City Journal, Winter 1993

Sue City: New York's Stake in Lawsuit Reform

By Walter Olson

[with two sidebars: "Those Crazy Cases"; "Professional Victims"]

* * *

New York City's estimated payout last year on personal injury claims, $229 million, is a striking figure even in a town known for big numbers.  It's more than the city spent on parks and libraries put together, or on district attorneys and the probation department combined.  To use a different comparison, New York City now expends as much on tort claims as its personal income tax would raise from a community the size of St. Louis.

City Comptroller Elizabeth Holtzman's most recent annual study of municipal claims makes it clear that litigation has become, in and of itself, an important contributor to New York City's budget woes.  Sensible lawsuit reform, thus far blocked in Albany, could provide the city with enormous cost savings without costing upstate taxpayers a dime and without denying reasonable compensation in cases of genuine merit.

New York City's experience is of wider significance as well, as a reality check in the ongoing national debate over legal reform.  Is litigation on the rise, burdensome to society, and often productive of injustice, as some of us have argued?  Or is it relatively stable in volume, easily absorbed into institutional budgets, and mostly rational in outcome, as some lawyers and academics have claimed?  The New York record sheds light on the answers.

Mapping the Sidewalks

Data on the number of claims the city pays in a given year can be misleading.  They can count a big, complicated suit as if it were a routine $2,000 slip-and-fall.  The raw numbers on settlements and verdicts do, however, reveal one interesting trend.  As Figure 1 [not online] shows, they shot up from 1979 to 1981 but then plummeted, so that by 1991 they were barely above their 1977 level.  The boom and bust arose from claims over allegedly defective sidewalks and roadways, so-called pothole cases.  These soared, then plunged after the passage of a 1980 law providing that the city would be liable only for road and sidewalk defects it knew about.

What happened next is a tribute to the determination and self-interest of New York's trial lawyers.  They set up the Big Apple Pothole and Sidewalk Protection Corporation to comb the streets for visible defects which could be plotted on a map and presented to the city as legal notice (and kept for handy reference in client interviews).  After bottoming out in 1984, pothole claims began surging back.  Other claims rose modestly during this period.

Data on money flows provide a far better indication of litigation's impact.  Here, as Figure 2 [not online] shows, the rise in volume has been steady and impressive.  Between 1978, a low year, and 1991, outlays rose 329 percent after adjusting for inflation.  The projected figure for 1992 is $223.1 million -- 55 percent above the sum for 1982, considered a very high year.

A few cautions are in order.  The low figures of the late 1970s might have reflected a policy of stalling so as to push fiscal damage into later budgets, while the early-1980s payout figures might have been artificially inflated by a process of "catch-up".  The same sort of maneuver might explain the sequence of high-payout 1985 after low-payout 1984.

Even so, the surge in volume is unmistakable.  It emerges even more clearly if one holds pothole claims aside.  These claims, curbed at least for a while by the new law, declined by 36 percent in inflation-adjusted dollars from 1982 to 1991.  Meanwhile, malpractice claims almost exactly doubled, to $56 million.  (The 1977 figure had been a mere $7 million in 1991 dollars.)  And the catchall category of "other" claims, such as those involving schools, police, parks, and city-owned vehicles and buildings, rose 60 percent in real terms over the same ten years, and has more than tripled since 1977.

Useful benchmarks though they are, these figures fall far short of measuring the true cost of municipal liability to city residents.  They don't count Transit Authority payouts, which ran $45 million last year, or outlays for claims over property damage, contract disputes and the like.  Also excluded is the cost of the city's legal defense, as well as the burdens placed on city employees other than lawyers: Doctors, to take an obvious example, can invest a great deal of time and energy answering suits.  Nor do the figures take into account the chilling effect on the provision of services, as when city hall, wary of liability, tells community groups they cannot use vacant city facilities after hours.

"Bad-Baby" Lawsuits

One-third of the city's payouts, up from one-seventh in 1978, derive from claims of medical negligence.  The lawyers who file such suits have been on a roll for a long time: A few years ago Albany reported that medical payouts in the state had risen by 30,000 percent in nominal dollars since the 1950s.  In 1987 more than twice as many malpractice suits were filed against the New York City government as against the entire medical profession in Japan.

Amid constant reports of chaos and worse in city hospitals, it would be easy to assume that this these payouts, costly though they are, are probably well-founded.  Indeed, a much-publicized Harvard study of New York hospitals found that around one percent of hospital admissions in the state led to some sort of negligent harm, and that most injured patients did not file claims.  But the Harvard study also reported, amid far less publicity, that in the substantial majority of cases where patients did file suits experienced reviewers could not find negligence.

