Tort Reform
Price of Paradise · Hawaii Public Radio · aired 1995-03-26
Guests: Bert Sakuda (attorney); Linda Gilchrist (President, Hawaii Insurance Council); Paul Carrington (Visiting Professor, University of Hawaii School of Law)
Duration: 1:08:55

[00:00:00] Randall Roth: This is Rand's Radio show. We're being broadcast live Sunday morning, March 26th on KHPR 88.1 FM and KKUA 90.7 FM. Die hard fans can enjoy the show a second time when it's rebroadcast this evening at 8 o'clock on KIFO, that's 1380 AM. Our topic today is tort reform. It's a controversial matter that's been getting a great deal of attention lately, both locally and in Washington D.C. With me in the studio to discuss it are three experts with different perspectives and I think opinions. Linda Gilchrist is an insurance company executive and president of the Hawaii Insurers Council. Burt Sakuda is a partner in the law firm of Cronin Fried, Sekiya, Kekina, and Fairbanks and concentrates in personal injury litigation representing plaintiffs. Paul Carrington is the Wallace S. Fujiyama Distinguished Visiting Law Professor at UH and for many years was dean of the Duke University School of Law.
[00:00:58] Randall Roth: Well, our topic today is tort reform. Paul Carrington, could you tell us briefly what in the world is a tort? And why would we want to reform it?
[00:01:07] Paul Carrington: Well, simply stated a tort is a wrongful act. And for us, torts is a system of compensation for various kinds of misfortunes. In fact, it's our principal method of taking care of people who've been victims of of mishaps of one sort or another. If you ask why we would reform it, it is that [unintelligible — audio glitch] cost of fixing blame is often very high in relation to what seemed to be the benefits of of blame fixing. So we Americans more than any other people, I think, in the world are into blaming one another for whatever mishaps occur, and it does cost a lot of money.
[00:01:47] Randall Roth: Okay. In Washington D.C. We've got this thing called the the Contract with America. Can you give us a feel for what that means with respect to tort reform?
[00:01:58] Paul Carrington: Well, it's a a series of relatively minor items and I don't suppose you want to get into the details of the contract of America but I guess I would offer it is my view that for most of their changes they are interest group driven. They do not really reform the system but make it less unfavorable to particular categories of people that seem to have a a claim on the Republican leadership in the House of Representatives.
[00:02:26] Randall Roth: Okay. Burt Sakuda, any thoughts on torts or tort reform?
[00:02:30] Bert Sakuda: Yes. Tort reform in general is an attempt to buy interest groups to limit the recovery by people who are injured in civil wrongs, that is hurt by the wrongful act of another, and at the same time to limit the liability of companies or insurance companies that pay for these. That's tort reform. By and large, the major areas of tort reform today nationally are with products liability, medical malpractice, and what we call punitive damages, that is for extreme conduct. Here locally, the big issue is auto insurance and workers compensation.
[00:03:09] Randall Roth: Real briefly, auto insurance here in Hawaii as I understand it what we have today is oftentimes called no-fault, but what's being considered in the legislature right now is called pure no-fault. Can you give us a quick history of what we have now and and why it isn't pure no-fault?
[00:03:28] Bert Sakuda: Yes. There is actually no American state that has a pure no-fault automobile insurance program. Pure no-fault means that everyone's injuries are compensated by their own insurance company regardless of fault. Let me give you an example: if I hit you, I rear-ended you Randy, your insurance company would pay for your medical bills and your lost wages. You would recover nothing from me no matter how badly I hurt you. On the other hand, most American states have a combination of either no-fault and tort or pure tort. In that situation, Hawaii, for example, has a combination. If I hit you, your insurance company will pay for your medical expenses and lost wages. If you are seriously hurt, you then have a claim against me or my own insurance company.
[00:04:20] Bert Sakuda: Here in Hawaii, we're looking at a variety of different proposals. One proposal by the Senate was to have a pure no-fault program. That means that there would be no more claims by people who are hurt. Instead what would happen is you would have your own insurance company pay for your medical bills and your lost wages. The House program gave you a choice. It said you could choose no-fault, but if you didn't want to have your rights limited and you did want to have a recovery in case you were seriously hurt, you could also choose that program. There would be a difference in cost however.
[00:04:54] Randall Roth: So in a way, when we say tort, that's like saying fault. We're going to figure out who's at fault. And when we say no-fault, we're saying forget about the tort approach. We're going to compensate people who are injured whether or not somebody else was at fault.
[00:05:11] Paul Carrington: It may be useful to think of fire insurance as a comparison. Fire insurance is a no-fault system, that is to say there are hundreds of thousands of house fires in America every year. And for the most part they are compensated, but they're compensated by the owner of the house who bought a fire insurance policy. And we don't worry too much about how the fire got started.
[00:05:36] Randall Roth: Well Linda Gilchrist, we've had a couple lawyers give us some background on tort and and no-fault and that there's something big going on in Washington D.C. that we're going to come back and talk a bit more about, and we've got some things going on here in Hawaii in the legislature that again we'll come back and talk some more about. What's your perspective as an insurance company executive? What's going on so far as tort and tort reform is concerned?
[00:06:02] Linda Gilchrist: Well I think from the insurance company perspective, when we talk about tort reform, basically what what we have seen really is a evolution in the in the tort system, the legal system over the last 30 or 40 years. And when we talk about an evolution, what I'm saying is it used to be that the tort system was much more predictable, I think, than it is today. The difficulty that insurance companies are having with the scenario today is that it's it's we turn around there's a lot of new torts that are being created. And even the old torts that we see uh they're used much more frequently today, which makes it very difficult for the insurance companies to predict the losses that are going to occur under their their policies, whether it's automobile policies, general liability policies, medical malpractice policies, product liability policies, or whatever.
[00:07:04] Linda Gilchrist: So the whole system as far as we're concerned is up in it's an upheaval. Paul talks about the fact that we've um we seem to be in a situation where we're trying to blame each other much more often. And that's true. That's what we see in the insurance industry, and that comes back to higher claims, more claims, and higher costs of those claims, and more un-predictability in the system which then makes premiums go up, and it creates a system for business and the community as a whole, which gets to be very difficult to manage and very difficult to work within.
[00:07:44] Randall Roth: Okay. Um, what about this contract with America Paul? Can you give us one or two specific examples of how the system would be changed if and I think this is actually called the the piece of the contract that deals with what we're talking about today is called the Common Sense Product Liability and Legal Reform Act of 1995. Who could be against that?
