A Gulf Oil Spill Tort Primer
As lawyers gear up to begin their lawsuits against BP, we can use the episode to reflect on the basic principles of tort law. These principles are often ignored by both advocates and opponents of tort reform.
The most important distinction that should govern tort law is the difference between parties with a pre-accident relationship and those without it. In the most controversial forms of tort action- product liability and medical malpractice- the parties have a pre-accident relationship. that means they can decide beforehand what form of liability will govern if there is a mishap. For example, the parties could agree that victims will not sue for "pain and suffering" damages in the event of an accident.
Such an agreement would be possible precisely because the parties are in a relationship before there is an accident and potential victims (who are customers or patients) would benefit from lower prices associated with lower liability. This is why states that have passed medical malpractice reforms actually have lower accidental death rates. Lower tort liability leads to more physicians in emergency rooms which results in lower death rates. the benefits from increased availability of physicians outweigh any incentive to take less care.
Why BP should be held fully liable for all economic damages
In a classic third party tort, however, there is no such prior relationship. Automobile accidents are of this sort. Drivers and pedestrians can't bargain in advance over standards of care, or prices and damages, so arguments for reducing damages are less powerful and tort reform is less appropriate. (There are arguments for no fault insurance, but these are based on reducing transactions costs.
The Gulf spill is exactly this second class of accident -one with no pre-accident relationship. Hotel and restaurant owners and fisherman had no contractual relationship with BP before the oil spill, so arguments generally made by tort reformers have little weight in this case. There is little justification for limiting economic damages. And since most or all harms were economic, there is little scope for pain and suffering damages.
Two other legal concepts are worth noting: strict liability and negligence. Under strict liability, the injurer is liable no matter what level of precautions were taken before the accident. Under negligence, the injurer is liable only if he took insufficient care.
The advantage of the negligence standard is that it provides potential victims with incentives to take sufficient care. For example, if drivers were strictly liable for car accidents, then pedestrians might be less careful. But for the Gulf spill, strict liability is appropriate, since there was nothing the victims could do to avoid the spill. Strict liability will also give other well owners proper incentives to be careful in the future.
Lawyers will undoubtedly seek punitive damages against BP. But these are mainly appropriate in cases where an injurer might have been able to hide his culpability. When some injurers escape liability, those who are detected must pay larger damages to deter others. In the Gulf spill, there is no chance of BP concealing anything. Everyone in the world knows that it caused the spill. In this case there is no advantages of punitive damages.
Both proponents and critics of tort reform should agree: This is a case where full economic damages are appropriate but punitive damages should not be pursued.
By Mr. Paul H. Rubin, professor of economics at Emory University.
