Apply Malpractice Reforms to Personal-Injury Justice

Last summer the city of Oakland settled a claim for injuries resulting from an accident in which a young girl using a crosswalk was struck by an uninsured motorist.

Because of the doctrine of “joint and several liability,” the girl’s attorney had only to prove that the city was at least 1% responsible for the accident to be assured that any jury award would be paid from the city’s deep pockets.

With virtually no defense and facing a certain multimillion-dollar judgment if the case were to go to trial, Oakland agreed to purchase for $1.2 million an annuity that will pay the girl about $30 million if she lives a normal life span. For negotiating this settlement, the girl’s attorney took $750,000 as his fee. Since Oakland is not insured, the attorney was paid from the city’s treasury. According to the city budget, three-quarters of a million dollars would pay the annual salaries and fringe benefits of 28 police officers, sweep all residential streets in Oakland for nine months or keep four branch libraries open for a year.

Plane crashes, chemical spills, bus accidents and other tragedies also are popular with personal-injury lawyers because they can represent a number of victims and bank a sizable chunk of the six-, seven- and eight-figure settlements commonplace in today’s litigious environment.

In November the League of California Cities testified in Sacramento that 50 municipalities are now involuntarily uninsured or dangerously underinsured. (Large cities such as Los Angeles and San Francisco are self-insured.) About 60 representatives from consumer groups, public agencies, businesses, medical-care providers and insurance trade groups also testified about the lack of affordable insurance in today’s market.

The blame for the liability crisis rests with abuses of our civil-justice system such as the deep-pocket rule and exorbitant contingency fees--the carrot at the end of the stick of personal-injury lawsuits.

The principle of contingency fees is simple: The lawyer takes a cut, usually one-third to one-half, of the settlement or judgment. If the lawyer loses the case, he loses his paycheck. In theory, the contingency-fee system guarantees access to the best legal services possible at no financial risk to the injured person. In reality, contingency fees only guarantee that sure winners--those who may hit the jury jackpot--will find lawyers to handle their cases.

Taking a percentage of the recovery as a legal fee is a poor measure of the value of legal services, and often leads to exorbitant profits for lawyers. In many lawsuits the defendant’s liability is clear. More than half of all lawsuits filed in California are auto-accident cases for which fault is seldom in question. Cities cannot defend themselves because of the deep-pocket rule. Manufacturers are held strictly liable for injuries resulting from the use of their products. Transit systems and other common carriers rarely bother to deny liability anymore. “How much?” is the only question left to be resolved in most personal-injury cases today.

One reason that every other major industrial nation prohibits contingency fees is that the system breeds a conflict of interest between attorney and client. Since the lawyer takes a cut of the recovery, he has a very real economic stake in the outcome of the case. But the lawyer’s interests are not always the same as the client’s. In many cases plaintiffs would prefer to settle out of court and avoid the rigors of a trial. But the lawyer, with other financial resources at his disposal, can afford to roll the dice and hope for a sympathetic jury and a big payday. Since the question of whether to settle or go to trial will arise in virtually every case, the potential for this conflict of interest is great. And since clients are paying for the attorney’s advice, the lawyer will usually resolve the conflict in his favor.

The answer to the abuses of the contingency-fee system can already be found in California law. But it applies only to medical malpractice cases. To resolve the medical malpractice liability crisis of the mid-1970s, the Legislature adopted the Medical Injury Compensation Reform Act, which, among other things, applies a sliding scale of fees based on the amount of recovery--40% of the first $50,000, 33% of the next $50,000, 25% of the next $100,000, and 10% of any portion over $200,000.

The California Supreme Court has upheld the reform provisions of the act, and this fall the U.S. Supreme Court rebuffed challenges to the contingency-fee scale and the $250,000 cap on pain-and-suffering awards.

This act has shown that reasonable standards can be applied to limit the abuses of the civil-justice system while protecting the rights of accident victims. The Legislature should take the opportunity to restore fairness and sense to our justice system by providing relief to deep pockets and extending medical malpractice reforms to all personal-injury litigation.