[00:08:07] Paul Carrington: Well, it's hard to be against common sense, isn't it? Uh, and there are features of the common sense law reform movement that I can identify with and say make make a fair amount of sense. Let me identify one that rather appeals to me and that's an initiative that comes from the drug companies but their ideas that they should not be exposed to punitive damage liability where the product that they have sold is one that has been approved by the Food and Drug Administration. And as I say, that strikes me as a very sensible provision. I don't know that the FDA always gets it right, but if you've had a drug approved by the FDA or a device approved by the FDA, then it's also a little hard to to allow a jury to speculate that well, they were they knew very well they were creating terrible hazards for somebody and they ought to pay punitive damages.
[00:09:00] Randall Roth: Linda, I assume that you would support that and basically you would say that that we can keep insurance premiums down if we've got common sense provisions like that. Is that correct?
[00:09:11] Linda Gilchrist: Oh, we absolutely support it. We also feel that you know there's um real danger in the United States today because our tort system when you compare it to what goes on in the rest of the world, we are much more litigious, we have far more attorneys, we have a far higher cost for our tort system than other countries do. For example, the amount of money that our business in this in this country pays for their liability insurance in other nations they pay about 2% of what our businesses often pay. Now that makes it very difficult to compete on a worldwide basis and certainly punitive damages has a big impact on this whole thing. A lot of times the punitive awards can be 100 times what the actual damages that the plaintiff incurred, so it's very difficult to deal with for business.
[00:10:11] Randall Roth: And what was that 2% figure? Who pays 2% of their costs for insurance?
[00:10:15] Linda Gilchrist: The other businesses in other nations worldwide.
[00:10:19] Randall Roth: What do we pay, what do we pay in the United States? More than 2%?
[00:10:22] Linda Gilchrist: Oh, well, in the United States, a lot of times the when we take a look at the cost of a product over 50% of the cost of that product can be just to pay for insurance cost.
[00:10:34] Randall Roth: Okay. Now, I'm getting some grimaces across the table. Burt Sakuda, our plaintiff's lawyer. What do you think of what Linda has just been saying?
[00:10:42] Bert Sakuda: Well, let me make a few comments first with respect to the drug companies being free of liability if their drug is approved by the FDA. The first point I'd like to make is that the FDA generally does not conduct independent studies of drugs before approving them. By and large, the information that the FDA relies upon is supplied by the drug company. That's one of our major concerns about a provision like this. If a drug company knowingly and intentionally provides either misleading or incomplete information which allows a drug to be approved and that drug is dangerous and the company knows that, we see no reason why that company should not be liable. In fact, there should be liability in order to deter or keep those companies from doing things just like that.
[00:11:31] Randall Roth: So compensatory damages that simply makes the injured party whole, but it doesn't necessarily detour the kind of activity that caused the injury?
[00:11:39] Bert Sakuda: Right. And I I speak here of intentional or exaggerated gross types of conduct as opposed to the simple mistake or oversight.
[00:11:49] Randall Roth: Okay, I want to come back to you in just a moment, Burt. But first, Paul
[00:11:51] Paul Carrington: Well I, that's just a wrinkle in the uh in in the law reform act, as I understand it. Because I think that's taken care of in the present proposed bill that if there is a fraud on the FDA, then the punitive damages liability is not obliterated, as it otherwise would be, and I think that's an appropriate qualification.
[00:12:11] Bert Sakuda: Uh, with respect to products uh being non-competitive worldwide because America has a tort system, that's an argument that just doesn't make any sense. For example, if you buy a Toyota that's manufactured in Japan, it doesn't matter if it's manufactured in Japan. If it's defective, that Japanese manufacturer is just as accountable as GM is for a car manufactured here. Anybody who sells a product in America is subject to the American tort system. It doesn't matter where it's made and therefore it has no impact.
[00:12:43] Linda Gilchrist: Well, Bird is talking about, uh you know products that come into the United States, but what about when we try to manufacture something here and export it into another country? We have to add the cost of our uh tort system onto the price of that product and that makes us very uncompetitive in the worldwide marketplace.
[00:13:05] Randall Roth: Paul Carrington, is our tort system in the United States dramatically different than the system in other countries or is it
[00:13:11] Paul Carrington: It's pretty different. Uh, it and certainly it's true that it is the differences tend to make it less predictable. Uh, there are very few countries that have any sort of analog to punitive damages as we know them. Uh, in other countries, we're the only country that uses a jury to determine whether or not there is liability. Uh, I I'm a fan of the jury system, but it certainly does contribute to the unpredictability of the process. Uh, and there are other features that are unusual. Uh, pain and suffering, for example, is something that we attempt to compensate and most uh legal systems do not attempt to compensate people for hurting. And that's a is a general comment, something one could make about our tort system that it it it one disadvantage of it is that we do pay people to hurt.
[00:13:58] Randall Roth: What's wrong with?
[00:13:59] Paul Carrington: Well, uh the result is that that uh people are often forced to a choice as to whether they want to get well or not. Uh, [unintelligible — audio glitch] increase your damages by uh continuing to hurt. And that that's not good uh uh mental health uh to put people in that kind of stress, but that's uh built into the system of compensating for pain and suffering.
[00:14:20] Randall Roth: You're listening to the Price of Paradise radio show. I'm Randy Roth, and my guests are Linda Gilchrist, an insurance company executive, Burt Sakuda, a plaintiff's lawyer, and Paul Carrington, a visiting law professor at UH who for many years was dean at the Duke University School of Law. The topic is tort reform and your calls are welcome. To ask a question or make a comment, just dial 955-8821. Neighbor Islanders are always invited to call collect, the number again, 955-8821. We have a caller from Waikiki, Steve. Good morning.
[00:14:52] Caller: Good morning, excellent show as usual. Um, I have two very short observations and a modest proposal, which I would like to hear your panel's reaction to. Short observation number one, with regard to Toyota's being responsible being liable for the same damages as any American made car if they are sold in America. This is true. However, Toyota, if it's manufactured in Japan, is manufactured by a manufacturer who does not have the same insurance liabilities toward the workers and toward all of his manufacturing process whilst in Japan, so his costs are lower there. Even though his liabilities are high here, his liability is lower at the point of manufacture. Point one. Point two. There is in the law a thing called the doctrine of the worthless child.
