Accrd. Ana/ & F’rev. Vol. 19. No. 1. pp. 63-71. 1987 OrKl-4575/87 %3.00+ .oo Printed in Great Britain. 0 1987 Pergamon Journals Ltd.

TORT VERSUS NO-FAULT: COMPENSATION AND INJURY PREVENTION

JEFFREY O’CONNELL School of Law, University of Virginia, Charlottesville, VA 22903, U.S.A.

Abstract-The tort system, as a means of compensating the victims of injury, no longer fulfills the purpose for which it was intended. The attempt to achieve a fair and rational method of compensation, especially in the areas of medical malpractice and products liability, has been displaced by a form of litigation lottery which permits attorney’s fees to divert great amounts of money from victims in needs. A reform of this system is much in need and long overdue. Following a discussion of these and other problems with the tort system, this paper will present a method for ensuring the prompt settlement of most personal injury claims through payment of the victim’s net economic losses. The parallels to no-fault auto insurance and workers’ compensation are examined and attention is given to the likely impact of this proposal on the conduct of potential injurers and victims.

INTRODUCTION

Suits for personal injury under the theories of medical malpractice and products liability advanced by state courts and legislatures in the U.S. can be among the most complex and unpredictable to litigate. The degree of fault in a defendant’s conduct or product and the assessment of damages are difficult to define with precision. Even experts are often sharply divided concerning the assessment of the proper role of the complex tech- nology offered in health care and products engineering. How, then, can a lay jury readily determine the appropriateness of a defendant’s conduct or product and determine fault with any degree of accuracy? The process of litigation can be lengthy as well as the results unpredictable. An injured party can recover nothing or far less than fair compensation; on the other hand, some receive awards far in excess of their actual damages. Such discrepancies are caused not only by the difficulties involved in assessing technological and/or professional capability and defendant fault, but also by the subjective and emo- tional reaction of the jury to the parties in the case. Thus the length and complexity of litigation, coupled with the escalating number of personal injury suits, requires huge transaction costs while the results of such litigation are often fortuitous and unfair [O’- Connell, 19821.

The difficulty of determining a fair damages award is increased further by allowing the emotional and subjective reaction of a jury free play in the award of damages for non-economic loss such as pain and suffering or loss of consortium. There is no rational way to provide a monetary evaluation of such non-monetary losses. Here the plaintiff is encouraged to play upon the jury’s sympathy with highly emotional evidence in hopes of a large monetary award for such non-monetary damages [O’Connell, 1979a], with the jury relatively free in its discretion to make such damage awards in almost any amount [O’Connell, 19821.

The fact that victims often collect twice further underscores the windfall nature of tort recoveries. Damage awards paid by a tortfeasor duplicate collateral sources, such as health insurance or sick leave [O’Connell, 19821. Even when the collateral source recovers the amount paid to the victim through subrogation, the use of insurance premiums has been inefficient since two different carriers, the tortfeasor’s and the victim’s, have covered the same event [O’Connell, 1979a].

Thus, especially in the areas of medical malpractice and products liability, the tort system no longer fulfills the purpose for which it was intended. The attempt to achieve a fair and rational method for the compensation of victims has been disp!aced by a form of litigation lottery. Yet a further problem exists in suits involving medical malpractice. Here a patient, who may have developed a trust and dependency on attending physicians

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64 .I. O’CONNELL

and hospital personnel, and the health care provider, who has provided and may continue to provide care to the patient,* must assume an adversarial relationship. The health care recipients must sue those on whom they have depended, and the providers must deny culpability for any conduct leading to injuries for which they feel they may actually be at least partially responsible.

As a corollary to the foregoing, attorney’s fees in tort actions consume large amounts of money which might otherwise be available to victims. Neither party in a suit escapes this heavy burden: defendants and their insurers must pay attorneys’ fees in every case, while a victorious plaintiff must yield a large percentage of his recovery to his attorney in the form of a contingent fee. It is no surprise, then, that the medical malpractice tort system returns only twenty-eight cents of the premium dollar to injured patients and that of this amount only 12.5 cents reimburses the victim for economic losses not compensated by other sources [O’Connell, 19761. (The respective figures for products liability are 32 and 14.5 cents [O’Connell, 19761.)

