NOW THAT REPUBLICANS HOLD POWER IN CONGRESS, WHAT TORT REFORMS WILL THEY ENACT?

Tort reform is coming to Washington, but what will it look like?

President Bush made "tort reform" a centerpiece of his governorship in Texas. And now the mid-term elections have produced a House of Representatives and a Senate that sit squarely in Republican hands. The question now is, what will the Republicans do with the tort system?

In this column, I want to explore two forces that I predict will work to slow down the forces of tort reform. The first is the complex nature of the tort system. The second is that, while Republicans may have received some kind of mandate in the mid-term elections, it was certainly not a mandate for tort reform - which was probably the last thing on voters' minds, lagging far, far behind terrorism and the economy.

How the Tort System's Complexity Will Slow Reform

First, one must understand that tort reform is not a monolithic issue that divides the two parties. This is because "tort reform" is not a monolithic issue in the first place.

The trial lawyers have done their best to position themselves as the prime sponsor of the Democratic party. But that does not necessarily mean the Republican party views every opportunity to limit the right to sue as a chance to hurt the Democrats' bank balance.

Remember, many Republican congressmen are lawyers, and even those who are not tend to be quite well-informed about the complexities of our system of civil litigation. They recognize that hurting their political opponents cannot be the only justification of policy.

The Terrorism Reinsurance Law's Amendment Shows Republican Are Savvy

A good illustration of this principle in action is what happened during the endgame for the federal terrorism reinsurance law, which the House approved last week and will be sent to the lame-duck Senate soon.

As I explained in an earlier column, the law provides a massive subsidy to the insurance industry and their corporate clients. It also, in its original form, forced anyone with a lawsuit "arising from" a terror attack (including, for example, the manufacturers of faulty rescue equipment) to sue in federal, not state court - and, importantly, to give up their right to sue for punitive damages. But last week--after the election--the White House gave up the demand that plaintiffs give up the right to sue for punitive damages, allowing the bill to be amended to omit this last provision.

For anyone who believes the Republicans' goal is to enact sweeping tort reform, as quickly as possible, the move was a puzzling one. Bush could simply have waited until January, when the Senate would be in safe hands, and bill with the punitive damages limitations could be rammed through.

From the beginning, many observers viewed the punitive damages limits in the insurance bill as a theatrical gesture - designed more to humiliate the trial lawyers than to rationally promote the goals of the federal reinsurance scheme. In light of this, I suspect Republican senators counseled Bush that it would be better for the country (and the White House) to get the bill passed as soon as possible after Election Day than to wait until January.

From their perspective, merely taking some early first blood from the trial lawyers likely wasn't worth the wait. With the risk of terror attacks looming, their first priority had to be to settle the background law in the event of a catastrophe, so that legal chaos would not accompany real-world chaos.

Medical Malpractice and Asbestos Reform May Be Imminent

Of course, the White House will not be shy about offending the trial lawyers once January comes - especially if what is at stake is a bill important to their agenda. Right now, the most prominent such legislation is the House bill designed to limit medical malpractice liability. Another good example is a proposed bill addressing the asbestos litigation crisis.

The medical malpractice bill's central feature is a national cap on "pain and suffering" damages of $250,000. Bush forced a similar bill through the Texas legislature when he was governor. In the fall, the federal version of the bill was passed by the Republican House, but killed by the Democratic Senate.

The bill represents a serious challenge to the trial lawyers. Until now, the trial lawyers either prevented such laws from being passed at the state level or, if the law was enacted, successfully moved state supreme courts to invalidate it on the ground that it violated state constitutional guarantees to "open courts."

Another legislative priority for the Republicans is a bill that would limit the right to sue for injuries caused by asbestos. But this issue is less divisive than it appears: The asbestos litigation crisis has grown so serious that there is broad support across the Senate for at least some sort of reform.

Many on both sides of the aisle now realize that, under the current system, the most deserving victims (for example, those with painful and terminal cancers) will receive almost nothing. Meanwhile, many unimpaired plaintiffs, who only suffer from fear that they will someday become ill, receive outlandish compensation.

Besides the victims' woes, for many Republicans a primary reason for reform is provide relief to Corporate America. Over sixty companies have declared bankruptcy because of asbestos liability.

Without A Mandate For Tort Reform, Republicans Must Proceed Cautiously

Besides the complexity of the issues, and the politics that surround them, what else might limit or guide the direction of tort reform in the next Congressional term?