[00:15:36] Caller: I am I am concerned because what this essentially says is that little children who have no earning power and so on, have no real monetary value, and compensation for their loss is generally quite low. So that um uh this doctrine will have to be overcome if we're only supposedly making people whole. Third, my modest proposal. Currently, one of the reasons that lawyers have such a bad image, deserved or undeserved, is the kind of really perniciously the advertising that we get on our television day in, day out for guys that are starting to look a lot like ambulance chasers. Um, and the decision that that lawyer should be freely allowed to advertise I think probably uh did a lot to spur the whole increase in in this kind of litigation.
[00:16:29] Caller: And obviously, for the reason that lawyers are going to make more money if they get more clients and their clients get higher awards, they get it on percentage basis. So my modest proposal is this, since you can't stop people from advertising in a country with free speech. [unintelligible — audio glitch] desire is to have punitive damages in order to keep companies and uh and other uh malfactors from doing bad things and getting away with them, such as putting out drugs on the market that in fact aren't aren't good for the people who are taking them. And so you give enormous punitive damages, which go to the client and to eventually to his lawyer. Uh you are you are punishing the company, but you're also probably increasing the amount of litigation that you're going to get for people who are going to try to get a piece of the action.
[00:17:19] Caller: But if these punitive damages were in the form of fines, they did not in fact go to either the lawyer or to the plaintiff, but went directly to the government as a fine. In other words, Okay, five million dollars. If it reducing the deficit or taking care of court costs in the country in general, we would be we would be achieving what we wanted to punish the wrong doers and also helping ourselves financially and lowering the number of people who just sue because they think they can make a million bucks.
[00:17:50] Randall Roth: Let me get some reactions to your proposal. First, Linda Gilchrist.
[00:17:54] Linda Gilchrist: I'll get off the line. Okay, thanks, Steve. Well, I think Steve has a very good point, and as a matter of fact, we have had some states that have passed laws that say that part of the punitive damage award does have to go to the state. Now, I know of no state currently that says that all of the punitive damage award has to go to the government. But it's it's um certainly makes a good point and I think really, it would be much more fair in the long run.
[00:18:23] Bert Sakuda: Burt Sakuda, I've got a feeling you're not going to agree with that. No, I don't agree. And it's a real simple reason. If you don't have any incentive or benefit for the person who brings such a case at considerable cost and risk, those cases just won't occur. So if you don't give them some piece of the action, they're not going to bring those cases.
[00:18:42] Randall Roth: Okay. Paul Carrington, any thoughts on that?
[00:18:44] Paul Carrington: Well, uh I I think uh there there incentives and their incentives and part of what's remarkable about the punitive damage system as as it has evolved is that sometimes the rewards are spectacular beyond uh the wildest imaginings of uh of most of us uh.
[00:19:00] Speaker 1: And I think that's a that's a problem. and in those cases, it would seem very nice if you're thinking about heavy sanctions on Exxon for the Exxon Valdez matter. It does seem as though some of that might be used to correct the deficit rather than rewarding the the plaintiff in the lawyers in in that case.
[00:19:23] Speaker 2: Okay. Linda?
[00:19:24] Linda Gilchrist: Well, you know, the plaintiff's attorneys always say that the punitive damages are to stop companies from doing a grievous acts in the future. And actually, one of our chief justices of the Supreme Court, Sandra Day O'Connor recently wrote an interesting uh dissenting opinion and pointed out uh I believe, um correctly, that really punitive damages have not stopped actions uh grievous actions from occurring. These, we keep finding more and more of these. I mean, it's it's not it's not working. It's just making um people who benefited from some of these some of these torts uh lucky, they they win the lottery so to speak and the rest of us wind up paying for it, but it's not having the impact that the attorneys always promised us that it will have.
[00:20:16] Speaker 1: Bert?
[00:20:17] Bert Sakuda: Yeah, first, punitive damages occur in a very very small percentage of cases, probably something less than 1% of cases. Punitive damages occur only when there is extreme conduct involved. Second, the most recent studies on the tort system indicate that there is in fact a deterrent effect, roughly equal to about 10%, that is to say accidents generally rise about 10% if you go to a non-tort system.
[00:20:46] Speaker 1: Okay, we have several more callers on the line. Let's go to David from the Big Island. Good morning, David.
[00:20:51] David: Yeah, good morning, Randy. I'd like to comment on the uh no-fault auto insurance. The the beauty of pure no-fault insurance is that we don't carry liability insurance, we simply carry injury insurance, you know, personal injury and property injury or our of our our own property and self. If for for this to work, everybody in the state has to give up the right to sue in an accident because if if one driver is on the road who can sue, then we all have to carry liability insurance. So this idea that the the House has that well, you have your choice whether you you want to carry no-fault or not, uh makes no sense at all because then you put people on the road who can sue, then we don't have no-fault anymore, we all have to carry liability insurance. So I don't know what the House is thinking, I guess they're not thinking, but that that defeats pure no-fault.
[00:21:43] Speaker 1: Okay, let let me get a reaction to that from Linda Gilchrist.
[00:21:46] Linda Gilchrist: Well, actually, the House uh choice proposal is not a pure no-fault uh choice at all. Under uh both of the proposals, there would be situations where the injured party could sue. So it's a very complicated proposal. It It would make it very difficult for the consumer as well as insurance companies to understand and to actually uh work the law to actually determine, you know, when somebody can sue and when they can't sue and when you're going to pay under one type of coverage and when you're going to pay under another type of coverage.
[00:22:20] Speaker 1: So we would continue to have fault and no-fault, it would just be a little bit confusing as to when you were on this side or that side of the of the uh Correct issue. Okay.
[00:22:29] David: You know, Hawaii is in a beautiful situation to have no-fault insurance because we're the only state that doesn't have contiguous states who could drive across our borders. So all drivers in Hawaii are operating under the same rule. You know, we can give up the right to sue and then we don't have to carry liability insurance. Every other state doesn't have that that opportunity because they have foreigners as it were, other state people coming in who do have the right to sue. So they everybody has to carry it. So it won't work anywhere but here.
[00:23:00] Speaker 1: David, let me get uh Bert and Paul's thoughts on on everything that you've said thus far. Bert?
