Howard Speaks at White House Economic Conference

At the invitation of the White House, Common Good chair Philip K. Howard appeared with the President at the White House Economic Conference on December 15, 2004.

Howard, formerly an advisor on legal reform to President Bill Clinton and Vice President Al Gore, discussed the "hidden costs" of legal fear that "weigh heavily not only on our economy, but on the very fabric of our culture."

"Americans in all walks of life--teachers, doctors, nurses, ministers, Little League coaches, as well as business managers and investors--no longer feel free to do what's right," Howard said.

Howard's remarks were echoed by George Priest, the John M. Olin Professor of Law at Yale University. "We have been developing a culture ... in this country in which it's believed that any conceivable social problem can be solved by litigation," Priest said.

Howard emphasized the need for reliable law to rein in soaring healthcare costs. Forty-five percent of Americans are uninsured, but millions are spent every year on unnecessary tests ordered only to avoid a lawsuit.

A reliable system of justice would also foster improvements in patient safety, Howard said. Leading patient safety experts from across the country have joined Common Good's bipartisan coalition because they know that the "distrust of justice has chilled professional interaction" needed to address mistakes. "Doctors and nurses are scared to speak up for fear of being legally responsible."

Our public schools, too, are being "paralyzed by law," Howard said. "Teachers in inner-city schools have lost control of the classroom, in large part because of fear of litigation."

Howard made special note of Common Good's Over Ruled study, which found--among other things--that it can take up to 105 days to suspend a disruptive student in some public schools.

Howard called on the White House and on all Americans to remember "why law is the foundation of freedom." Reliable law gives people confidence that "justice will protect their reasonable judgments."

Remarks by Common Good Chair Philip K. Howard

Thank you, Mr. Secretary, and I really appreciate the open-mindedness of you and the President in allowing a practicing lawyer to join your panel. (Laughter.)

We forget sometimes why law is the foundation of freedom, and it is because it's supposed to be reliable and people can count on it in their daily lives. They make some choices in a free country to move forward with their lives, whether it's to make investments or deal with others or volunteer on the playgrounds or in Little League. Law is supposed to be there to affirmatively defend reasonable conduct.

The law in this country is no longer reliable, and the cost of it, I submit, is far greater than anything any of you have talked about today.

And so, let's go to medical liability. We have heard, and you are going to hear again, how horrible it is when our best trained professionals, positions, get driven out of business. One out of seven obstetricians in this country are no longer practicing obstetrics. One out of four people in Pennsylvania last year had to change their doctors because they either quit or moved out of the state. That's because of the direct cost of litigation in this country. But that's only the beginning. The cost of health care is out of control. We can't even talk about containing the cost, but who's going to not order an MRI that somebody demands if you might get sued for $10 million for not doing it.

This group, Common Good, that I founded a couple of years ago hired Harris Poll to survey all the doctors. Four out of five said that they admitted to ordering tests that they didn't think were needed. It is now part of the practice to waste money. We can't afford that. We've got 45 million people who don't have insurance. We have -- and more every day because small businesses can't afford it. You can't contain costs, you can't provide health care for everybody until you have a solid foundation of justice that people can count on.

Quality -- all of the quality experts have joined our coalition because their studies show them that the quality of health care in this country has suffered, and it has suffered because doctors and nurses no longer feel comfortable speaking up. They're afraid they may be taking responsibility.

So, you get -- and at the same hospital where you get miracle cures, you'll have some mistake in a prescription, where somebody gets 500 milligrams, instead of five milligrams. Studies are all -- tragedies occur because people are afraid to speak because they don't trust the system of justice. It's defended of the basis that it holds bad doctors accountable. Well, in fact, it does just the opposite. The current system of law -- and it's true with unreliable law, generally -- favors whoever is in the wrong.

And so if you're a doctor -- if there's a doctor who is no good, and every hospital has this story, you try to fire them, what do they do? They hire a lawyer. They sue, or they threaten to sue. And the typical result is that they're allowed to keep practicing because people don't want to go through the five years of litigation for it to happen.

So what is needed here is far more than just -- what is needed is to restore reliability. We need the rule of law back again. And I subscribe to everything that George -- my friend, George Priest, said over there, and the other panelists, as well. We need to look at this not as a problem of just a business, or just a doctor, we need to look at it as a problem for the whole society and what it means to live under the rule of law in a free country. Thank you. (Applause.)

Remarks by George Priest, John M. Olin Professor of Law at Yale University

Thank you, Mr. Secretary. Let me give you a little history about the expansion of liability. This problem of lawsuit abuse and the problem of excessive litigation is really pretty much a modern problem. Prior to the 1960s, tort law was really a back water. It was dominated by principles of corrective justice; litigation was minuscule. But ideas began to change, and there came to be a conception that developed that tort law could be turned into an instrument of public policy, according to which tort judgments, damage judgments, could be used to internalize costs -- the harms the people had suffered -- to persons and to the companies that had caused them.

