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Apr 14

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Law and Economics Unite for the Greater Good? In Theory, but Maybe Not in Practice.

dogs disagreeA fifth U.S. Circuit Court of Appeals recently upheld Mississippi’s $1 million cap on what Plaintiffs can recover for pain and suffering (aka non-economic damages) in personal injury cases with pharmaceutical product liability.  The jury initially awarded Plaintiff, Ms. Learmonth, a total of $4 million for injuries suffered from a car crash with a Sears company van.   The jury failed to differentiate how much was for economic versus non-economic damages.  The judge differentiated the lump sum with $2.2 million for non-economic damages, but then decreased it to $1 million based on the Mississippi’s cap.

Ms. Learmonth attempted to argue (but failed) in appeal that the cap was unconstitutional and violated her right to a jury.   The decision to uphold Mississippi’s damages cap may not only influence future similar decisions, but also the number of doctors that may flock to the state if medical malpractice premiums stay the same or fall if caps continue to be upheld.  Even though many states have caps on non-economic damages in personal injury cases as part of efforts towards tort reform, some state supreme courts fail to uphold the caps.  The economics behind imposing (and implementing) caps continues to be tested with some states implementing and others not.

Some believe the theory that large damage awards hurt the economy.  For example, in a medical malpractice case, a doctor is found liable resulting in a jury awarding Plaintiff $5 million.  The doctor (or more likely the doctor’s medical malpractice insurance carrier) must pay the $5 million.  As with most business’ costs, the business does not absorb them; rather, they get passed on to consumers.  In this case, medical malpractice insurance premiums will increase (an increased cost to doctors).  Doctors flee these costs by moving to another less burdensome state that implements damages caps or passes the costs on to patients.  Damages caps are an attempt to lower the additional cost burdens.

The counterargument is generally one similar to Ms. Learmonth’s appeal argument: damages caps are unfair to plaintiffs by letting a law dictate the amount of compensation her pain and suffering is worth rather than a jury that has heard her unique circumstances.   Some states’ supreme courts agree with the counterargument and have not upheld its states’ damages caps.  Because these tort reforms are relatively recently and continuing, it is not yet clear if the medical malpractice premiums charged to doctors and doctors’ fees charged to patients are statistically lower in states that have imposed and upheld the caps than states that have not.

 

 

About the author

Nicole Liska

I am a Principal at Fulcrum Inquiry, an accounting and economic consulting firm that performs damage analysis for commercial litigation, forensic accountings, financial investigations, and business valuations. I hold an ABD and MA in economics from the University of California, San Diego. I perform damages analyses and serve as a damages expert witness. My resume is on Fulcrum's website.

Permanent link to this article: http://betweenthenumbers.net/2013/04/law-and-economics-unite-for-the-greater-good-in-theory-but-maybe-not-in-practice/

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