[00:23:05] Bert Sakuda: One of the things you have to consider when you think about going to pure no-fault is why are you going to pure no-fault? The main reason given by most people is cost. The cost of insurance is high rather than litigation. The fact however is that a pure no-fault system is expensive. No-fault states, that is states that have no-fault components have the highest rate of insurance. No-fault is expensive because it pays both parties. It makes no difference if you're right or wrong, if you are at fault, both sides get paid.
[00:23:39] Speaker 1: I want to come back to you, Bert, but Linda just jumped a foot off her seat uh her chair a moment ago, Linda.
[00:23:46] Linda Gilchrist: You know, we always hear this argument that the uh states with very high premiums uh have the no-fault systems, and it And that's true, but we have to go back and find out why they have no-fault systems. The states with high premiums start out because they have they have traffic problems. They have very high density. They have other situations that cause a frequency of accidents and then a severity of of uh damages under those accidents. They may have a very high number of attorneys uh compared to the rest of the states, like California and Hawaii. And they try to solve those problems by coming up with creative systems and no-fault is one of those creative systems. No-fault didn't create the problem. It was just an attempt to solve the problem.
[00:24:35] Speaker 1: Okay. Bert, I'm sure you have a response to that and then we want Paul Carrington's thoughts.
[00:24:40] Bert Sakuda: Yes, the classic example of a no-fault system is workers compensation. And as we all know, workers compensation is completely out of control. That's because it pays for every single injury. The more cases you pay for, the more expensive it's going to be no matter what.
[00:24:56] Speaker 1: Well, we've got everyone wanting to say something. We're going to go to Paul and then I don't want to say anything about the Hawaiian workmen's compensation uh system uh about which I'm quite ignorant. But there the the cost of of uh the tort system in automobile cases uh needs to be measured in a different way. When we buy our automobile insurance, uh we pay a buck for automobile insurance. Less than half of that comes back out the other side as compensation to anybody for for the liabilities. Most of the cost of our insurance is for lawyers and insurance administrators and other people who run that program. Uh with respect, in comparison, I mentioned fire insurance earlier. When we pay a buck for fire insurance, almost all of that comes back out in paying for losses. So overhead cost is very low. And [unintelligible — audio glitch] what the the cost is is in identifying who gets blamed for things and there's no cheap way to do that. And once we decide, we're going to fix blame, that means we're going to hire a bunch of lawyers and have a big argument and do a lot of discovery and have a have a jury trials and other things. And that's that's a real cost.
[00:25:56] Speaker 2: So you would agree with David's proposal that we go to pure no-fault here? Well, I think David has a point, that if you really want to save this cost, then you go to pure no-fault, not and and halfway measures uh probably don't get the job done. Uh, we we've got a number of people on the line. David, I sure appreciate your call, you generated quite a conversation here.
[00:26:15] David: What one last Real quick comment, and I'll go. We are now paying $140 million every year in Hawaii to the lawyers for a service we don't need. On that point, I leave.
[00:26:27] Speaker 1: Okay. Uh and Bert, I'm sure you want to say something about that, but let's uh let's move on. We'll we'll try to come back to that a bit later. James from Kailua Kona, you've been waiting patiently. Good morning.
[00:26:36] James: Good morning. Well, I have a loaded question here. Should anyone be allowed to become a millionaire who is so stupid as to drive a car holding a hot cup of coffee between the legs?
[00:26:48] Speaker 1: Okay. Uh Linda, why don't you give a little bit of background on what James is referring to, the infamous McDonald's case?
[00:26:55] Linda Gilchrist: Well, you know, I'm not sure I know all the details of the case, but basically, from what I understand, we had a woman that went into McDonald's and bought a hot um or a cup of hot coffee. She took it out into her car and was driving down the road with the coffee in between her legs and it spilled and burned her and she uh filed a suit. I happen to agree with James. I think though the the amazing thing to me was not the award because And it was $2.9 million, I believe initially, at least that's what the Initially, right. Right. And the awards, I mean, we've all seen situations where the plaintiff's attorneys have gone in and worked the minds of the juries, and so they come out with these humongous awards. The the thing I found so amazing about the thing was the fact that the woman ever sued in the first place.
[00:27:43] Speaker 1: Well, let's let's ask, Bert, are you guys just too good at what you do? Uh was that a compliment of sorts that Linda just gave plaintiff lawyers such as yourself?
[00:27:52] Bert Sakuda: No, it wasn't. This is really an unusual case. In the McDonald's case, what we had was a situation where a company selling coffee to drive through buyers knowing that these people are going to drive with the coffee, sold coffee at a temperature that is unusually hot. For example, the average home coffee maker set uh makes its coffee at about 135-140 degrees. Other companies, and I won't mention their names, sell their coffee at about 140 degrees. McDonald's sells their company their coffee at between 170 and 190 degrees, knowing that at that temperature, you're going to have extremely serious third-degree burns. They also know people drive with these. What happened was McDonald's had over 700 reports of extremely serious burns before this case was brought. They knew that coffee sold at this temperature was extremely dangerous, yet they continued to do so. That's the reason we had this verdict.
[00:28:55] Linda Gilchrist: I think the reason McDonald's continued to sell the coffee is because they also had a large number of of people that went to McDonald's because it sells hot coffee. There are people that like I I like my coffee hot. And uh there are those of us that traded with them specifically for that purpose.
[00:29:17] Speaker 1: Okay. Paul, do you have any thoughts on this? No, I don't have anything to say about McDonald's. Okay. James? Yeah. Is that it? That's good enough. Thank you. Thank you. We have William from Kaimuki. Good morning, William.
[00:29:28] William: Oh, good morning. I have a question regarding workers comp and tort reform. A friend of mine is going through hell in uh her workers compensation case. Every time she wants medical treatment, the employer just arbitrarily keeps saying no, and she has to go to a hearing. It's just going on and on and on. Now, if she weren't in the workers comp system, as you know, she'd be able to get her medical care from her regular insurance. Isn't there any way to change the system that when someone is injured on the job, due to the negligence of the employer, they can use their own medical insurance to get medical care or have tort reform and allow them to be able to sue so that they can get out of this vicious cycle of always having to ask permission to get medical care. I'll hang up. Thank you.
[00:30:18] Speaker 1: Thank you, William. Uh Linda, it it seems as though everyone is complaining about workers compensation. Uh people who've been injured on the job, whether it was someone else's fault or not are supposed to get treatment quickly under workers compensation and yet we hear people like William describe situations where they aren't getting that treatment. Um, everyone you talk to, whether it's the company and they're complaining about the cost or it's the care provider, the insurance companies, everyone seems to be upset with the current system and yet we have it. What's going on?
