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LEGAL LIABILITY.
Term Paper ID:18725
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Analyzes debate over how tort law should be used, what tests should determine liability, & cost efficiency. Emphasizes role of Learned Hand test.... More...
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Paper Abstract:
Analyzes debate over how tort law should be used, what tests should determine liability, & cost efficiency. Emphasizes role of Learned Hand test.
Paper Introduction:
While there is no dispute between lawyers and economists that tort law is a necessary facet of the legal system and needed to maintain an individuals rights, there is disagreement about how it should be utilized, what tests should be invoked to determine liability and finally, the cost efficiency of the tort law system. The two facets of tort law include: (1) that an individual should be entitled to recover damages from another individual (or company) if he was harmed or if reasonable steps to avoid harm were not used; and (2) under the theory of strict liability, that an individual can recover damages regardless of proof of negligence or intent.1
Torts have become an expensive business because of the alternative theory of liability developed out of implied-warranty law. The courts have not only extended the implied warranty of
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Theissue of whether the manufacturer could sufficiently anticipate the unusualuse also needs to be addressed.8 When this issue is discussed, thedoctrine of assumption of risk is also confronted. While there is no dispute between lawyers and economists that tortlaw is a necessary facet of the legal system and needed to maintain anindividuals rights, there is disagreement about how it should be utilized,what tests should be invoked to determine liability and finally, the costefficiency of the tort law system. 16Ibid., 218. 9Ibid., 1 75. Economic Analysis of Law. The use of the product is sometimes a difficult question for thecourts because of the fact that some users find other uses for a productthan originally intended. The choice is often influenced by which of the two testsis more likely to accomplish optimal primary accident cost reduction aswell as who should be made wealthier because of the incident and who isbetter able to incur and spread losses. Calabresi and Hirschoff are proponents of the theory that liabilitybe placed on the party who is better able to "'make the cost-benefitanalysis between accident costs and accident avoidance costs and to act onthat decision once it is made.'"11 However, when the party who is in thebetter position to determine the efficient solution is not the one in thebetter position to implement it, then "'the decision requires weighingcomparative advantages.'"12 While others do not agree with Calabresi andHirschoff's position, they are insistent upon the belief that thenegligence system is not capable of creating efficient solutions toproblems of conflicting resource use.13 Other theorists believe in the "'paradigm of reciprocity, '"14whereby the injurer is strictly liable if he created a risk to the victimthat was disproportionate to the risk the victim created to him. However, the question remains as to whether the costof a safety precaution is less than the expected accident cost. 2R.A. 11R.A. Taking the theory onestep further, it has been stated that, "'If imposing a private duty ofcompensation for injuries resulting from nonreciprocal risk-taking has anundesirable economic impact on the defendant, the just solution would notbe to deny compensation, but either to subsidize the defendant or institutea public compensation scheme.'"15 Another theory is based on the belief that a person should be liablefor any injury that he/she causes with cause defined in ordinary languageterms, not the convoluted definitions of the legal system or the courts.Proponents of this theory also do not believe in the negligence alternativeto strict liability with the primary reason being that it gives too muchpower to judges to impose restrictions on human liberty.16 Furthermore,there is no stopping point under an economic analysis in imposing liabilityon people in order to induce them to perform socially productive activity. In this test, a decision is made "as towhich of the parties to the accident is in@the best position to make thecost-benefit analysis between accident costs and accident avoidance costsand to act on that decision once it is made."7 Many believe this test is easier to apply and more cost-effectivethan the Learned Hand test or its reverse. The manufacturers have been found liable except for injuriesresulting from mishandling of their product.2 Many feel that the premise of strict liability has forcedmanufacturers to make safer products and that the manufacturer has anincentive to do so. 4G. Hirschoff, "Toward a Test for Strict Liabilityin Torts," Yale Law Review 81 (May 1972): 1 56-1 57. Endnotes 1R.A. The courts havenot only extended the implied warranty of fitness to a product to includefreedom from hazardous defects, but have eliminated the privity requirementso the consumer (or members of his family or even bystanders) can enforcethe warranty. In addition, he believes that a strict liability standardwithout a contributory negligence defense is less sufficient than thenegligence-contributory negligence standard.17 The economic goal of liability rules is to maximize the joint valueof the interfering activities. Since it does, it also reduces the amount ofuncertainty involved in predicting the outcome of a case if the claim isnot settled. 1 Ibid., 1 83. When liability for unavoidable accidents is placed on companiesrather than individuals, losses can be spread further, since the companywill distribute the cost of the accident judgment among its customers,shareholders, insurance company, etc. 17Ibid., 22 -221. Another proposed liability test, the strict liability test, involvesa different cost-benefit analysis. Posner, Economic Analysis of Law (Boston: Little Brown, 1972),9 . These questions are needed because of thediversity of products and circumstances those products are used in, whatother products are available, the user's knowledge of the product andalternatives. 3Ibid., 94. Boston: Little, Brown, 1972. 