How tort reform helped crack down on polluters
In the war against environmental degradation, politicians and pundits all-too-often rally behind grand initiatives with colorful acronyms. But what if large reductions in toxic releases could be achieved through smaller pieces of seemingly unrelated legislation?
Sure, “tort reform” doesn’t conjure up images of brave eco-warriors restoring the Love Canal. But state-level reforms designed to rein in runaway-litigation in the medical sector may have had the unintended consequence of reducing pollution.
In the early 1980s, a time remembered by many as the zenith of the litigation crisis, the vast majority of states had a liability rule in place known as joint-and-several liability. The rule, designed to ensure that victims are always compensated for wrongdoing, stipulated that any and all parties to the tort could be held liable for the full damages, rather than apportioning liability according to the degree of fault. If a wealthy defendant in a tort case was found to be responsible, he could be forced to foot the entire bill regardless of his degree of culpability.
Plaintiffs realized that suing the party with the deepest pockets was the most lucrative strategy and big companies sometimes had to foot the bill for incidents with which they had little involvement. In a 2009 paper, reseachers Daniel Carvell, Janet Currie and W. Bentley MacLeod explain how, in the medical sector, the deep pockets often were hospitals, who were forced to pay for alleged physician errors.
Unfortunately for manufacturing and waste-disposal companies, the same joint-and-several rule was also applied nationally by Environmental Protection Agency in their Superfund litigation program. Large firms were routinely named by the EPA as “potentially responsible parties” (PRP) to spills and seepages. By contrast, smaller players – who often are judgment-proof, precisely because their size makes them more sympathetic to judges and juries – also were frequently spared the large costs of litigation, even when they were the most culpable party.
The result of this structure is that the tort system increasingly failed to correspond with actual wrongdoing. It should not be surprising that this broken system of incentives led to subpar stewardship. Economists Richard Harper and Stephen Adams argue that “deep pockets” litigation strategies have “shifted the burden of finding additional PRPs onto those firms that the EPA names first,” resulting in “high costs and extended delays in cleaning up hazardous waste sites.” Despite some improvements in recent years, the Superfund program continues to suffer from a second-rate legal structure.
But there’s encouraging news at the state level. When it comes to nongovernmental litigation, states have rapidly abandoned joint-and-several liability in favor of proportional liability. In all but 10 states, punishment is now doled out in proportion to the degree of blame. These reforms are almost always aimed at the health-care industry, but the impact is felt in pollution-intensive industries as well. My forthcoming research suggests that switching from joint-and-several to proportional liability reduces the toxic releases reported by the EPA across industries.
Only firm-level data can document whether this decline has happened because small firms, under proportional liability, are more likely to be targeted and named as co-defendants, but preliminary evidence points in that direction. Controlling for other factors, entry rates are weaker for small manufacturing firms in the aftermath of proportional liability reform. The same effect is absent in states that didn’t adopt reform, suggesting that something is increasing the cost of doing business for the small players. While more evidence is needed, the data are consistent with the idea that small polluters are being forced to pay their share of the damage in these states.
Acknowledging that commonsense measures like tort reform can lead to better environmental outcomes should force us to rethink what it means to be an environmentalist. If being an eco-warrior entails supporting ambitious legislation using federal power to force local results, then success grows more elusive by the day. The low-hanging fruit has been plucked, as federal actions to remove lead from gasoline and require catalytic converters have resulted in huge environmental improvements.
But perhaps the way forward lies in state-level legislation that focuses on less-obvious improvements on the margin. This may mean less colorful acronyms and slogans, but it could ensure cleaner skies and waterways.