[00:31:58] Linda Gilchrist: necessity injury. Uh, now like I said here we're only hearing one side of the story, so we don't know exactly what's happened. But it's true that here in Hawaii our system uh is a muck. Uh we do have some uh problems uh the least of which is that the insurance cost have gone up considerably in the last few years and the insurance companies are asking for even higher uh rates, which is causing great concern with business. Part of the reason for that is because of the benefits that we have given. We have a system that actually encourages in many cases people to stay off work. It is um more beneficial to them to be off work than it is to actually go to work. financially speak- financially. Okay. Uh let me get Bert's thoughts on this.
[00:35:20] Bert Sakuda: I think William makes a good point when he wonders why we can't have our own private health insurance take care of medical bills. A lot of people today believe that's the way to go in Hawaii. Hawaii has almost, not quite, but almost universal health care. We have about 97% coverage. The simple fact is this, property and casualty insurance companies, whether they be workers compensation or auto insurance companies spend about 30% on their overhead. Health insurance companies like HMSA spend approximately 7% on overhead. That means that you'll have a savings of about 23% simply by shifting from property and casualty, auto or workers compensation insurance to private health insurance. The problem that you run into in doing that is finances. The employer will then end up paying under our current system for much of the health insurance, where presently employees also pay for their family co-shares. And so, it's really a money problem.
[00:36:24] Speaker 1: Okay. You're listening to the Price of Paradise Radio Show. I'm Randy Roth and my guests are Linda Gilchrist, an insurance company executive, Bert Sakuta, a plaintiff's lawyer, and Paul Carrington, a visiting law professor at the University of Hawaii. The topic is tort reform and your calls are welcome. To ask a question or make a comment, just dial 955-8821, 955-8821. Earlier, we were talking about the contract with America and Paul Carrington, you mentioned something about um uh an initiative that would change the law with respect to punitive damages. Could you tell us a little bit about the piece of that puzzle that sometimes is called the English rule, has something to do with who pays the cost of of litigation? Uh, Well, the uh the the uh English rule is not uh linked, I think, to the punitive damage uh proposals, but the idea of the English rule, and it's not just the English rule, it's rule almost everywhere in the world, is that uh the loser uh pays the winners attorney's fee. Uh in America, we do not operate that way. Uh everybody pays their own litigation expenses, and uh for the most part in the tort system, it's financed because the plaintiffs uh pay their lawyers on a contingent basis, so they don't pay anything if they lose, and the the lawyers are the ones taking the the risk. Uh trying to apply the English rule in that circumstance means in all likelihood that it's the plaintiff's lawyer who is going to have to end up uh taking the risk of uh of compensating the defense if the plaintiff should fail to win. Is isn't there also a
[00:38:00] Paul Carrington: old twist on this contract with America proposal, where winners would actually pay the attorney fees of the other side if they didn't win more than what they had turned down in the settlement offer.
[00:38:09] Bert Sakuda: Yeah, that's a pretty complicated system. I don't know whether you really want to get into that. It all has to do with encouraging people to accept reasonable offers and they're trying to design a system that will cause people to settle out of court by punishing them if they turn down a good settlement offer.
[00:38:24] Paul Carrington: So, the contract with America wants fewer lawsuits and quicker settlements when you have a lawsuit, that sort of thing.
[00:38:30] Bert Sakuda: Bert Sacuta. Yes, one of the reasons that America's jury system works is because everyone has access to justice. Here in America, we have probably the only country where the ordinary citizen can walk into court and hold a multibillion-dollar corporation responsible for wrongdoing. That's because of the system that allows that person to go to court without the threat of having to pay that company millions of dollars or at least thousands of dollars in fees and expenses if they lose.
[00:39:03] Paul Carrington: So, it's really two-prong. They don't have to pay you, their own lawyer, unless they win, and they don't have to pay the defendant's lawyer whether they win or lose.
[00:39:12] Bert Sakuda: That's right. And the thing we need to look at when we talk about winning or losing is that if you lose a case, that doesn't mean you had a frivolous case to begin with. You know, in every, let's take an ordinary classroom situation. You're going to have some people that have As, other people who don't have As. Just because you didn't have an A doesn't mean you didn't do reasonably well.
[00:39:34] Paul Carrington: Okay. Linda, a quick comment and then we've got some people waiting to ask a question.
[00:39:38] Linda Gilchrist: Well, Bert is basing its comments on the fact that the American legal system works, and I think a lot of us have a, um, real strong opinion that that might not be the case.
[00:39:48] Paul Carrington: Well, let's ask him, Bert, are you assuming our system is working properly now?
[00:39:51] Bert Sakuda: Oh, there's no doubt that there are facets of American justice that need to be worked on. On the other hand, there's very little doubt that our system of justice works in a democracy like no other country. And that's why we don't have some of the civil unrest that you do in other countries.
[00:40:09] Paul Carrington: Quick thought on that, Paul Carrington, before we go to our callers? Well, I don't I don't have a quick thought. Uh, the I don't I think the system does not work very well. But, uh, most of the the complaints I would make about it are not ones that are addressed by any of the Republican, uh, initiative to reform it. So, uh, I it bothers me that we uh pay people to, uh, to suffer. Uh, it bothers me that the tort system, uh, in discourages people from practicing any kind of, uh, apology or forgiveness or any of the kinds of sentiments that most of us feel when an accident happens, you have to get caught up in the blame game.
[00:40:47] Paul Carrington: Uh, the punitives are, uh, irrational and lawless, and that's a problem. Uh, but, uh, I don't see any of those being really, uh, straightened out by what is presently proposed. Okay, we've got a number of people on the line, and so I'll ask them to keep their questions and comments as short as possible. First, John from IA, good morning, John.
[00:41:07] John: Good morning. Uh, before I get into the tort reform, uh, I hope you don't mind if I, uh, uh ask, uh, say to Mr. Carrington that his dismissing of the contract with America as throwing bones to interest groups is, uh, ignoring the voters of America, who really are asking for a change in the way government works in Washington. But, on tort reform, I think there's, uh, two general problems. Uh, one, uh, the system just doesn't demand that people be responsible for their own actions. The example of the lady with the, uh, hot, uh, coffee between her legs is a good one. Okay. And two, nobody's perfect. Doctors, manufacturers, etc. make mistakes, and, uh, if they do it in good faith or their actions are done in good faith, they shouldn't be held liable.