Since the tort system fails to satisfy the aims for which it was developed and since attorneys’ fees (on both sides) in this adversarial system divert great amounts of money from victims in need, a reform of the tort system appears much needed and long overdue. An optimal settlement of most personal injury claims would be achieved through prompt, periodic payment of the injured party’s net economic loss (as is done under workers’ compensation or no-fault auto insurance). Yet the adversarial relationship in these suits makes such settlements rare today. Defendants fear that a prompt offer to cover a victim’s net economic losses might encourage the victim-and perhaps especially his or her lawyer- to pursue an even larger recovery through litigation. Defendants (or their insurers) therefore rarely promptly offer to cover a claimant’s net economic losses, even when it might be advantageous for the defendant to do so.

Even if such an offer were made, claimants-or their lawyers-would see such an offer as a defendant’s signal of weakness and opt to pursue a larger recovery through litigation. The role of the plaintiff’s attorney should not be underestimated here. The incentive of a “big hit” often spurs them on to take a case trial. Since a plaintiff’s lawyer typically has a number of contingent fee clients, he/she is in a far better position to take a case to court than the plaintiff who lacks the attorney’s “portfolio diversification.” The lawyer can spread the risk of non-recovery in a single case over all his clients, while the plaintiff risks everything on one case-his or her own.

Thus the plaintiff, guided by his/her attorney, would often be reluctant to initiate any discussion for settlement on the basis of net economic loss. Like the defendant, s/he feels that such an offer would send a signal of weakness to the opposing party. Thus plaintiff and defendant seem to be locked in an adversarial system which may not represent their best interests or guarantee a fair outcome.

NO-FAULT INSURANCE

No fault auto insurance was designed to alleviate the evils of the present personal injury system in those cases in which injury results from auto accidents. In broad outline, under no-fault each party is paid after an accident regardless of any party’s fault or lack of it; each party is compensated only for his net economic loss [O’Connell, 1979b]; and each party waives his tort claims against the other.

Various surveys have demonstrated that no-fault auto insurance can effectively achieve the following goals: use a smaller percentage of the premium dollar on legal fees and insurance overhead; compensate more injured people; pay claims more promptly; de-

‘A report by the Boards of Trustees of the American Medical Association finds that “the biggest cost” of suits brought under the malpractice system is “the emotional injury that a physician experiences when he or she believes that he or she had done the best possible under difficult circumstances. Decreases in physician productivity as a result of such dysfunction cannot be estimated.” (See Report, Board of Trustees, American Medical Association, Study of Professional Liability Costs (Substitute resolution 8, A82) Report: N(l-83) p.15, 1983).

Tort versus no-fault 65

crease the number of inflated claims; and use dollars formerly used to pay non-pecuniary loss to pay more pecuniary losses instead [U.S. Dept. of Transportation, 19851.

Furthermore, the undesirable characteristics of the present tort liability system are even more evident in medical malpractice and products liability claims than in claims arising out of auto accidents. In medical malpractice and products liability suits, many more victims are ieft uncompensated [O’Connell, 1979b; Bernzweig, 19801. Payment, even when made, is much more delayed [Bernzweig, 1980; O’Connell, 19791. Finally, much more of the premium dollar is spent on legal fees [Bernzweig, 1980; O’Connell, 1976], Therefore, the need for no-fault in these areas is even more compelling.

Recent comprehensive studies have suggested the no-fault principle as a solution to the fundamental problems plaguing these areas of liability. The prestigious McGill Com- mission, studying medical malpractice in New York State, stated:

In as much as the present tort law/liability insurance system for medical malpractice will eventually break down and costs have and will continue to rise to unacceptable levels, fundamental reform of the present tort law/iiability insurance system should be undertaken. . . . [T&e overriding concern should be to create a system of compensation for adverse medical outcomes resulting from medical treatment, whether or not caused by negligence [State of New York, 19761.

