Legal Commentary

Here is a legal/policy question that is not yet a big election issue but will surely soon become one: Should punitive and other tort damages be capped by the feds?

McCain urges such caps for medical malpractice damages as part of his health care reform plan. By contrast, in 2005, Obama has rejected caps on med mal damages, instead co-sponsoring (with Hilary Clinton) S. 1784, a bill to protect physicians from liability if they disclose their past medical errors and enter into settlement negotiations.

Who is correct, and why?

One reason to oppose such caps is federalism: Tort law is a traditional area of state concern, and attitudes towards punitives vary based on region, with some regions dominated by a populist, anti-corporate attitude reminiscent of Andy Jackson (e.g., Oklahoma, the southern Midwest, East Texas, Alabama). Why not let different regions go their different ways and not impose the ideals of ATRA on the nation as a whole?

The obvious response is that, when juries in East Texas impose liability on corporations in Michigan, they externalize costs on outsiders in a way that is undemocratic and inefficient.

But does this traditional ?avoid externalities? argument apply to medical malpractice? The choice of law rules for med mal are unusually well-settled: The law of the place of performance of the services applies. So any potential defendant can avoid the costs of a pro-plaintiff state?s tort law simply by not providing services in that state. In other words, unwilling defendants do not get dragged into unfriendly jurisdictions against their will in med mal. States thereby internalize the costs of their tort regimes: Pro-plaintiff states have higher malpractice insurance premiums and fewer doctors.

Given the clarity of the choice-of-law regime in med mal, isn?t this an especially inappropriate area for federalization? If the answer is ?yes,? then are not both Obama and McCain wrong to suggest the federalization of much of this area of law? To be sure, Obama avoids caps on damages. But why impose any federal limits on med mal liability? Why can?t the states handle this area?