[00:42:00] Paul Carrington: Okay. Thank you, John. Uh, Bert, why don't you give a quick response to John's comments and then I'm going to go to our next caller.
[00:42:07] Bert Sakuda: Yes, the quick response is that the majority of voters never knew about the Contract of America. In fact, I think the percentage was something like 87% of voters who voted for Republicans had no idea that the contract even existed. Um, with respect to the idea of responsibility, that's what we feel the tort system does. It holds people responsible when their own wrongdoing causes an innocent person injury or harm.
[00:42:36] Paul Carrington: Okay. Uh, we have a caller from Miki, Bobby, good morning.
[00:42:39] Bobby: Good morning. Thank you. Uh, why is it an individual who could do moderately active volunteer work, but had to stop doing it due to possible loss of workman's comp. And the question. Thank you.
[00:43:03] Paul Carrington: Linda, did you understand that?
[00:43:06] Linda Gilchrist: Uh, I'm not sure I understand. I I would assume that the, uh, organization that the person was doing the volunteer work for, uh, didn't have coverage for this individual, and if they were going to provide coverage, they were going to have to go out and pay extra money. And if that's the case, a lot of organizations are faced with the dilemma that the volunteer work just does get to be very expensive.
[00:44:11] Paul Carrington: Is that what you were referring to, Bobby?
[00:44:12] Bobby: Well, this individual already had workman's comp for a back injury, but was capable of doing moderate work and wanted to. But then he found out that he couldn't because he lose his workman's comp.
[00:44:37] Paul Carrington: So the system the system is discouraging that person from Exactly, from getting out of the house and doing something light that he could cope with. Okay. Sounds like, uh, something that could be changed or could stay changing. Let's go to another caller, Joe from Miki, good morning.
[00:45:13] Joe: Good morning. Uh, two quick comments. First, about the McDonald's lady. Uh, she had uh $2,000 worth of, uh, medical bills, and when they when her daughter asked McDonald's for that money, they offered her $800, which is the reason she sued. And secondly, uh, when it comes to, uh, large corporations like Exon, they're not phased by monetary, uh, penalties. And should there should be some way to put some of their officers in jail, and I think that would get their attention.
[00:46:06] Paul Carrington: Okay. Thank you, Paul Carrington. Well, I got a comment about Exon Valldies, if that's at the point of reference. I think that's a good example of a case in which punitive damages are quite inappropriate. They'd already spent $3 billion cleaning up that, probably improvidently and not money not well spent, but they did pay it. They'd also paid almost a billion dollars in real costs and to add on another $5 billion in punitive damages, seemed to me to be quite unnecessary and not uh uh an effective use of the system, but just an extravagance. Uh, so, uh, I thought the Exon case was, uh, rather a counterexample. I don't know that anybody needed to go to jail in the Exon Valldies case. Uh, it was a mistake. They shouldn't have done it. They should have paid the consequences, uh, and adverse there should be something adverse about it, but it's not, uh, not a situation in which people ought to go to prison by my lights.
[00:47:07] Paul Carrington: Okay, we have a caller from the Big Island, Graham. Good morning, Graham.
[00:47:11] Graham: Uh, good morning. Uh, excellent show, Randy, as usual. Uh, I a comment to show how far out of kilter the American legal system is is that uh on the Big Island telephone book, yellow pages, there are 32 pages in the yellow pages of attorneys. In the Australian island of Tasmania, with three times the population, there are two and a half pages not of non display attorney's ads.
[00:47:47] Paul Carrington: Let's let's get some thoughts on this. Earlier a comment uh made by a caller was that that lawyers are making too much money, and and Graham is suggesting that there are there are too many lawyers. Um, last week on our show, one of the guests uh commented that there are more lawyers per square inch was the way he measured it per square inch in the United States than anywhere else. Uh, Paul Carrington, you are a national expert on, uh, lawyers and educating lawyers. Um, what are your thoughts on this? Well, there are a lot of lawyers in America, and uh it's a little hard to compare numbers with uh other cultures, because they I mean the Japanese, for example, say they have very few lawyers because they have very few bengoshi, but there are a whole lot of people in Japan who do legal kind of work. Let me let me ask it better. Are we litigious in this country? Uh are there so many lawyers because people are litigious, or are people litigious because there are so many lawyers?
[00:49:00] Paul Carrington: Well, I I think there probably is some effect on the number of lawyers. The more lawyers there are, uh the more litigation is. There's an old saying that a village that has uh has one lawyer needs two, because, uh you got to you got to have somebody there to defend the claims brought by the first, and then when you've got two, then that tends to and there's something to that. I don't I don't think you can dismiss that uh entirely out of hand. If we had fewer lawyers, we'd have fewer lawsuits. But, uh are Americans litigious? Uh yes, but not nearly, uh as, uh as, as, uh off the charts as some of the critics of the system would suggest. Uh I don't uh I don't think uh the number of lawsuits in the United States, for example, is a lot greater than the number in Germany, per capita.
[00:49:23] Linda Gilchrist: Linda Gilchrist, do you have a thought? Well, one of the reasons why the number of lawsuits, um, aren't all that great is because insurance plays such a big role in the whole system. And I think when the insurance company gets involved, that the goal is on the part of the insurance company to settle out of court. Uh, insurers don't like to go into court because the costs rise dramatically. So that keeps the number of lawsuits down, but it does not mean that there is not a very high cost of the system.
[00:50:53] Paul Carrington: So where do you come down on how lawyers fit into this whole thing? Do we have too many lawyers? Is is that part of the problem, or is that just a reflection of something else that's a problem?
[00:51:03] Linda Gilchrist: Well, I think we have too many lawyers. I I think if you look at the 1980s, uh, the number of lawyers that we had in this country grew by over 38%. Uh, that's phenomenal, and why? And and I do believe that those numbers do encourage, um, toward actions.
[00:51:40] Bert Sakuda: One thing to look at is facts. Oh. when it comes to facts, you will find that in small claims court where people are not represented by lawyers, claims have risen faster than in the regular claims court where lawyers are involved. So it is not a matter of lawyer involvement there and yet you have a much faster rise in claims in small claims court.
