Causation and the Insurance Rationale

Historically, the role of tort law was to redress attacks on an individual’s personal interest. Such attacks could take the form of assault and battery to one’s person, damage to one’s land or property, or other traditionally recognized claims such as fraud or interference with business relationships.

If a harm was caused, the tort-feasor’s intent was irrelevant. However, the tort-feasor had to cause the harm. Because the term "cause" can be stretched to extremes – one might go so far as to say that the mother of a criminal, having bore him , is the "cause" of the perpetrator’s crime – courts further developed the idea of "proximate cause". By proximate cause, the courts intended to limit defendants to those who had been the direct source of the injury. While this was a concept that could always be stretched and tested by extreme cases, for most people, in most cases, the ideas of "cause" and "causation," retained meaning.

The revolution in judicial thought that is at the root of the present liability insurance crisis has cut a wide swath through traditional jurisprudence governing products liability, including such tort doctrines as negligence and such contractual theories as warranty and privity. However, its fundamental goal, and result, has been to destroy the idea that liability should be based on causation.

The assault on Causation stems from a school of legal thought that began to grow to prominence in the years prior to World War II. Heavily promoted by Fleming James of Yale Law School, this school held that the fundamental role of the tort system was not to right individual wrongs, but to guarantee that the unfortunate victims of accidents received compensation from some source. [26] In this scheme of things, fault was not as important as guaranteeing compensation from some source, whether at fault or not.

This idea not only seemed compassionate, but since an injured person imposed costs on society, in the form of lost work days, medical bills, and social welfare services, assuring a source of compensation regardless of fault seemed efficient. Of course, these crusaders missed the obvious – forcing an innocent person, corporation, governmental unit, or non-profit organization to pay for an accident it did not cause is hardly a standard of compassion that most Americans would accept in their ordinary dealings. Since compensation must come from somewhere, the cost is still imposed on society – the burden is just shifted around. As we shall see, the process of shifting this burden has serious, harmful1 side effects for insurance markets, and ultimately, for progress and innovation.

The new judicial theory called for the creation of a new system of third party insurance, paid for by manufacturers through their liability insurance. According to the theory, these manufacturers will spread the cost of this insurance through society via incremental price increases. These ideas first entered the formal legal system in a concurring opinion by Justice Roger Traynor of the California Supreme Court in the landmark case of Escola V. Coca-Cola Bottling Co.:

[P]ublic policy demands that responsibility be fixed wherever it will most effectively reduce the Hazards to life and health inherent in defective products... Those who suffer injury from defective products are unprepared to meet its consequences. The cost of an injury and the loss of time or health may be an overwhelming misfortune to the person injured, and a needless one, for the risk of injury can be insured by the manufacturer and distributed among the public as a cost of doing business. [27]

This type of thinking – that industry should play the role of societal insurer, is often mistakenly referred to as strict liability, i.e. a system in which the negligence, or lack thereof, of the manufacturer is not taken into account. However, it goes far beyond a system of strict liability, for strict liability takes into account causation, whereas the theory outlined by Traynor focuses only on compensation. Or, as one proponent of strict liability has commented, under the system outlined by Traynor in Escola, "why should any plaintiff ever lose." [28] And, indeed, the natural result of the belief that the tort system’s purpose is merely to determine how to compensate victims of accidents is the present liability crisis.

When a manufacturer can be held liable for an accident it did not cause, it is virtually impossible to predict its liability in advance. The insurer’s ability both to classify risk and to predict future liabilities hinges on predicting the probability of its activities causing harm. But if causation doesn’t matter, these liabilities hinge on the entirely whimsical, unpredictable luck of the lottery as to how many times, and for what amounts, the manufacturer will be chosen as the one to pay the accident victim’s bills. To adjust for this lack of predictability, insurers impose an "uncertainty tax" on their clients or , if the uncertainty seems too large, simply pull out of the market.

In the remainder of this section, we wi1l examine some of the key changes in tort law over the years, by tracing their introduction into Michigan jurisprudence. In the field of torts generally, and products liability more specifically, Michigan courts have usually been followers rather than leaders. In other words, most of the changes which have so twisted our tort system were first enacted by state and federal judges outside of Michigan, and only later filtered into Michigan law. Nevertheless, most of these theories have since been adopted by Michigan courts, either explicitly or implicitly, so that tracing the development of Michigan law also gives us a good feel for what has occurred nationally. Michigan’s theory of "Products Liability," discussed below, is superficially unique from any other state’s, but in fact, does nothing more than combine and/or rename many of the national trends in products liability. In each area we will attempt to show how these changes have benefited plaintiffs at the expense of defendants, and more importantly, we will attempt to explain why these changes create further difficulties in insurance markets.