Similarly, the federal government’s Interagency Task Force on Product Liability in an exhaustive report issued in 1977 emphasized its “growing appreciation for the need to explore more carefully the utilization of no-fault compensation systems for product lia- bility” [U.S. Department of Commerce, 19773,

Nonetheless, there are problems with implementing a system of no-fault insurance to compensate those injured by medical treatment and manufactured products. The main problem is that it is so difficult to define the no-fault insured event for injuries that arise from medical treatment and product use. Under a no-fault auto insurance system, the motorist is compensated for injuries “arising out of the ownership, maintenance or use of a motor vehicle.” It is not feasible, however, to compensate the patient for conditions “arising in the course of medical treatment,” or to compensate the consumer for injuries “arising from the use of a product.” In the medical malpractice case, for instance, the difficulty results from having to determine whether the patient was injured in the course of treatment or whether he suffers from the condition for which he went to the health care provider in the first place. Realistically, the health care provider cannot be asked to pay every patient whose condition declines after treatment. Similarly, the manufacturer cannot be asked to compensate every consumer injured while using its product. For example, it seems extreme to force a chair manufacturer to compensate any consumer who falls off a chair while using it as a ladder. It seems even more extreme to force a publisher or bookseller to compensate anyone injured by tripping over a book.

“‘NE0 NO-FAULT” LEGISLATION*

As a partial solution to some of the problems outlined above, a bill drafted by this author has recently been introduced in the Congress, applicable specifically to certain medical malpractice claims* * [Moore and O’Connell, 19841, but readily expandable to product liability and other claims. Under this solution a defendant against any claim for personal injury would be given the option of foreclosing any such claim by offering, within, say, 90 dayst of the claim, to pay claimant’s economic loss, or “special” damages,

“As will be seen, though the proposed reforms track some features of no-fault, they are not strictly no- fault; hence the name “‘neo no-fault.”

**A bill, HR 3084 (formerly HR 5400), sponsored by Reps. Henson Moore (R. LA) and Richard Gephardt (D. MO), based on this proposal is before the Congress, applicable to medical malpractice claims. [See O’- Connell, 1982, for proposal.]

tThe original article proposed a period of 60 days. [see O’Connell, 19821. The precise time period between, say, 60-180 days is largely a matter of the drafter’s discretion. One does need, though, sufficient time for a defendant to invesitage the circumstances of the accident giving rise to the claim.

66 J. O'CONNELL

consisting mostly of medical expense and wage loss, beyond any collateral sources already avaiiable to the claimant. In other words, today a defendant is exposed to payment of claimant’s claim for nonpecuniary Ioss (or “general” damages) including pain and suf- fering, loss of consortium, etc., as we11 as items of pecuniary loss (“special” damages) often in duplication of amounts already paid to the claimant by collateral sources, not to mention the expenses of exhaustively litigating the issues of tort liability. Under this bill, a defendant can eliminate such a claim by prompt payment of claimant’s actual out-of- pocket loss. Payment will be made periodically if losses continue to accrue after the 90 day period, and must include reimbursement of claimant’s legal fees, if any, in addition to claimant’s other losses. Claimants will be obligated to accept such payment of their net economic loss in total satisfaction of personal injury claims in all except cases of intentional injury [O’Connell, 19821. (For alternative means of delineating what tort claims are preserved, see Moore and O’Connell, 1982.) Similarly, an exception could be made for cases where such limited payment would be deemed unconscionable in that the special damages are so inconsequential compared to general damages, for example, when a white collar worker loses a leg or an arm.

Note that under this proposal, no defendant is required to settle a case he would not settle today. This will serve to prevent spurious claims as well as the unforeseen new costs often associated with reform proposals.

It is true, of course, that under the present law, either party can offer to settle for claimant’s net economic loss, The difference is that, at present, neither party need accept the offer. The obvious question, then, is why force such a ‘“settlement” on unwilling claimants?