[00:52:49] Linda Gilchrist: Well, you know, I don't know those stats. I'm not really surprised though because I think we all know that today we have a much better informed consumer than we ever have in the past. Uh, TV plays a very big role in that. The availability of libraries and being able to go in and and do some of your own research plays a very big role in that. And I think more people today are comfortable with going into the small claims court system than they were maybe 20 years ago.
[00:53:17] Paul Carrington: Paul Carrington? I just wanted to say that the number of lawyers has increased greatly during the '80s, but the reason for that was mostly that there was a demand for their services and they kept getting jobs and and people thought of it as a as a useful thing to do, and I don't I don't think uh one can say that uh the increase in litigation is because we we let more people go through law school.
[00:53:39] Bert Sakuda: There's an impression that personal injury cases are clogging the system, the legal system. In fact, personal injury cases account for approximately 1/2 of 1% of all the cases handled in the whole way courts.
[00:53:57] Linda Gilchrist: But that gets back to what I said about the fact that most of those cases do not go to court, they're settled out of court.
[00:54:00] Paul Carrington: Okay. Graham, you initiated a great conversation here. Thank you. Thank you very much. You're listening to the Price of Paradise Radio show. I'm Randy Roth and my guests are Linda Gilchrist, an insurance company executive, Bert Sacuta, a plaintiff's lawyer, and Paul Carrington, a visiting law professor at the University of Hawaii. The topic is tort reform and your calls are welcome. To ask a question or make a comment, just dial 955-8821. We have a caller from Maui, Bob, good morning.
[00:54:26] Bob: Good morning. Um just a cup of quick comments on on tort reform here. Um what I what I think should be happening here is one cap all of um the uh settlements if they go to court, maybe like at $150,000 and make sure that the person is handled for. Make the loser pay for everything because they initiated the thing and and make these lawyers come down with their fees and and make them uh reasonable. I mean, who's the people getting rich here? It's not so much the winner, it's the attorneys.
[00:55:00] Paul Carrington: Well, let's ask Bert Sacuta. Bert, you're a plaintiff's lawyer, and I think the general perception in the public is that that lawyers make too much money and plaintiff lawyers, especially make too much money. What's your reaction to that?
[00:55:11] Bert Sakuda: My reaction to that is that plaintiff's lawyers make money only if they win. And so what you need to keep in mind is you will hear occasionally that a certain person won a million dollars or two million dollars. What you don't hear about are the cases where the person makes little or nothing and in that case, the attorney makes little or nothing. With respect to the idea of capping settlements at $150,000, for example, the problem with an arbitrary cap like that is if you have someone very severely injured, let's say somebody 30 years old who becomes a quadriplegic and that person will need millions of dollars in medical care over his lifetime. Capping the settlement at $150,000 is not only unreasonable, it's just unfair.
[00:55:57] Linda Gilchrist: Well, first of all, when we talk about caps, usually caps are put on things like pain and suffering and on uh punitive damages. They are not put on the actual um monetary damages that the person has. As they if they need the medical care, then generally those things are not capped. But getting back to the fact that, um, Bert was talking about the fact that attorneys only make money when they win, I disagree with that statement and I think his own stats uh speak to the issue. He's saying that very few cases go to court. I agree with that. But there is a big incentive on the insurance company's part and business's part when they're not insured to go ahead and settle what they call these nuisance claims, to give the party something just so that they do not have to go to court. Now, attorneys win in that case.
[00:56:49] Bert Sakuda: You have a lot of nuisance lawsuits? Uh no, I don't think we have a lot of nuisance lawsuits. And the reason is this, because attorneys make money only if they win. If they bring a nuisance lawsuit, first of all, if they lose it, they're not going to make anything. Secondly, there are penalties and very severe penalties for bringing frivolous cases.
[00:57:11] Linda Gilchrist: I I still get back to the case, first of all, he says that only 1% of all the cases go to court. Okay, so the rest of them have to get settled some way. And generally that settlement means that people are paid off so that you don't have to take the case into court.
[00:57:28] Paul Carrington: Well, paid off doesn't mean they were nuisance cases. Uh a lot of meritorious cases are settled. And indeed, in a well ordered system, most people ought to settle because they ought to be able to predict the outcome of their their litigation and if both sides have the same estimate of what is likely to happen at trial, you're not going to have a trial.
[00:57:47] Bert Sakuda: Yeah, I think the most recent and reliable statistics both by the government and the insurance industry itself places frivolous cases at something in the range of 10 to 15%, which means that 85 to 95% of cases are legitimate cases.
[00:58:02] Linda Gilchrist: But you know, Paul made an excellent point. We're not talking just about frivolous cases here. We're talking about legitimate cases in the way they're settled.
[00:58:13] Paul Carrington: Um, elaborate. Well, that the uh Bert says that the only time the attorneys the attorneys make money is when they win. You can have a legitimate case that is questionable, where the parties don't know who's responsible.
[00:58:29] Linda Gilchrist: And you know that ordinarily would go into the legal system to try to make that determination. Very often, even though the insurance company might feel that they're they're right, that their party wasn't responsible, uh, because you don't know what's going to happen in court, just this McDonald's case is a good example, you go ahead and settle that. And the attorney walks away with their fees on those cases without it having gone to court.
[00:58:55] Paul Carrington: I guess the bottom line is you're saying the fast majority of the time the attorneys get paid and so it's a little bit misleading to suggest that that they don't get paid if it isn't a real good case. Correct. Bert, one last comment from you and then I've got another caller waiting. Yes, keep in mind that the attorney has to work for those cases, and there are many cases where the attorney's work far exceeds the amount that he recovers on the case. Bob, thank you for your call. You're welcome. We have a caller from Miki, Larry, good morning, Larry.
[00:59:25] Larry: Good morning, Randy. Um, I I also of course had noticed that there a large number of attorneys in the phone book, but anybody who looks at page 672 can find a growing little section of mediation services that are also offered. And I don't know if McDonald's and the coffee would have ended up in in mediation um or yeah how appropriate it is to the tort um system. But for example, uh all small claims in um small claims court in Hawaii end up in mediation. And I wonder if your callers would comment about how useful that process can be and what hope it may hold to, uh, to get us out of the various problems that you're talking about.