7Ibid. In past cases, the court hasfound that manufacturers/producers are better able to make the cost-benefitanalysis than users. But the courts do notlook to whether the user should have used the product in that instance, butrather did the situation make the user better suited than the manufacturerto compare the benefits and costs of the risk he/she took. Therefore, "the victim would bear the accident costs only ifthe injurer could not also have avoided the accident at less cost than theaccident entailed."6 Determination as to which two Learned Hand tests should be used, thecost-benefit analysis, is made by a judge or a jury. And, evenif some argue that in reality there is no effect on a safety level, strictliability does have an economic effect in that it forces the manufacturerto insure consumers against accidents resulting from nonnegligent defectsin his product. Some believe that the important question in cost-benefit analysis ofstrict liability is who could prevent the loss at a lower cost, not whosecost the damage really is.3 Social costs must also be considered. It should be noted that there has been a reluctance to apply theLearned Hand test to categories probably because of a "disfavor of'negligence' calculus type tests."9 And while it is difficult to apply thecalculus of fault test, it is more difficult to correctly decide who canmost cheaply act on a cost-benefit analysis and what the result of thatcost-benefit analysis might be. Usually, when there is a lesser uncertainty about the outcomeof a case, the number of claims that go to trial decrease. Strictliability facilitates comparison of the economic costs of entities, but itcovers the comparison of the social costs of activities and alternativeactivities. Thus, the costs of trials may actuallyincrease. Rather, because the scope of liabilityis increased, the amount of claims is larger. "Toward a Test for Strict Liability in Torts." Yale Law Journal 81 (May 1972): 1 55-1 85.Epstein, Richard A. The reverse Learned Hand test has theopposite effect. 5Ibid., 1 57. Posner, "Strict Liability: A Comment," Journal of LegalStudies 2 (1973): 213. An efficient solution is achieved when the costof prevention does not exceed the damage cost.18 Most importantly, it should be noted that in economic terms, peoplewill act in a manner to minimize their losses, regardless of the legalrules that exist. The courts in their judgment ofstrict liability cases have tried in the past to determine whether a defectexists in a product by seeking to find out if there was adequate warningand how the product was used. The two facets of tort law include:(1) that an individual should be entitled to recover damages from anotherindividual (or company) if he was harmed or if reasonable steps to avoidharm were not used; and (2) under the theory of strict liability, that anindividual can recover damages regardless of proof of negligence orintent.1 Torts have become an expensive business because of the alternativetheory of liability developed out of implied-warranty law. Epstein, "A Theory of Strict Liability," Journal of LegalStudies 2 (1972): 151. Thistest "defines the defendant's duty of care as a function of threevariables: (1) the probability that the accident will occur, (2) thegravity of the injury which will be suffered if the accident does occur,and (3) the burden of precautions adequate to prevent such accidents."4Many believe that Judge Hand's test minimizes the accident costs and thecosts of accident avoidance because of its formula: "If the cost to thedefendant of avoiding the accident would have been less than the cost ofthe accident, discounted by the probability of its occurrence, thedefendant's failure to avoid the accident is termed negligence."5 Professor Posner advocates Judge Hand's test and his ideal cost-effectiveness of strict liability: None of the costs of an accident areaccepted by third parties other than the injurer and the victim and inwhich the parties have perfect foresight about the incident. 8Ibid., 1 64. Whatever test is used, it should consider the efficiency anddistributional equity to determine the appropriate liability rules. To identify the value-maximizing solutionrequires a comparison of the costs of the manufacturer to take steps toreduce the problem and the costs to the consumer of either tolerating thesituation or taking steps to reduce the damage to themselves or theirproperty from the product. 15Ibid., 217. 14Ibid., 215. However, recognition of individualliberty should not be discounted. The courts often use the Learned Hand test to determine fault. "Strict Liability: A Comment." Journal of Legal Studies 2 (1973): 2 5-221.----------------------- 9 Sometimes in these kinds of cases, the user ismore suited to make the cost-benefit analysis than the manufacturer. And, even if only a fractionof the cases go to trial, because strict liability often carries with itthe premise that the plaintiff will prevail, the plaintiff is encouraged tospend more money on the litigation. According to one economic and legal expert, economic theorygenerally, provides no basis for preferring strict liability to negligenceor vice versa. 13Ibid. It appears that using the strict liability test is more likely thanthe Learned Hand test, or its reverse, to accomplish the most cost-efficient and effectiveness of accident costs and accident avoidance costs. Thistheory was created because of a dislike of comparing the utility of thevictim's conduct with the utility of the injurer's. Furthermore, some believe that the economics of tort lawshould not be examined on an individual basis, but rather see the entirelaw of torts as a political function. Hirschoff. 12Ibid., 214. 6Ibid., 1 58. In terms of clear costs, the Learned Hand test tends to make injurersricher at the expense of victims. BibliographyCalabresi, Guido, and Jon T. . "A Theory of Strict Liability." Journal of Legal Studies 2 (1972): 151-2 4.Posner, Richard A. The issue is to determine who (the injurer or the user) should makethe cost-benefit analysis and act upon it. Calabresi and J.T. 18Ibid., 2 5-2 6. Somebelieve that considering distributional goals will make application of thestrict liability test easier.1 According to Posner, strict liability does not reduce the costs oflitigation as many would believe. Strict liability eliminates a major issue in tort litigation, thequestion of negligence. Taking thistheory one step further, the Learned Hand test would be applied where thecost of injurer avoidance exceeds the cost of victim avoidance. However, some hypothesize that a reverse Learned Hand test--where thecosts of an accident would be borne by the injurer--would be equallybeneficial. In a case, when oneof these two tests is utilized, liability is placed on the party initiallyfree of responsibility, based upon the judge's or jury's determination thatthe benefits of avoidance are greater than the costs of such avoidance tothe party.
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