Start from the premise that it is the possibility, or even the likelihood, of the in- transigence of either claimants or defendants or both concerning the volatile variables of liability covering fault and non-pecuniary loss that is at the heart of the difficulty of the present system. Defendants are often confident that they can defeat or at least wear down ciaimants, given ail the difficulties and delays in proving a tort claim, whereas claimants (and perhaps especially lawyers) are often confident they can recover or hold out for much larger sums than actual losses, given all the potential of damages for nonpecuniary loss. Under workers’ compensation and no-fault auto laws, the solution has been to eliminate these troublesome variables by forcing claimants and defendants to accept the disposition of claims for claimants’ economic loss regardless of anyone’s fault or lack of it.

But for product and many other cases, as suggested above, that solution is not feasible because defendants, even if liable only for claimants’ economic loss, would be forced to bear losses which society cannot be confident they should bear. Furthermore, despite the fact that the optimal resolution of many tort claims is payment of economic loss, the stalemate of claimant-defendant intransigence will often preclude such a solution: witness all the tort claims where more or less than the optimal amount is paid. Therefore, if settlements for net economic loss are to be imposed, the only feasible way is to give defendants the power to impose such settlements. One cannot reverse the above solution and force the defendants to accept any ci~~~unf’~ offer of settlement for claimant’s eco- nomic loss, That too would force defendants to bear losses society cannot be confident belongs on them. Indeed, a claimant could randomly claim against almost anyone and half expect to extract payment from him.

For a variety of reasons the goal of using insurance money to recompense promptly and efficiently any and all pecuniary loss from injury cannot be universally met. Present systems of public or private first-party insurance (such as Social Security and private heahh and disability insurance) are often not sufficient to cover all serious accidental losses-nor are they likely to become so. Nor can tort Iiability insurance dollars, converted to no-fault, serve as a universal supplement to pay for all economic loss beyond collateral sources, because, as we have also seen, there are many instances in which defendants could not reasonably be required to pay claimants under any circumstances (as with the book and other examples above). At the other end of the spectrum, it seems unfair to allow an extremely culpable defendant to escape any payment when he causes gross losses

Tort versus no-fault 67

to a claimant who, because of his own adequate collateral sources or the nature of his injury (scarring, for example), suffers little if any economic loss. However, between those two extremes many cases could be settled optimally by prompt payment of net economic loss- and the proposed statute strongly encourages just that solution.

In sum, the present tort system too little encourages payment of losses by allowing defenses based on claimant’s fault and defendant’s lack of fault, but allows too much payment, once it is due, by paying for pain and suffering and duplicating collateral sources. The bill discussed herein seeks to achieve improvement by forcing defendant to earn the advantage of eliminating instances of too much payment by coming forth with what is arguably just the right amount of payment, namely a claimant’s net economic loss. Granted the impediments to total abolition of the defense of lack of defendant fault in product and other cases, the proposed reform seems to achieve close to maximum feasible im- provement in the personal injury tort system.

The heart of the proposal is that the frictional costs of compensating losses under current personal injury law can be transformed into assets which can be traded for prompter, more sensible compensation. Such compensation can be paid, if you will, from the resources salvageable from our current litigation quagmire.

Under this bill then, whenever a defendant senses that its litigation costs, or its liability for damages for pain and suffering or for payment in duplication of collateral sources are likely, alone or in combination, to exceed the claimant’s net economic loss, such a defendant will be inclined to settle promptly for claimant’s net economic loss.

A “NE0 NO-FAULT” CONTRACT

But a basic problem with this proposed statute is just that-it entails passing a statute [Calabresi, 1982; Peck, 1963, 1983; Keeton, 19621. (As to the possible problem under the bill of adverse selection of defendants, see Keeton, 1962, note 46 and accompanying text.) There are three main difficulties with trying to effect reform through legislation. First, trying to get the attention of today’s legislature about any issue is difficult. Secondly, to get a legislature to pass controversial legislation is all the more difficult; this is especially so in the face of very effective lobbying opposition-for example the opposition to tort reform by powerful trial lawyer lobbies, often independently abetted by some insurers hostile or indifferent to sweeping change. Thirdly, any legislation that does emerge may well be so watered down or distorted as to ill serve the objectives originally sought. One could note, for example, the experience with inadequate American no-fault auto insurance laws under which large no-fault benefits are provided, but too many tort claims are also preserved, thus making for expensive and arguably even unworkable reform. Such laws abrogate the basic bargain envisaged by no-fault, namely a substitute of the no-fault remedy of some payment for economic loss to all victims for the tort remedy of payment of “some for all,” as opposed to “all for some.” If “some for all” is simply added to “all for some,” the result is clearly higher insurance costs [O’Connell, 19781.

