DECIDING DAMAGES: a view on Ballot Measure 81

On July 15, 1999 the Oregon Supreme Court joined numerous other state courts and struck down the statutory cap on non-economic damages as it applies to common law claims for bodily injury. Lakin v. Senco Products, Inc., 329 Or 62, 987 P2d 463 (1999). In a scholarly opinion that reviewed the history of the constitutional guarantee to the right of a jury trial, Justice George Van Hoomissen, writing for a unanimous court, held that the arbitrary limitation in a bodily injury case violated the lain text of Article I, section 17, which guarantees the right to jury trial, "In all civil cases the right of Trial by Jury shall remain inviolate." The Lakin decision is the only case where the Oregon Supreme Court has struck down a tort reform statute as unconstitutional. The courts of other states have been more aggressive in striking down other tort reform measures, including statutory limitations on joint and several liability and the collateral source rule. Few states have upheld caps on damages in claims that existed at common law in the face of state constitutional guarantees to a jury trial in an open court system.

THE LEGISLATURE'S ILL-CONCEIVED RESPONSE

The official publication of the Lakin decision resulted in special interest, such as the Oregon Medical Association, insurance companies, pharmaceuticals and tobacco, hastily drafting a poorly worded constitutional amendment. The Republican leadership abandoned the Oregon Senate's long-standing rules and customs in the waning hours of the legislative session to introduce the constitutional amendment in a rare Saturday afternoon session. The proponents orchestrated a 30-minute hearing at which no tort survivors were permitted to testify. The Senate Judiciary Committee, the Senate and the House approved the measure. A week after the Lakin decision, the legislature had hurriedly passed HJR2, which reads, "Notwithstanding any other provision of this Constitution, the Legislative Assembly by law may impose limitations on the damages that may be recovered in civil actions." Proposed constitutional amendments go to the voters and are not subject to veto by the governor. The proposed amendment, now Measure 81, would override all other constitutional guarantees including the right to due process, the right to a jury trial, the right to an open court free from purchase and corruption, and the right to confront witnesses. It also eliminates protection from governmental impairment of contracts, the privileges and immunities clause and the right to be fairly compensated when property is taken by the government. The amendment is so poorly worded that it will allow future legislatures not only to enact caps or upper limits but also to place lower limits or mandatory minimum verdicts--regardless of a jury's verdict. Some lawmakers did not understand the effect of the proposed constitutional amendment. Soon after the legislature had adjourned, one of the supporters was surprised to learn that Measure 81 would apply not only to non-economic damages, but to all types of damages in all types of cases.

THE MYTHS

The proponents of Measure 81 have set forth a number of arguments that are, at beast, based on anecdotal statements and have little familiarity with either fact or truth.

Myth No. 1: Caps on damages keep insurance premiums in check.

The proponents argue that the 1987 cap on non-economic damages caused insurance premiums to fall. Insurance premiums did fall after the enactment of tort reform in the mid 1980s in Oregon and throughout the country but not because of tort reform. A careful review of insurance industry books reveals that the cause of premium increases in the late 1970s and early 1980s was the insurance industry's underwriting practices in an era of high-interest rates. Insurers issued policies on any risk they could find in order to get their hands on premiums so they could invest the money during an era of double-digit investment returns. When interest rates collapsed, insurers were left to pay claims for which they had not charged a reasonable premium without the benefit of inflated investment returns. Instead of admitting the truth, they blamed injury survivors and their lawyers. Insurance premiums have fallen since the mid 1980s. In states like Oregon, which still have significant tort reform, insurance premiums fell by 45.6 percent. In states like Washington, which was struck down most of its tort reform legislation as being unconstitutional, insurance premiums fell even more---48.8 percent from 1985 through 1998. (1) A report from Washington State Insurance Commissioner Dick Marquardt concluded that it was "impossible to attribute stable insurance rates to tort law changes or damages cap[s]" because insurance rates had improved in states that did not pass tort reform and in states that had an invalidated tort reform legislation. (2) Even the most ardent tort reformers concede that caps on damages do not reduce insurance premiums. Sherman Joyce, president of the American Tort Reform Association (ATRA), a national pro-tort reform organization, was recently quoted in Liability Week to say, " We wouldn't tell you or anyone that the reason to pass tort reform would be to reduce insurance rates." (3) Victor Schwartz, ATRA's general counsel and chief lobbyist stated, "Many tort reform advocates do not contend the restricting litigation will lower insurance rates and I've never said that in 30 years." (4) The difference in the cost of medical malpractice insurance in Washington (which has no caps) and in Oregon is less than 1 percent. (5) Malpractice premiums in Oregon are 40 percent less than the national average. (6) Medical costs constitute 12 percent of our gross national domestic product. Less than 1 percent of all medical costs can be objectively attributed to the cost of medical malpractice. (7) One note-worthy study shows that out of a $40 office visit, the cost attributable to malpractice claims was only 26 cents. (8)

Myth No. 2: Doctors and other insureds will flee Oregon without caps on damages.

