...And Who Pays?

As the final insult, the judicial revolution in tort law has placed its heaviest burdens on the poor. Under the risk spreading rationale, companies must pass a huge liability insurance premium on to all consumers equally. This has the same regressive distributive effects of a sales tax, in that this premium is a higher percentage of the income of low-income individuals than high-income individuals. Moreover, the insurance premium added to the price of the product tends to be highest on otherwise inexpensive versions of products, which are made from lower quality materials. It is the poor, of course, who prefer these less expensive options. The system also penalizes the poor by pushing some less expensive products and services out of the market entirely.

On the receiving end, the system is equally regressive. The poor are less likely to recover than others because they are less likely to have the money or the familiarity with the legal system to take their claim to court. If they should win, their damage awards are the smallest, since they have low levels of both current and predicted future income. [82] Thus the final indignity of the insurance rationale is that, to the extent it works at all, it serves as a subsidy to the rich, rather than the intended poor.

Though the poor bear a disproportionate share of the burden, they do not bear it alone. The direct cost of liability insurance in America has now topped $80 billion a year. [83] And all of us suffer when safe contraceptives and other drugs are kept off the market for want of insurance, when people drive less safe used cars because new cars are too expensive, or when research and development in airplane design halts because liability insurance is not available for new products.

We can, of course, blame the messenger. We can cross our fingers and hope this is a one-time aberration caused by high interest rates, though the evidence suggests it is not. Or we can begin fundamental reform of the system.