Statute of Repose: A Vehicle for Fraud

January 19, 2008

Washington’s construction statute of repose gives immunity to responsible people for damages that do not accrue until 6 years after the project — whether a bridge, a highrise, earthquake retrofitting or anything other than a condominium, which is 4 years — is put into the stream of commerce. This puts the burden of catastrophes on the victims.

Statutes of repose have been attacked constitutionally in a number of states. The result has usually been that the state legislature — at the behest of the building and insurance lobbies — passes a new law meeting, or appearing to meet, the unconstitutional aspects of the overturned law. Over the last several years the use of the statute of repose to avoid liability has increased. Increasingly we are hearing outcries about the injustice of its application.

In Minnesota a bridge failed killing many people. The local government had paid for a one hundred year bridge but when it failed after fewer than 20 years because of a design defect, the responsible people were render immune from suit by that state’s 10 year statute of repose. Only this summer — after the disaster — did legal professionals express outrage at the injustice of being unable to enforce warranties and representations that were a material part of the purchase price of the bridge.

In New Jersey the Supreme Court is considering a case in which a condominium developer made express representations to consumers knowing that they would rely on them. When these representation turned out to be false, the developer hid behind the statute of repose.

It is terribly hard to find a reasonable justification for Washington’s 6 year statute of repose, particularly when a new building is usually given a useful life of around forty years. Projections, pricing and even tax depreciation are based on the useful life of the building, bridge or other improvement. Despite all this we give immunity to everyone in the construction industry after 4 or 6 years.

The excuse — and it is a transparent excuse — for the law is that it would be too hard to determine the cause of a catastrophe after 4 years in the case of a condomium and 6 years with all other construction. The 4 year condominium law was passed however only because the responsible parties could be identified with certainty and there is absolutely no engineering difficulty determining causation that occurs after 6 years. Furthermore, the burden is on the plaintiff to prove causation so if it can’t be proven the suit fails. It is said sometimes that there might be intervening causes but this too is something that the system is supposed to address anyway before a judgment can be entered.

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Tort Reform

January 19, 2008

The insurance industry and Chamber of Commerce have been resolute in the steady drum beat for tort reform. The “free-market think tank” Pacific Research Institute last March published a “report” assessing the annual cost of the American tort system at $865 billion per year. That’s a couple billion per day! (A number that wildly exceeds the sum of all tort judgments and is mostly attributable to “secondary effects.”) A month ago a Washington D.C. “nonprofit organization” the American Tort Reform Foundation, produced another “report” called Judicial Hellholes. This paper condemns judges and courts that have permitted high damage awards or are otherwise “unfriendly” to business interests. (Washington should be ashamed that it did not even register mention.)

These tort reform arguments are remarkably similar in that they do not make any serious effort to weigh competing interests or examine the nature of the the American people’s interest in inhibiting the action complained of in the lawsuits. It is presupposed that any harm done to business interests is a wrong to be avoided. This is propaganda not reasoning. This is one of those areas where the proponents take such an extreme position that discussion and dialogue cannot be pursued.

PRI’s “research” is a good example of how silly things have gotten. This report takes into account the amount of business lost as a result of lawsuits without considering what sort of business was lost, how the curbed business activities might have harmed society or how the absense of the business practices might have benefited people in general. The tobacco industry of course has lost a lot of money because of lawsuits but not everyone would call that wrong. This drop in profit by tobacco companies is offset by reduced health care costs and longer life spans, both of which are generally viewed favorably. Tort lawsuits have have resulted in a marked, measurable improvement in the environment, something that is favored in most circles. The tort of outrage has been used in Washington to abate racial slurs at work, a laudatory achievement in the eyes of many. Lawsuits substantially increased the safety of automobiles and reduced traffic deaths. Lawsuits are the means by which renegade corporations and corporate officers have been made responsible for criminal and fraudulent activity. They have been the means of recouping losses by stockholders and pension plan members.  There are countless other examples.

I hope some day these issues will be resolved by sane discussion of policy issues in which business interests will be seriously weighed against the interests of society.