The second major constraint on the Republicans' freedom of action is not practical so much as it is tactical. The Republicans must remember that the mid-term elections were in no way a referendum on tort reform.

The truth is that most American voters have no strong opinions at all about such esoteric matters such as federal versus state jurisdiction, damage caps, and the like. And in this election, especially, these issues were immensely remote from what voters did care about - the ailing economy and national security in the face of terrorist threats.

That doesn't mean that tort reform is not of concern to voters, however - just that it was not directly at issue in the election American voters do have strong intuitions about fairness and retribution. As a nation, we are still quite populist, in the older sense of the term.

That is to say, there is still a widespread suspicion of people who cheat (that is, make a lot of money without earning it), and a widespread desire to punish those who break the law. The Republicans should (and, if Karl Rove is at the helm, probably will) remember this in deciding which tort reforms to support.

An Anger Over Corporate Scandals That Has Not Yet Found Its Target

To see what I mean, think about how lucky the Republicans were that they were not more fully associated with the corporate scandals of this summer. Despite half-hearted attempts by the Democrats, voters were not convinced that one party or another was "responsible" for Enron, WorldCom, and, by extension, the casino atmosphere that permeated the securities market before the recent crash.

An argument has been made that tort reform was a cause of the financial crisis - but the Democrats were not in a good position to make it. Trial lawyers argue that the Securities Litigation Uniform Standards Act of 1998 created a fertile environment for wrongdoing. (The Act was designed to reduce "frivolous" litigation by making it harder to bring class action suits for securities fraud.) But it was President Clinton who signed the Act into law

To avoid being the focus of the anger, the Republicans must be careful that the tort reforms they propose cannot be portrayed as "covering up" or minimizing corporate wrongdoing. Americans are a retributive people, and they cherish the opportunity to vent those feelings of retribution, whether against street criminals or corporate shysters.

What Reforms Can We Expect, From A Practical Standpoint?

What does this mean in practical terms? It bodes well for medical malpractice tort reform, which protects physicians. It is hard to argue in favor of the current skyrocketing premiums for medical malpractice insurance. And the members of the group protected by damage caps--physicians--are hard to portray as callous wrongdoers, even when they are proven to have acted with gross negligence.

But what about reform that protects HMOs from suits for denial of service? That is a very different issue. People hate HMOs - which tend to appear in the media only when they deny coverage in outrageous unjust situations - and they are easily vilified. Unless carefully circumscribed, limitations on the right to sue HMOs could be viewed as insulating insurance companies from responsibility, and allowing them to place profits over medical safety.

The truth is, it may be safer for the Republican Congress to not address the issue of suits against HMOs at all - or to address it on the side of the HMO-insured patients, a large class of angry voters who would see themselves directly affected by reform.

Similarly, any wholesale attempt to limit the liability of manufacturers in products liability suits might blow up in the Republicans' face. The recent $28 billion verdict against Philip Morris, won by a single smoker, as well as the $290 million punitive damage award against Ford recently upheld by the California Supreme Court, show how deeply ingrained the sense of retribution is in the average American. In both these cases, the plaintiffs argued to the jury that the corporate defendant had lied and concealed important safety information.

In between these two extremes, and of great practical importance to this country, is the reform of the asbestos litigation system. Voters will likely see reform as fair if - and only if - the Republicans couple limitations on the right to sue with a comprehensive government-sponsored compensation scheme, as was done for the families of 9/11 victims in the September 11 Victims Compensation Fund.

Vast numbers of Americans claim they are fearful of developing an asbestos-related disease. As a result, the public is likely to accept a plan limiting the right to sue that also acknowledges that asbestos is now a public health problem that should be handled by the government, not the tort system.

In contrast, limiting the right to sue without offering plaintiffs and potential plaintiffs anything in return could be a political disaster. So could proposing a plan under which the government seems to be letting corporations off the hook, while the taxpayer pays the price. Only a balanced plan that leaves substantial responsibility with the companies can be enacted without a heavy political price.

Right now, the Republicans think that they have convinced a majority of Americans that it is the trial lawyers who have taken advantage of the system and have broken the basic rules of fairness. They might be right, but they need to be careful. The public's sense of fairness is very subtle and can turn quickly against the Republicans if they are not careful about how they use their newly won power in the debate over tort reform.