A huge share of the city's malpractice payouts, it turns out, go for a single category of case: "bad-baby" suits alleging brain damage to infants.  (Reports from elsewhere in the country confirm that this pattern is not unusual.)  Estimates from Holtzman's office show payouts of at least $38 million for bad-baby cases in the obstetrics area alone in 1992, up sharply from $21 million in 1990 and half the $76 million overall projection of malpractice payouts this year.  Of the 16 medical claims that won more than $1 million in 1991, 12 involved infant brain damage.  (Two others alleged adult brain damage, and one each paralysis and wrongful death.)

A child suffering from cerebral palsy or mental retardation can tug at anyone's heartstrings, including jurors', and some lawyers avidly pursue such clients.  In 1985 a former lawyer testified that he paid staff members of rehabilitation centers up to $2,000 to provide him with confidential files on children with cerebral palsy, then passed the names on to more than twenty law firms who solicited families as clients.

Plaintiff's lawyers have plenty of theories as to who is to blame for such conditions.  Most commonly, they blame obstetricians for failing to use electronic fetal monitoring (EFM) during delivery -- or, if they used EFM, for failing to read indicators properly -- and for failing to perform a caesarean section on the mother, or failing to do so quickly and skillfully enough.  Neurological deficits often manifest themselves some time after birth, and some of these are tied in court complaints to medical care or vaccinations administered in an infant's first months.  One big 1991 case ($1.5 million) blamed cerebral palsy on improper emergency-room treatment of a 7-month-old, and another ($1.25 million) attributed severe brain damage to the side effects of immunization at a city health clinic.

New York City has paid out huge sums, far exceeding $100 million, on such theories.  But there is, to say the very least, grave scientific doubt about most of them.  In a comprehensive report three years ago, the National Institute of Medicine quietly but devastatingly rejected the leading bad-baby theories.

The "current medical liability crisis is epitomized by the frequency with which obstetricians are being sued because the birth of a baby with brain damage is alleged to be the result of malpractice," the institute declared.  Liability fears, the Institute found, have contributed to doctors' continued use of EFM and to a persistent rise in cesarean section deliveries.

"Yet though the causes of neurological impairment in infants are largely unknown, birth-related events do not appear to be strongly implicated."  For example, analysis of birth data has "found no factor arising in labor or delivery to be a major predictor of cerebral palsy".

EFM, though costly and intrusive, has shown "no demonstrated benefit" in this area.  Even experienced doctors cannot agree on how to read the fetal health data it generates, which ensures that the conduct of presiding doctors can be second-guessed later in court.  It continues in use even though "for almost a decade randomized clinical trials have failed to demonstrate its efficacy.  The incidence of cerebral palsy, still popularly and erroneously believed by many to be the result of fetal asphyxia, has not been reduced by EFM".  Nor are caesarean deliveries underused, as lawyers have argued so successfully in court; in fact, they are shockingly overused.  The monetary cost of EFM and related caesareans may top $750 million a year nationwide, the Institute said; and of course there are much worse than monetary harms as well.

Other research has tended to calm earlier fears that vaccination may be an important contributor to brain damage. ("Whooping Cough Vaccine Found Not To Be Linked To Brain Damage", the New York Times reported in 1990 about the best-known of such controversies.)  Yet lawyers continue to press suits on all these theories.  Each jury is a new factual authority, and under current rules of scientific evidence, as Peter Huber notes in his book Galileo's Revenge, lawyers are free to introduce testimony from experts whose views diverge from the scientific mainstream, and to cash in on verdicts based on that testimony.

"Let the Government Pay"

Most jurors try to set aside emotion while threading the bewildering maze of facts, but there's no denying that juries come out in very different places after hearing similar stories.  [See sidebar.]  The average jury award in the Bronx is reported to run $1.2 million, double the rate in adjacent Westchester.  An internal city report a few years ago found suits against the city with Bronx venue brought twice the amount of those filed in Brooklyn and Queens and two and a half times that of Staten Island.  One result, says former city Corporation Counsel Victor Kovner, is "blatant forum-shopping" as plaintiff's lawyers seize on any excuse to get suits into their favored borough.

Although New York is self-insured, so that awards come directly out of tax revenues, city hall can seem like a distant and impersonal deep pocket to many residents.  It's not hard to view personalized medical tragedies in the same way a talk-show caller is supposed to have described the savings-and-loan bailout: "I don't think the taxpayer should have to pay for this sort of thing.  I think the government should pay for it."

New York City officials say they sympathize with injured plaintiffs and are willing to pay in a wide range of cases.  But they want a system where payouts are more predictable, and where less money is raked off by middlemen.  They've proposed transferring suits against the city from the general state courts to the state Court of Claims.  The most salient feature of the Court of Claims is that it uses judges alone, without juries, to decide cases, a practice that city officials hope would mean more predictable and geographically uniform (and, perhaps, generally lower) payments.  For claimants, an important benefit would be that Court of Claims cases are resolved much faster than general court cases, the current average being eighteen months as opposed to four years.  The city could still be sued on all the same legal grounds as now, and there would not be any set ceiling on damages.