In order to avoid the pitfalls of legislation, an insurance policy-without the need for any enabling legislation-could be devised for those injuries which can be readily defined in advance of accidents and for which payment on a no-fault basis is feasible (unlike for all injuries from, say, stoves or medical services), for example, injuries from power tools or certain athletic activities. For such accidents an insurance policy or product warranty could be instituted whereby a health care provider or product seller (including a manufacturer or wholesaler) by the time health care services are rendered or a product sold, can, at its option, bind itself to tender within 90 days of any injury a victim’s net economic loss regardless of the existence of tort liability in any particular case; in other words, regardless of whether the defendant’s conduct or product was faulty and regardless of the victim’s contributory fault. Net economic loss will include any resulting medical expenses, including rehabilitation, and wage loss (the latter perhaps with a cap of, say, $300 a week), beyond the victim’s own collateral sources such as accident and health insurance, sick leave, etc.; one might index the wage loss to inflation, but many insurers resist doing so. Benefits will be payable month by month as loss accrues. The victim and

68 J . O’CONNELL

anyone with a claim based on the victim’s injury, such as members of his family, will then be given an additional 90 days to accept such tender or to claim based in tort. (The policy could be written so that the party against whom a personal injury claim is made could make the tender not only with 90 days of a claim but, at its option, even before a claim is made. That way a potential payor could not be forced to wait until just before the statute of limitations has run to tender the victim’s net economic loss. Rather, it could do so at any point after injury, thereby starting the go-day period within which the claimant would have to decide to accept the tender or not.) In other words, upon acceptance of the no-fault tender of net economic loss, the victim will be required to waive his tort claim against the tendering party. In still other words, the plan entails a potential tort defendant making, if it so chooses, a pre-accident commitment to make a post-accident no-fault offer to pay a potential accident victim’s net economic loss conditioned upon the latter’s exercising a post”ac~ident option to abandon a normal tort claim.*

True, by giving the victim a post-accident option of accepting or rejecting payment of net economic loss, the possibility of adverse selection arises, i.e. those with valid tort claims could choose to sue in tort and those without them to accept the tender. But those who have suffered serious injury would seem especially likely to become risk averse in a choice between certain, if limited, benefits, as opposed to the gamble of a lawsuit. That claimants with a choice between a risky action and a certain no-fault claim will choose the latter is also indicated by those jurisdictions that allow an employee injured by the intentional tort of an employer to claim both in tort and worker’s compensation. Even though in such jurisdictions an unsuccessful tort suit does not bar a workers’ compensation claim, most injured employees claim only in workers’ compensation benefits, given the delays in filing a claim and receipt of its benefit caused by initial pursuit of a tort claim. [See Larson, 1982; Love, 1983.1