[01:00:07] Paul Carrington: Paul Carrington, tell us a little bit about what Larry's referring to when he uses the word mediation, and share your thoughts on how that impacts tort and tort reform. Well, a mediator is a neutral or disinterested person who undertakes to try to broker a settlement of a dispute without having any coercive powers uh to bring to bear against either party. Uh, it is a system that does have uh some charm to it. It's a relatively peaceable way of uh resolving disputes and in some areas of our lives, it seems to work rather well. Uh, whether it's the solution to McDonald's, uh I I don't know, but uh it is a there's a growing trend in America to use mediators in in a variety of different sorts of ways.
[01:00:50] Paul Carrington: Bert, do you or plaintiff lawyers in general feel threatened by this trend toward mediation? No, we don't. I think we encourage that. Uh mediation and our arbitra
[00:57:00] Speaker 1: ration can, in many cases, be a more efficient and less costly way of resolving disputes.
[00:57:04] Randall Roth: Okay, Linda Gilchrist.
[00:57:06] Linda Gilchrist: I think the insurance industry also encourages mediation and arbitration. And, as a matter of fact, insurance companies that are writing general liability insurance for businesses, often, um, require that the business and their contracts with others include arbitration clauses and mediation clauses.
[00:57:25] Randall Roth: Okay. Larry, what was that page number again?
[00:57:27] Larry: It was page 672. It’s the meeting between the mechanical contractors and the medical equipment suppliers. But I do urge everybody to have a peek there.
[00:57:35] Randall Roth: There you have got a free plug. Thank you, Larry. Uh our next caller is Bob Toyofuku and, Bert, I know you know Bob quite well. Bob, good morning.
[00:57:43] Bob Toyofuku: Oh, hi Randy.
[00:57:44] Randall Roth: Bob, could you, before you make your comment, uh I identify what your relationship is to this whole conversation so far?
[00:57:50] Bob Toyofuku: Sure, Randy. Uh I decide I represent the uh Hawaii Trialers Association at the uh at the legislature and uh enjoying the the conversation so far, but I just wanted to uh I was mentioning to Susie, your spouse, that I just wanted to make a couple comments because there are a lot of uh information coming in on the or misinformation on the McDonald's case. And uh I know Linda and I met Dean Carrington a long time ago, but in the McDonald's case, McDonald's refused to settle for a really minor amount to take care of the plaintiff's third-degree burns, so she had to have skin grafts, and it was a very, very severe injury. And uh uh Linda Gilchrist had mentioned that, you know, the car was moving, but the car was not moving. The car was parked and she was trying to get the coffee uh open.
[00:58:39] Bob Toyofuku: And uh these are the things that sometimes I think that the public read certain things in the paper and they make certain assumptions. But when you go back into the facts of the case, that you find other things uh involved. And what the jury did in that case was calculate the punitive damage award of over $2 million based on the amount of money that was made by the sale of coffee over a 2-day period by McDonald's restaurants uh in the country. And this was reduced uh tremendously by the uh judge of the court, and then after that they finally settled the case uh for what I understand was a much, much lower amount. But thank you for letting me make the comments, Randy.
[00:59:22] Randall Roth: Okay, thank you, Bob.
[00:59:23] Bob Toyofuku: Okay, bye-bye.
[00:59:24] Randall Roth: We're down to the last several minutes. What haven't we said about tort reform that really ought to be said before we completely run out of time, Linda Gilchrist?
[00:59:34] Linda Gilchrist: Well, I would just like to close with the fact that I do think that we need to go in and take a look at our, um, our system, I think, you know, I get back to the issue of the competitiveness of of, um, our United States markets on a worldwide basis. And I think it's a very, uh, difficult issue, but it's one that we need to follow through on and we need to put pressure on our legislators to do something about it.
[01:00:02] Randall Roth: And here in Hawaii, um, is the insurance industry in favor of any specific action by this legislative session or in this session? Well, we are and I think it's it's, um, you know, there are so many things that we're in favor of it's difficult to wrap up in a few minutes. Um, when we talk about tort, if we take it out of the automobile liability system and the workers' comp, uh we're in favor of doing things like eliminating the joint and several uh rule, which means that a party that is is just, um, a small percentage responsible for something like 1 or 2% responsible should have to pay the whole damage award to a plaintiff. We find that very, uh, difficult to deal with and unreal.
[01:00:45] Randall Roth: So there are a number of specific bills in the legislature right now that that you think if they were passed, we in Hawaii would be better off.
[01:00:53] Linda Gilchrist: Yes.
[01:00:54] Bert Sakuda: Parting thoughts? Yes, in Hawaii, it's automobile insurance that's at the forefront and I'd like to leave with this thought: that in the 90s, when most businesses are struggling to keep just even if not just a small loss, we've seen that insurance companies have been seen their profits soar in automobile insurance. The gross profits from automobile insurance has gone from $119 million in 1990 to $164 million in '91, $202 million in '92, and $233 million in '93. We have at '93 a profit margin of roughly 12.2% for the insurance industry in Hawaii when it is at 5% nationally.
[01:01:37] Randall Roth: Linda, real quick response.
[01:01:39] Linda Gilchrist: Well, obviously I can't respond real quickly because, uh time is running out. But but you know, I would like to say he's he's picking on the insurance industry. I'd like to see the same numbers for the plaintiff's attorneys.
[01:01:51] Paul Carrington: Well, the only thing I meant to get back to and did not uh earlier was the observation uh that uh I I guess Bert made that Toyota is uh has the same liabilities as General Motors. And I just wanted to say that's theoretically true, but as a practical matter, there are some some significant differences between trying to sue a foreign manufacturer and a domestic manufacturer. And particularly with regard to smaller products. Toyota is very much in the United States, but if you're talking about some guy out in Thailand who's making hammers uh trying to sue them for making a bad hammer that uh it it is a much more difficult undertaking.
[01:02:27] Randall Roth: I want to thank uh my guest this morning, Linda Gilchrist, the president of the Hawaii Insurers Council; Bert Sakuda, a partner in the law firm of Cronin, Fried, Sekiya, Kakina, and Fairbanks; and Paul Carrington, a nationally recognized legal expert who is a visiting professor at the University of Hawaii. Our show is produced by Susie Roth. The technical director is Jeff Ilardi. Next week, we're going to be talking about government support of broadcasting in the arts. The week after that, we're going to be talking about Hawaii's healthcare system. You've been listening to the Price of Paradise Radio Show. I'm Randy Roth, Aloha.