Tort Reform Can’t Muster Enough Signatures to Get on Ballot in Oregon.

July 15, 2008

Tort Reform is an initiative sponsored by largely by insurance companies with two main goals: Blocking access to the courts and reducing awards to people who have been found at trial to have been wronged. In Oregon an initiative fell short of the required number of signatures to get on the fall ballot.

This initiative was a very clever attempt to deprive many of the people who cannot afford a lawsuit from bringing claims by putting limits on contingent fees. The initiative would limit fees to 25% for awards of $25,000 or less and then to 10% of amounts in excess of $25,000. This would effectively deprive many of any opportunity to have a trial because lawyers would not be able to afford many contingency cases.

Here is what is not commonly known. First, contingent fees are most commonly charged in personal injury cases to people who cannot afford a lawsuit. Without a contingent fee, they could not go to court.

States already have limits on what a lawyer can receive as compensation. If a person thinks that a lawyer received too much as a contingency fee, they can ask the bar association to review the fee. Bar associations are rather diligent about this and at least in Washington have the power to reduce the fee but they will not increase it. The bar association does in fact reduce fees it determines were too high.

The purpose of the initiative is to further reduce compensation so as to deter lawyers from taking cases that promise hard work but involve limited damages.

This cap would put the injured person at a severe disadvantage in most lawsuits with insurance companies which routinely pay a great deal more for defense than what the plaintiff’s lawyer could hope to receive. It would tilt the playing field rather dramatically in favor of the insurance company.

I would guess that a fairly routine trial takes at least 200 hours of time for a lawyer. It is not uncommon to invest 500 hours or more on a trial. So for a lawsuit that involved a claim that was $25,000, the lawyer would receive a maximum of about $35 an hour if he or she was successful. If the claim was challenging, perhaps half of that, maybe less. If they lose, then there is no compensation. Meanwhile insurance companies pay their litigators four to eight times that amount (sometimes more than that) on an hourly basis.

In order to cover overhead, personal injury lawyers would have to limit the number of smaller contingent fee cases they took on.  On the face of it, the only segment of society that would benefit by this would be the stock holders of the insurance companies. To the degree that people who cannot afford a lawsuit are denied an opportunity to go to court (this would be most of the middle class), the society as a whole is destabilized.

It would be potentially economically disastrous to take challenging cases that took a lot of time, even if the claim was substantial. On a claim for $1 million the maximum allowed to a lawyer would be about $104, 000. If it took 1000 hours to win, then the lawyer would receive about $100 per hour. This is about half to a third, or less, of what an experienced trial lawyer would charge. It would be enough to cover overhead and leave a profit but it would be devastating to most firms to lose or receive a smaller award. So the economic incentives would not be high for taking on a large challenging case.

Again, the system would work much better and insurance companies would save significant a amount of money if they settled cases promptly instead of being highly adversarial from the beginning. John Ladenburg’s statistics from Pierce County show this quite clearly. (See my entry on June 20.) Instead of trying to create a system that prejudices the rights of injured people, the insurance companies could achieve actually a better result for their bottom line by just investing their efforts in prompt, reasonable settlements. This would have the added benefit of reducing the role of trial lawyers in the system and thereby give more money to the injured person.

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Protect Yourself When Buying a Home in Washington

July 3, 2008

Making an offer on a house is such a tense experience and so pregnant with the possibility of surprises and disappointments, that I thought I’d discuss residential purchase and sales transactions outside of the foreclosure context.

Tuesday the Washington Court of Appeals published a case out of Pierce County that illustrates some of the confusion in the Courts about a buyer’s remedies. The decision is called Stieneke v. Russi. The facts are not terribly unusual but they represent every buyer’s fear.

The Steineke’s found a home they liked in Gig Harbor, signed a purchase and sale agreement with an inspection contingency and then received a “Seller’s Disclosure Statement” (sometimes called form 17), as required by law. The inspector gave clean bill of health, but said that he could not inspect the roof. The disclosure statement said that there had been no difficulties with the roof and the seller, Russi, assured them that he had not had any problems with the roof.

The buyer’s closed, had the roof pressure treated and began enjoying their new home . . . until it rained. Their house was inundated causing damage to the interior. The trial court had no problem awarding damages but the Court of Appeals was not so generous.

The court’s analysis strongly disfavors buyers. It held that there was no breach of contract because the contract did not say anything about the roof and it had an integration clause that said there were no other agreements. The Seller’s Disclosure Statement said that it was not part of the contract so the false statements in that form could not create a breach of contract. The court indicated that there might be no remedy for false disclosures because of the wording on the form.

The buyers also sued in tort, claiming misrepresentation and fraud. The Court held that the economic lass rule (which I’ll discuss another time) barred any remedy for misrepresentation. Fraud has a very high standard of proof and the Court of Appeals sent the case back to the trial court to determine if the standard of proof for fraud had been met.

Hopefully there will be review of this case by the State Supreme Court because there is some conflict among the cases as the the legal status of the disclosure statement.

Meanwhile buyers ought to guard against this happening to them. The first rule of thumb is to always get a seller’s representations in writing. The lesson of this case is that all writings, including the seller’s disclosure statement should be made a part of the contract. This can be done on the face of the statement.

Finally, scrutinize those statements and follow up with questions and require written answers.


Frank Chopp Kills Another Consumer Bill

March 10, 2008
The State Speaker of the House, Frank Chopp, refused to let the Homeowners’ Bill of Rights out of committee, thereby killing it. The bill, sponsored by Democrat Brian Weinstein, who is quitting after this session, merely gives homeowners what they think they already have. It merely causes Washington law in the narrow area of responsibility for unsafe or negligently built residences to conform with common sense. It eliminates only one of many immunities enjoyed by the construction industry and then only with respect to homes.The bill is very simple. It says that someone guilty of the defective construction of a home is responsible to the homeowner if the defect causes damage to the home. Not all that controversial is it?Speaker Chopp killed this bill last year and did the same thing again this session. There is absolutely no legitimate reason for this bill not to be law. There is no policy reason, no legal reason, no legitimate reason of any kind.

Speaker Chopp killed this common sense measure to preserve the immunities of the construction industry, maintaining the burden of defective construction on the back of the absolutely innocent consumer. Mr. Chopp believes that by catering to BIAW, the building industry lobby, the Democratic Party will curry the favor or at least avoid the opposition of one of the State’s most influential special interests.

By the way, frequently homeowner’s property insurance does not cover this loss, leaving the consumer completely out of luck.