Hot Coffee, Cold Cash and Torts: Margaret Carlson

(Corrects seventh paragraph in July 13 column to indicate damages caps only apply to medical malpractice suits.)

July 13 (Bloomberg) -- The story of Stella Liebeck came to stand for all that is moronic about our legal system and culture. Liebeck sued McDonald’s in 1994 after spilling a 49-cent cup of coffee in her lap as she was wheeling away from a drive-thru window in Albuquerque, New Mexico. She hit the liability jackpot, winning a $2.86 million jury award as compensation for this minor nuisance.

Of course, coffee is hot. Of course, drinking and driving can be perilous. Of course, you shouldn’t be using the legal system to get rich quick, exploiting a deep-pocketed company like McDonald’s Corp. to pay for your stupidity while forcing the rest of us to pay more for our Happy Meals in order to cover the liability costs.

The Liebeck case, which is the focus of the documentary “Hot Coffee” airing on HBO this month, went viral before there was such a thing. Every network news division covered it, with ABC calling it “the poster child of excessive lawsuits.” The corporate-funded group Citizens Against Lawsuit Abuse mounted billboards advertising: “SPILL HOT COFFEE, WIN MILLIONS: PLAY LAWSUIT LOTTO.” David Letterman featured it on a Top Ten list. It even figured in an episode of “Seinfeld” in which Kramer blisters his manhood sneaking a cup of coffee into a movie theater inside his pants. Like the old lady in the news, he threatens to sue.

This story might be amusing, or outrageous, if true. It’s not. In fact, Liebeck wasn’t driving, her grandson was, and they were parked when the accident occurred. The coffee wasn’t just hot, it was scalding at more than 180 degrees; anything more than 140 degrees is a burn hazard. Liebeck was hospitalized for eight days in critical condition with third-degree burns. She endured skin grafts over 6 percent of her body, including sensitive areas. Rather than rush to court, Liebeck asked McDonald’s to provide $20,000 toward her substantial medical expenses. McDonald’s offered $800. And Liebeck didn’t receive $2.86 million. A trial judge reduced the award to $640,000. Liebeck eventually settled for an even lower, undisclosed sum.

The facts didn’t have to square for the Liebeck case to become the poster child of the tort-reform movement. That movement requires a narrative powered by a steady supply of fresh, unworthy plaintiffs and greedy trial lawyers all getting rich while the rest of us pay for their avarice. Off with their heads. And out with the facts.

Republican political consultant Karl Rove was among the first to see the power of this narrative back in the 1990s in Texas, where trial lawyers seemed to pull the strings of the state judiciary. Rove turned once-sleepy judicial elections into referendums, financed by corporate treasuries, on lawyers lining their pockets at the expense of upstanding citizens and maligned companies.

With help from Rove, and from then-Governor George W. Bush, the pendulum swung too far in reverse. The state now caps noneconomic damages in a medical malpractice lawsuit at $250,000 ($500,000 for wrongful death, adjusted annually for inflation), and the liability cap is enshrined in the Texas constitution. For plaintiffs, the Texas legal system has become such a crapshoot that the faint of heart needn’t apply. If you lose your suit, it is deemed frivolous and you pay the defendant’s legal fees. If you win your case -- but receive an award of less than 80 percent of any prior settlement offer -- you still pay the defendant’s legal fees.

Determined to bar the courthouse door, many states have approved mandatory arbitration clauses that companies bury in the fine print of an invoice, an employment contract or a health insurance plan. Purchase any of these products or services -- a Verizon phone, for example -- and you’ve inadvertently agreed to forgo your day in court. Instead, you accept an arbitration process inherently skewed toward corporate power. (The corporation generally chooses the arbitrator and the venue.) A steep filing fee is often required, and discovery -- the process of gaining access to information relevant to the case -- and judicial review of decisions are limited.

Many tort-reform efforts apply an ax to problems better suited to a scalpel. Consider what happened to a middle-class family in Nebraska, which like more than half the states has enacted liability caps. Colin Gourley was born with severe brain damage after an obstetrician failed to perform a routine ultrasound even after his mother had reported that one of the twins she was carrying was moving less than the other.

The ultrasound wasn’t done until two days later, after which Colin was delivered by an emergency C-section. Colin will never ride a bike, go to school or function on his own. A jury awarded the family $5.65 million, a conservative amount given the lifetime of care that Colin will require. That sum was reduced to $1.25 million due to the state-mandated cap.

Those who supported tort reform to keep pesky plaintiffs like the Gourleys at bay should note that the financial impact may be precisely the opposite of what reformers intended. In the Gourleys’ case, the hospital and doctor don’t have to pay for Colin’s continuing care, and neither do their insurance companies. Who does? The rest of us. Facing an unmanageable financial burden, the Gourleys were forced to turn to Medicaid.

It is no cheaper to see a doctor in Texas, with its stringent liability caps, than in Illinois, which has no caps at all. In fact, according to the Dartmouth Atlas of Health Care, Texas is among the nation’s biggest spenders on health care while achieving some of the lowest-quality care.

A little bit of tort reform probably would’ve been a good thing. But lawsuits are one of the few ways to hold powerful people and institutions accountable. Doctors inevitably resist oversight, just as corporations resist regulation. Judges are a lot better at throwing out frivolous suits than the “hot coffee” horror stories would have you believe. Likewise, the costs of litigation are far lower. A 2009 Congressional Budget Office report estimated that a typical package of national tort reforms would reduce total U.S. health care spending by about 0.5 percent.

In practice, tort reform has proved to be just another corporate protection racket. Today, with House Republicans eager to vote for nationwide liability caps, consider this: Do we want a system in which a jury can send a man to death but is prohibited from awarding Colin Gourley the care he needs to have a decent life?

(Margaret Carlson is a Bloomberg View columnist. The opinions expressed are her own.)

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