Granted, however, that such an insurance program may entail unusual risks of unpredictable costs of an insurer. One way to soften those risks would be for the tendering party, if it chose to so provide in the contract, to require the victim to waive tort claims not only against the tendering party but against third parties as well. Thus a provider of products or services tendering benefits would gain leverage to bargain with any third party also arguably contributing to the accident for a contribution to the pool of insurance funds required to pay net economic losses. Such a contribution could be exacted at the start of the policy period with any such third party becoming an additional insured under the policy in return for an annual contribution to the policy’s premiums. Or the insurance contract might call for the right of the tendering party to designate any third party at the time benefits are tendered as also benefitting from the waiver of tort claims in return for a contribution to the pool required to pay a given victim. Nor would there be a need for the tendering and third party to agree immediately on the amount of the third party’s contribution under either a pre-accident or post-accident sharing agreement; rather the parties might agree to arbitrate at their convenience their respective shares of the no- fault damages or pool. The point is, however, that by such devices a health care provider could gain help in funding its tender from, say, other health care providers treating the patient or from a surgical instrument manufacturer. Similarly a manufacturer of a product could gain the same help from a component parts manufacturer. Note the enormous pressure on a third party potentially liable in tort to join in the program-on either a pre-accident or post-accident basis. If it does not, it stands to face a much more aggressive injured claimant, who, like a workers’ compensation recipient pursuing a third party tort claim, has been assured payment of his/her basic losses, and is thus much more able to withstand settlement offers than a normal, impecunious jury victim, Such a claimant will therefore be iikely to pursue aggressively the ‘best of both worlds’: no-fault benefits covering essential losses, followed by tort liability payment covering any unreimbursed economic losses, plus pain and suffering.

*For a similar proposal, independently arrived at, see Vol. I, Report, President’s Commission for the Study of Ethical Problems in Medical and Biomedical and Behavioral Research, Compensating for Research Injuries: A Report on the ethical and legal Implications of Programs to Redress Injuries Caused by Biomedical and Behavioral Research 148 (1982).

Tort versus no-fault 69

Under worker’s compensation acts, employers g~arant~e on a no-fault basis ail medical expenses and at least subsistence wage loss to employees injured on the job in return for the employees surrender of his (tort) claim against his employer. Through the years plai~tif~s lawyers have realized that although the employer is thus exempt from tort liability, third-pa~y suppliers of industrial equipment to the place of employment, sup- pliers of such things as punch-press machines, are not. The result has been a rising number of so-called third party product liability suits. According to one study, almost one-half of the total of product liability payments for personal injury (42 percent) went to employees injured on the j6b and therefore presumably already covered by worker’s compensation [O’Connell, 1979b].

As to non-serious injuries, victims of malfunctioning products or health care delivery are today less likely than, say, victims of slips and falls or auto accidents to pursue tort claims. This is because such claims involve technical engineering and medical evidence, usually in the form of expensive expert witnesses. Thus, only the most serious injuries may warrant the kind of investment required [O’Connell, 1979s; Belli, 1977; O’Connell, 1975a; O’Connell, 1975b]. Therefore, from the viewpoint of a health care provider or a product seller, it would ordinarily make less sense to offer a n~~fault compensation system covering small injuries since they result less often in payment from the current system. Today, even when there is relatively clear liability, if the victim’s loss from a malfunc- tioning product or medical service is only a few thousand dohars and there is no residual disabiIity~ it is often not profitable for a competent plaintiffs attorney to pursue the case. Rut here lies the virtue of the ~exibility of the contract approach outlined above: The contract calling for the tender of net economic loss can be structured, at the option of the health care provider or product seller, to exclude smaller cases. The contract could include a dollar deductible of, say, ~l~,~O or even higher, such that the tender need not be made in cases of lesser amount when tort claims themselves are rare.

In addition, further restrictions on the definition of the insured event calling for a tender of net economic loss could be devised, limiting tender to, say, cases of surgical adverse results involving severe brain damage or paralysis. Or more generally the tender could be limited to adverse results in surgery conducted on a clean operative field (Le. not contaminated by infection), with certain areas of the body being specifically defined as not clean operative fields such as rectal, vaginal, colonic areas and burn sites.*

Furthermore, adverse results could be defined so as not to include those that are directly related to the expectable progression of the illness or disease that caused hos- pitahzation in the first place. A further exception might be made for certain instances of express assumption of risk as in cases of, say, optional back operations where risks of bad results are very high. Similarly for product injury, the requirement of tender could be limited to certain types of injuries from a product, such as amputation, and/or limiting the age of the product injuries from which require tender. Also the obligation to tender could be limited to a pilot program covering a limited period or place after which the results of the program could be assessed.