And so the idea was, by internalizing these costs, there would be incentives created to make products safer, to make other services safer, and also to provide a form of insurance for individuals that had suffered some type of harm.

The other advantage, or the thought that there was an advantage, was that this could be done universally. That is, safety regulation, direct safety regulation by agencies, applies only in a very few number of industries. Using tort law as a regulatory mechanism, on the other hand, could be applied to all activities in a society, and so it could become universal. And based upon this conception, courts began to expand liability. They began first in the products liability field, but then it expanded to other areas more generally.

Now, I believe that this conception, this idea of internalizing costs, has had some beneficial features, has had some beneficial effects. That is, I think that it did enhance safety and reduce harm over some range. But the problem that has arisen, and it really is a problem that arose several decades ago, is that there are limits to the extent to which tort law and litigation can be effective in increasing safety and reducing harm. But the problem is that this conception of internalizing costs doesn't recognize those limits, and so even though those limits have been exceeded, courts have continued to expand liability in area after area. And when liability is expanded beyond the point where it can really effectively encourage greater safety, beyond the point where these harms can practicably be reduced, there are two forms of harmful societal effects that result.

The first is -- and it's the one you were talking about, Mr. Secretary -- that the cost of litigation has to be passed on in the prices of products and services, exactly as you say, it's a tax. And it's a tax that every citizen and every consumer has to pay on every product and service that they buy. Just to give an example -- and you mentioned this, too -- in today's litigation environment, auto manufacturers are basically absolutely liable anytime there's a serious accident. They will always be sued and they will always have to settle the case in some way. And what does that mean? That means that auto prices have to increase. That litigation has no effect on safety, it has no effect on the redesign of automobiles -- we have an agency, NHTSA, that is charged with monitoring auto safety. The litigation has no effect whatsoever, it simply adds to the cost. And adding to the cost hurts most severely the low income in the society, because they're the least able to pay these costs and they're the ones that get the least return -- even if they do litigate, the damages they receive are lower than those of other citizens.

Now, in other industries, however, the results are even worse. That is, in some industries, liability has extended -- has been extended to such an extent that the affected parties begin to make investments that are unproductive, that are not necessary, in order to try and shield themselves from liability. The medical industry is a good example. Defensive medicine is, in essence, counterproductive and it's an investment that's made to try and ward off litigation for no useful purpose.

And the consequences of this whole -- of the regime that we've created here is a legal system in which litigation is available with respect to every activity of the society. And worse, I think -- and Phil Howard will talk about this, too -- we have been developing a culture in this society, in this country in which it's believed that any conceivable social problem can be solved by litigation. And so we have litigation trying to deal with every conceivable social issue.

Now, what can be done about it? Well, I think the most fundamental reforms have to come from the courts. It's the courts that created this problem and it has to come from the courts in redefining liability rules. But what that means is it's extremely important to appoint or elect judges who are committed to tort reform. Now, what can -- but there are other things that can be done, and there are some things that can be done at the congressional level and I think the three reforms that the President mentioned are important reforms.

We need class action reform. The rules that were developed -- and they were developed in the 1960s -- with the thought of controlling class actions are quaint today, and there are many courtrooms in which there are no controls on class action whatsoever. Now, the Class Action Fairness Act takes a step; what it does is push these class actions into the federal courts where there is going to be some more control -- but, all respect, it's not a solution. It's going to help -- it's a step that I think is a small step, but it's important -- it's an important step.

I think federal reform in particular industries -- such as in the medical industry -- a reform of medical malpractice is important, too, and it's a promising reform because all of the doctors and all of us know that we have to control health costs, and all of us know, too, and can see easily what the harmful effects of expanding liability against needed medical services is. So medical malpractice reform is important, as well.

Third, and you mentioned this, Mr. President, and I agree entirely, Congress can attempt to do something about asbestos litigation. Asbestos litigation is an extraordinary phenomenon. I've been studying it the last couple of years. It's just extraordinary. Everybody knows that there are hundreds of thousands of cases that have been filed and that there are millions more that are going to be filed. But I think few know exactly what kinds of cases these are. And let me just give you one example illustrative of what this problem is.

A short time ago in California, a man recovered $4.5 million against an asbestos -- a company that had used asbestos. And the only exposure this man could document, the only time he had ever been exposed to asbestos was one day when he was the child when his mother and grandfather took him to their church, whose ceiling was being remodeled. That was the entire exposure. One day of asbestos, and he recovers $4.5 million. This asbestos litigation is a vast system of redistribution within the society. And, indeed, by the standards of that case, every American is a victim of asbestos. But I -- but I certainly would say this: It is not a sign of a healthy society when every citizen can qualify as a litigant and file suit.

So I think there's -- there is an important need for legislation in many different areas to deal with this problem of excessive litigation. These reforms are -- the three reforms that the President has talked about are going to be helpful. I think, again, they are small steps, but they're steps in the right direction, and they're steps that it's important to take and that every American should support.

Thank you.