The state of Washington, where the Supreme Court has invalidated almost all tort reform statutes, has world-class medical care and more doctors, more research facilities, more doctors per capita and a smaller percentage of uninsured citizens than the state of Oregon. Clark County, Washington, which is directly across the Columbia River from Portland (and has population growth rate among the highest in the country), has no shortage of doctors. Washington has more than twice as many doctors in private practice as does Oregon. (9) Oregon has fewer OB/GYN's per captia than states that do not have caps on damages. (11) Recent studies show medical malpractice is a significant health hazard. The W.K. Kellogg Foundation recently reported that deadly medical errors kill 44,000 to 98,000 American hospital patients every year. (12) The Oregonian reported that twice as many Americans die each year as a result of medical malpractice than as a result of motor vehicle accidents. (13) This is not a new problem. On May 9, 1993, The Sunday Oregonian published an article, the headline of with read: "Doctors kill more Americans than car crashes, study finds Harvard investigators conclude that medical malpractice is not an overblown issue but a major problem, (14) The article reported that "a team of doctors, lawyers and analysts at Harvard University who conducted the biggest and most comprehensive investigation of medical malpractice ever undertaken concluded that 150,000 Americans are killed annually by medical treatment with more than half of those deaths 'due to negligence.'" (15) The study further found that "medical injury, then, accounts for more deaths than all other types of accidents combined, and dwarfs the mortality rates associated with motor vehicle accidents (50,000 a year) and occupation-related mishaps (6,000 per year)." (16) Facts such as these had no chance to come to light during the single truncated hearing on HJR2 at the tail end of the 1999 legislative session.

Myth No. 3: Jury verdicts are out of control.

Interestingly, the tort reformers have not cited a single case or authoritative study in support of the purported need for a constitutional amendment. They cannot because facts do not support them. Large verdicts are rare in Oregon. The number of claims and the size of awards continues to fall. An insurance industry executive recently noted, "Bodily injury liability severity claims have tended downward from an average of about $8,566 per claim in early 1994, to just under $8,000 per claim earlier this year. That's an improvement of about 6 percent. Since frequency and severity combine to form the average loss costs, these combined trends have reduced the pure premiums by about 16 percent in the last five years. (17) The insurance industry is financially healthy and profitable. The insurance industry has been profitable before, during and since the so-called insurance crises of the mid 1980s. Nationwide, the insurance industry averages profits of 18.5 percent annually. The average is over 60 percent higher in Oregon, where the average annual insurance industry profits are 30.4 percent. (18) Awards in Oregon are "less than half the national average." (19) The size of personal injury verdicts in Oregon has been on the decline since at least the early 1990s. (20) State and national statistics both show that the number of tort cases has fallen steadily throughout the 1990s. Fewer than 5 percent of all civil cases are tort cases (which includes business and bodily injury claims). (21) As has been well-documented, practically the only area of tort law increasing seems to be those cases filed among businesses. Members of the American Tort Reform Association and the Product Liability Alliance (another tort reform group) file a lawsuit every 12 1/2 minutes. (22) Tort reformers ardently oppose any kind of limits on prices, profits and executive compensation limitations but eagerly seek to place arbitrary limits on what they owe to tort victims and survivors.

Myth No. 4: The Lakin decision means that the courts can never control civil cases.

The Lakin decision may be the only decision of the Oregon Supreme Court invalidating a tort reform measure. The court has previously upheld the damages cap in wrongful death actions. Greist v. Phillips, 322 Or 281, 906 P2d 789 (1995). The court has also upheld the limitation on all compensatory damages in tort claims against public bodies. Hale v. Port of Portland, 308 Or 508, 783 P2d 506 (1989). The court has held that a statute of ultimate repose was constitutional even though it cut off a claim before the victim was injured. Josephs v. Burns & Bear, 260 Or 493, 502, 491 P2d 203 (1971). The statutes limiting defamation recoveries have also been held to be constitutional. Davidson v. Rogers, 281 Or 219, 574 P 2d 624 (1978) and Holden v. Pioneer Broadcasting Co., 228 Or 219, 365 P 2d 845 (1961). The court is required by the constitution to review the size of damage awards by juries and must reduce excessive verdicts. Honda Motor Co., Ltd. v. Oberg, 512US 415, 114 S Ct. 2331, 129 Ed 2d 336 (1994), on remand Oberg V. Honda Motor Co., 320 Or 544, 888 P2d 8 (1995). The decision in Lakin did not question the court's decision in these or any other case upholding the constitutionality of tort reform legislation.

