Much Needed Tort Reform Is Good For Ohio Businesses
By Nick A. Nykulak
The cost of lawsuit abuse is at an all time high. Today, the average American family of four pays around $3,380 annually in "tort tax," a cost added to the price of products and services by businesses needed to cover the costs of litigation. In 2003, American companies shelled out more than $246 billion, or $845 per citizen resulting from tort lawsuits. In 1950 that cost was only $12 per citizen. U.S. tort costs have exceeded our country’s Gross Domestic Product by 2-3 percentage points in the past 50 years, yet these lawsuits return less than 50 cents on the dollar in actual economic loss suffered by plaintiffs. Meanwhile, plaintiff’s attorneys have reaped a $40 billion dollar a year windfall from prosecuting these suits. Small companies have gone out of business from defending as little as one lawsuit, while larger companies have been forced to lay off employees as a result of settling frivolous lawsuits simply to avoid costly litigation.
On April 6, 2005, Ohio Senate Bill 80 went into effect placing restrictions on the types of evidence a court may consider in awarding a plaintiff compensatory damages, and capped the amount the a court may award in punitive damages. The Bill also amends the procedures for determining those awards. Compensatory damages include both economic and non-economic damages. Non-economic damages in non-catastrophic injury cases have been limited. These damages include pain and suffering, loss of society, loss of consortium, disfigurement, mental anguish, loss of companionship, care, assistance, attention, protection, advice, guidance, counsel, instruction, training, education, or any other recognized intangible loss. Except for catastrophic injuries, which are defined as permanent and substantial physical injuries and include permanent and substantial physical deformity, loss of limb or organ, or the loss of the ability to care for oneself, a plaintiff may only recover non-economic damages the greater of $250,000 or three times their economic loss up to $350,000 per plaintiff or $500,000 per occurrence. However, Senate Bill 80 does not place any restrictions on categories of economic damages and a plaintiff may recover the full amount of damages, including his or her lost wages or earnings and medical expenses suffered as a result of the defendant’s conduct.
Senate Bill 80 substantially limits the evidence the court or the jury may consider in determining a plaintiff’s compensatory damages. The court or jury may not consider evidence of the defendant’s alleged wrongdoing or misconduct, evidence of a defendant’s financial resources, the fact that there is a limit on the compensatory damages that may be awarded, and may not consider any evidence offered for the purpose of punishing the defendant rather than for compensating the plaintiff. Senate Bill 80 also allows the defendant to request a review of a jury award and requires the court to conduct an independent review of the award to determine whether the evidence presented supports the award or whether the attorney’s arguments inflamed the passion or prejudice of the jury. In reviewing the jury’s award, the judge must evaluate whether the award resulted from an improper consideration of the defendant’s financial resources, a consideration of any wrongful conduct on the part of the defendant, or whether the award was given in an attempt to punish the defendant’s conduct. The court must then compare the jury’s verdict to other verdicts involving comparable injuries to similarly situated plaintiffs. If the court finds that the award was given in violation of one of the restrictions mentioned above, the court may recalculate or strike the jury award entirely.
In addition to limiting non-economic compensatory damages, Senate Bill 80 makes significant changes to a plaintiff’s ability to receive a punitive damage award. A plaintiff may only receive punitive damages if the jury first awards compensatory damages. Senate Bill 80 requires the court to bifurcate the compensatory and punitive damage phases at the request of any party. If the jury awards compensatory damages, the plaintiff is required to produce evidence that the defendant acted with malice or aggravated fraud, or knowingly authorized, participated in, or ratified the actions of their agent who demonstrated malice or aggravated fraud in injuring the plaintiff. Generally, the award of punitive damages may not exceed two times the amount award for compensatory damages for large employers. For individuals and small employers, (employers who employ less than 100 people, or manufacturers that employ less than 500 people), the punitive damages award may not exceed the lesser of two times the amount of compensatory damages or 10 percent of the employer’s net worth to a maximum of $350,000. However, this punitive cap does not apply if the defendant acted purposefully and knowingly in committing the tort, and has been convicted of or pleaded guilty to a criminal offense that is the basis for the action. Prejudgment interest will not be awarded and attorney’s fees will not be considered when determining the cap.
For manufacturers, distributors and suppliers, Senate Bill 80 changes the elements required to prove a products liability claim and eliminates the common law cause of action. The Bill further establishes a ten year statute of repose for an action to recover damages for bodily injury, and injury to real or personal property, or wrongful death that arises our of a defective and unsafe condition of an improvement to real property against a person who performed services for the improvement to real property or a person who furnished the design, planning, supervision, or construction, or construction and improvement to real property. The statute of repose is triggered upon “substantial completion” of the improvement, which is defined as the date the improvement is first used by the owner or tenant, or when the real property is first available for use after work is completed in accordance with the contract (whichever occurs first). However, the statute of repose is subject to several exemptions which can extend the plaintiff’s time to file a cause of action by two years or more.
Senate Bill 80 also revolutionized the collateral source rule. When a plaintiff in a tort case is compensated or receives a benefit from a party that is not involved with the lawsuit that outside party is considered a collateral source. Insurance companies are the most common examples of collateral sources. Worker’s compensation and social security benefits are also considered collateral sources. Before Senate Bill 80, the collateral source rule prevented a defendant from presenting any evidence in court establishing that a plaintiff had already received a collateral source benefit, such as having his or her medical bills paid for by insurance.
The new collateral source rule established by Senate Bill 80 states that a defendant may introduce evidence of any amount payable as a benefit to the plaintiff as a result of damages that result from any injury, death, or loss to person or property that is the source of the claim upon which the action is based. However a collateral source may not be introduced if the source of the benefits has a mandatory self-effectuating federal right of subrogation, has a contractual or statutory right to subrogation, or if the source pays the plaintiff a benefit that is in the form of a life insurance or disability payment. Evidence of the life insurance or disability payment may be introduced only if the plaintiff’s employer paid for the life insurance or disability policy, and the employer is a defendant in the tort action. In the event that collateral source evidence is introduced by the defendant, the plaintiff has an opportunity to produce evidence to establish any amount he or she paid or contributed to secure the right to receive the collateral source benefit to offset defendant’s collateral source claim.
Senate Bill 80 creates a qualified immunity for obesity claims. Ohio’s fast food distributors, among others, are safe for now. Producers, supplier, manufacturers, and distributors of food products are immune from liability resulting from claims of cumulative consumption, obesity, or weight gain. “Cumulative consumption” is defined as any health condition, including, but not limited to increased cholesterol, heart disease, or high blood pressure, that is caused by successive consumption of a qualified product used for the food or drink for a human being or other animal, chewing gum, or any article used as components to make these items. However, this immunity is inapplicable if the “predominant proximate cause of the claim” derives from the misbranding of a food product, a knowing and willful violation of state of federal law that applies to the food product, or any breach of express contract of warranty regarding the food product.
Questions will undoubtedly arise as to whether portions of Senate Bill 80 can apply to pending lawsuits. The statute of repose specifically states that it applies to all cases commenced on or after the effective date of the Act, April 6, 2005. However, other sections of the Senate Bill 80 remain silent as to whether those sections are to be applied retroactively or prospectively. Furthermore, Senate Bill 80 may face almost certain constitutional challenges by its opponents who seek to have portions of the Bill invalidated. Nonetheless, given the caps placed on punitive and non-economic damage awards, as well as other changes to the collateral source rule and the limitations placed on the presentation of evidence to establish damage awards, Senate Bill 80 is a much needed step in the right direction for our clients and all Ohio businesses.