurance purchases that we cannot afford huge compensation for self-caused injury. And much as we might like to be compensated hugely if we are injured by another we cannot afford that either. Besides, what moral right have we Americans to expect others to 'insure' us for hundreds or thousands of times what we are willing, through our own life and disability insurance, to insure ourselves for against the bad results of our own actions.

     There is not enough money in the country for everyone to receive what he feels he should when injured by another. The maximum liability for death and disability must be limited. Further coverage than this from other party injury will have to be furnished by the individual for himself. In the malpractice area and in liability in general, monetarily non-measurable items such as “pain and suffering, “mental anguish”, and “loss of consortium” must be eliminated.

     I suggest that the maximum limit of liability for death or disability be set as follows, or similarly. Find the ratio of life and disability insurance carried to annual income for most (85th percentile) U.S. households which purchase their life and disability insurance themselves (as opposed to their employer providing it). Multiply this figure by the average annual U.S. household income, and let that be the limit.

Malpractice

by Sherwood R. Kaip, M.D. 1992

skaip799@gmail.com

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        Real Health Insurance

There are many ideas on controlling costly abuses of the U.S. tort liability system of which malpractice liability is a part. Yet even controlling these abuses does not solve its basic problem—it is an open-ended system which can and has gone exponential. If an award for misfortune is 'good', a larger award must be 'better'. This essay examines this idea and ties it to the reality we all experience as we go about our everyday lives.