Myth No. 5: Oregon Supreme Court overstepped its historical judicial role.

The proponents of Measure 81 complain that the Supreme Court's decision in Lakin radically altered the relationship between the branches of government. The American Revolution was spawned in large part by Parliament's enactment of the Stamp Act and Navigation Act, which denied the colonists the age-old English right to a trial by jury. The Declaration of Independence, written by Thomas Jefferson, cites that the Parliament and the King were "depriving us, in many cases of the benefits to trial by jury" as one of the major grievances leading to the movement for independence. The proponents of Measure 81 seem to have forgotten about the U.S. Constitution and Bill of Rights. The Seventh Amendment guarantees that "the right of jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any court of the United States, that according to the rules of common law." During the period of time between the signing of the constitution and the passage of the Bill of Rights, Thomas Jefferson stated, "I consider trial by jury as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution." Both the proponents and the legislature forgot the Oregon Constitution and its bill of rights, including the right to an open and uncorrupted court and the "inviolate" right to a jury trial. It has been a hallmark of the American civil justice system at the national and state level, to guarantee the right to jury trial. With the Lakin decision, the Supreme Court made Oregon the 26th state to invalidate some portion of tort reform. Only a few states have ignored their constitutions and upheld caps on damages in common law claims. The separation of power provisions in the Oregon constitution, like other state constitutions and the United States Constitution, entrusts the rule of determining the amount of damages and making sure that juries fairly determine damages to the hands of the judicial branch. Two years before, the Declaration of Independence was signed, John Adams, the great American patriot and second president of the United States, commented, "Representative government and trial by jury are the heart and lungs of liberty. Without them we have no other fortification against being ridden likes horses, fleeced like sheep, worked like cattle and fed and clothed like swine and hounds." In 1956, Winston Churchill commented, "The jury system has come to stand for all we mean by English justice. The scrutiny of twelve honest jurors provides defendant and plaintiff alike a safe-guard from arbitrary perversion of the law." Measure 81 is potentially one of the most radical power grabs in the history of the state of Oregon. It would give the legislature unfettered power to determine the amount of damages in any type of case even in a particular case. As the Ohio Supreme Court stated when it invalidated Ohio's 1980s tort reform legislation, "The general assembly has circumvented our mandates, while attempting to establish itself as the final arbiter as the validity of its own legislation it has bodily ceased the power of constitutional adjudication." (23)

Conclusion

ABOUT THE AUTHOR

Portland lawyer Robert J. Neuberger's practice focuses on personal injury, wrongful death, products liability, malpractice and admiralty. He can be reached at rjn@robertneuberger.com.

ENDNOTES

1. Hunter and Doroshow, Premium Dec The Failure of "Tort Reform" to Cut Insurance Prices (July 13, 1999) at 15. <return>
2. "Health Care Reform---Bushes Insurance Cap Plan is a Failure," The Seattle Time, May 16, 1991. <return>
3. Liability Week (July 19, (1999). <return>
4. Business Insurance (July 19, (1999). <return>
5. AM Best, Best States/Line Reports an American Medical Association: Physician characteristics and distribution in the US. <return>
6. Id. <return>
7. United States Congressional Budget Office, Economic Implications of Rising Health Care Costs (October 1992) 4. <return>
8. Best's Review, December 1992, at 30 and 33 and Health Care Financing Administration (HCFA) of the US Department of Health and Human Services (HHS) (1992). <return>
9. Health Care State Rankings 1999: Heal and Care in the 50 United States. Moran Quincy Press. <return>
10. Id. <return>
11. Id. <return>
12. The Oregonian (Nov. 30, 1999) main page. <return>
13. Id. <return>
14. The Sunday Oregonian (May 9, 1993) 16. <return>
15. Id. <return>
16. Id. <return>
17. Keynote address of Terrie Troxel, President and CEO of the Insurance Institute of America and AICPCU, Claims Magazine (www.claimsmag.com). <return>
18. National Association of Insurance Commissioners, Reports on Profitability 1997 (published in 1999). <return>
19. The Oregonian, Nov. 12, 1997. <return>
20. The Sunday New York Times, business section (Feb. 8, 1989) 4. <return>
21. National Center for State Courts, Examining the work of the State Courts, 1993 (Executive Summary). <return>
22. Citizen Action Study, 1995quoted in Consumer Attorneys of California, November 1996. <return>
23. As quoted in the ABA Journal (October 1999) 28. <return>
24. The Sunday New York Times, business section (Feb. 8, 1998) IV. <return>