It's hard to paint this as a radical, untried scheme: As Corporation Counsel O. Peter Sherwood has pointed out, a pedestrian who gets hit by a state or a federal truck already goes to a court of claims.  It would not seem to shock the conscience to extend the principle to a city truck.  One might expect Albany lawmakers in particular to see some merit in the claims-court format, since they have adopted it for suits against their own level of government.  Yet "we had a terrible time finding even one sponsor, because the trial lawyers are so strong," says Lorna Goodman of the city law department.  (Eventually, Assemblyman Herman D. Farrell Jr. agreed, as a favor).  In committee, the bill won but a single vote.  "I can't conceive of how the trial lawyers have so much power," says Goodman, "but they do."

Signs of Hope

Litigation against the city has become a vast industry.  Even if no one filed another claim, officials estimate that the existing backlog of unresolved claims would set the city back a cool $2.1 billion.  And trial lawyers are always looking for new action.  They recently won a $2 million verdict against the city on behalf of a child who had allegedly eaten lead paint chips while living in a city-owned apartment seized from a landlord for back taxes.  With the city's enormous real-estate holdings, it's not hard to see the potential for mass-producing such cases.

The hopeful side, if there is one, is that New York is ahead of many cities in acknowledging its crisis as such.  The Dinkins and Koch administrations have both worked to call public attention to the city's tort problem.  Former Corporation Counsel Kovner called it "extremely serious and escalating".  Corporation Counsel Sherwood describes the need for reform as "urgent".  And Comptroller Holtzman calls for "tort reform and broader citizen education about the cost of claims to the public," which would "require the support and cooperation of, among others, the judiciary and the legislature".  In addition to its Court of Claims plan, the city has proposed replacing bad-baby suits with no-fault payments for mentally impaired children, an idea Governor Cuomo has backed.  City hall has also joined with a national tort reform group to post subway signs reminding riders who pays the bill for lawsuit abuse.  ("You do!").  Presumably it would take a lot of these signs to counteract the countless "1-800-LAWSUIT" ads on the other side.  Still, the city's trial lawyers got plenty upset.  They got even more upset when the city came out in favor of limiting the "contingency fees" they could charge on the largest awards.

All this has helped to make New York City an important (if, in Albany, little-heeded) voice within the wider movement for liability reform.  Many other legal reforms would be helpful to the city: judicial scrutiny of expert-witness testimony, which could curtail bad-baby and other cases that rest on a flimsy scientific basis; stronger sanctions against wrongful suits and legal tactics (New York civil procedure is notoriously lax on this front, allowing abuses that would be soundly chastised in the federal courts); renewed ethical controls on the legal profession; and, somewhere down the line, at least the germ of a "loser-pays" principle, so that plaintiffs would cease to view suing as a no-lose adventure, and so that the city and other defendants would have a good fiscal incentive to settle those claims that were truly meritorious.  For the sake of the city's solvency -- and of justice itself, which suffers when the law becomes an abusive game -- the day of reform cannot come too soon.

* * *

Those Crazy Cases [sidebar #1]

In recent years New York City juries have voted:

  • $9.3 million to a man who fell on the subway tracks while inebriated and lost his left arm.  Another track totterer was voted $6 million, while a would-be suicide who jumped on purpose got $1.2 million after appeal.
  • $9 million to a plaintiff shot and wounded at a social gathering by an off-duty police officer.  The officer claimed he had been cleaning the gun, and the jury found the act to be within the scope of the officer's employment.
  • $4.3 million, upheld on appeal so far, to a criminal shot by police after the brutal mugging of a 71-year-old man on a subway platform.
  • A million dollars, reduced to a quarter of that on appeal, after deciding that the city's highway and signs were more to blame for a fatal crash than a drunk driver going the wrong way on the Hutchinson River Parkway.
  • $65 million for the loss of much of a woman's large intestine after an alleged misdiagnosis.
  • Half a million dollars, reduced to $85,000 on appeal, for a broken foot in a slip-and-fall.

  • Plaintiff's lawyers point out that the majority of such cases get reduced or overturned on appeal or in other post-verdict litigation.  (Of course, they do their best to resist such reductions.)  For example, courts cut the $65 million intestinal price tag to a putatively more reasonable $3.2 million -- still enough to outfit one hundred hospital rooms to prevent TB contagion, a task the city has been putting off as too expensive.

    By most accounts, only a few juries go "crazy".  But city negotiators have to factor in that possibility when deciding whether to settle an otherwise weak claim.

    * * *

    "Professional victims" [sidebar #2]

    * * *

    Walter Olson is a senior fellow at the Manhattan Institute and author of The Litigation Explosion.

    For further reading: Richard Miniter, "Under Siege: New York's Liability Ordeal" (Manhattan Institute Civil Justice Memo series), January 1996; Allen R. Myerson, "Soaring Liability Payments Burdening New York", New York Times, June 29, 1992.

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