It might be asked how a pre-accident commitment to make a post-accident tender of net economic loss differs from an identical post-accident offer of settlement under present law? Today a defendant or his insurer will be very reluctant to make an early offer equaling, say, the cla~mant’s net economic loss because to do so will often look like an admission of liability and simply excite claimant’s counsel to hold out for far more. On the other hand, a tender made pursuant to apre-accident commitment-a commitment made before the precise causation or circumstances of any injury can be known-is not a signal of weakness at all. Threats to take such an offer off the table after 90 days are much more credible than with a post-accident offer not made pursuant to a pre-accident commitment.

An insurance contract based on such a pre-accident commitment to make a post-

*The latter is one approach to defining criteria for no-fault payment by an organ~~ati~~ called Wealth Innovations, Inc., of Durham, N.C. beaded by Jeffrey Johnston in Co~lab~ratiQn with Eugene Stead of the Duke Medical School.

70 J. O'CONNELL

accident tender of net economic loss is now in effect in 48 of the United States for serious high school athletic injuries (those entailing medical expenses over $25,000) under the auspices of the National Federation of State High School Associations.

Both of the devices described above-the one statutory, the other contractual- illustrate pragmatic struggles to move away from fault-based tort liability.

EFFECTS ON DETERRENCE?

What will be the effect of such proposals on deterrence? Lawyers and economists often point to deterrence as an important goal of tort law. Especially in recent years, many commentators have written on the extent to which various compensation rules can and should be structured so as to deter accidents. Nonetheless, there is still no definitive answer to the question of how varying rules of compensation affect the conduct of potential injurers and injureds. Two relatively ambitious empirical studies reveal that the tort system has almost no effect in encouraging manufacturers and casualty insurers to consider safety [Wh~tford, 1970; Denenberg, 1970; O’Connell, 1979b]. Nor need we fear that an increase in victims’ faulty conduct will result from paying faulty and faultless accident victims alike. No-fault worker’s compensation and auto laws, which pay faulty and faultless alike, apparently have not led to any identifiable increase in the number and severity of industrial or auto accidents [Harper and James, 1956; U.S. Dept. of Transportation, 19851.

Furthermore, even if the current tort law system does deter some accident producing conduct, this deterrent effect does not necessarily militate against altering that system by reform proposals such as the ones presented here. As Epstein ]1980] has pointed out, any shift in liability rules will create offsetting incentives. This is true of the present proposals as well. For example, under no-fault schemes, no-fault payees bear less loss than at common law in that considerations of fault no longer bar their recovery; no-fault payors, on the other hand, bear more loss in that they lose any defense based on fault. Conversely, no-fault payors bear less loss in that they no longer pay for pain and suffering, while no-fault payees bear more loss in that they no longer receive payment for those damages, (Surely, as between nonpecuniary and pecuniary loss, it makes more sense to force accident victims to bear the former than the latter. By definition, the parties or a court can measure pecuniary loss in dollars and cents and, therefore, compute it relatively easily for transfer; but, again by definition, the parties or a court cannot readily measure nonpecuniary loss in pecuniary terms, Hence, nonpecuniary loss is better left where it lies than is pecuniary loss).

Compensation law, however, seeks to achieve other meaningful objectives that are not as elusive as deterrence. Among these objectives are administrative efficiency and loss distribution. A no-fault scheme achieves administrative efficiency because it reduces payment to lawyers, adjusters and other third parties in the system [Caiabresi, 1970, p. 28]; and it achieves loss distribution because it leaves fewer accident victims and other families without insurance payment [Calabresi, 1970, p. 27]. Compared to the goal of deterrence, those two objectives are more readily attainable. It makes sense to risk a remotely possible loss of deterrence to achieve the proposals’ sure improvements in loss dist~bution and administrative efficiency.

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Love J. Punishment and deterrence: A com~~at~ve study of tort liability for punitive damages under no-fault eompensat~oo legislation. U.C. Davis L. Rev. l&231-267, 1983.

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Minn. L. Rev. 60,501,509,1!476. G’Connell J. Harnessing the ~~abf~ity Iottery: elective first party no-fax& insurance financed by third-pa~y tort

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