Chapter 12 Legal Liability for Injuries

Chapter 12 Legal Liability for Injuries I. Multiple Choice 1. The conditions necessary for a plaintiff to show that a defendant was negligent include all of the following except: a. b. c. d. The defendant had a duty to the plaintiff and breached the duty The defendant’s breach of duty was the proximate cause of the plaintiff’s injury. The defendant intended to cause harm to the plaintiff The plaintiff suffered a loss. Answer: c Type: K 2. Under joint and several liability: a. b. c. d. A defendant’s spouse is equally liable for the defendant’s negligence. A defendant can be held fully responsible for losses he/she only partially caused. A defendant has no defenses against the charge of negligence. All of the above. Answer: b Type: K 3. Which of the following is/are true about punitive damages? a. b. c. They are not designed to compensate for the plaintiff’s losses They are intended to punish the defendant for the actions that led to the injury They have been controversial in recent years because juries have tended to give large awards of this type. All of the above. d. Answer: d Type: K 4. Which of the following is not a proposed reform for the tort liability system? a. b. c. d. limit contingency fees charged by lawyers require that winners pay the legal fees of the losers caps on pain and suffering damages restrictions on the collateral source rule Answer: b 173 Type: K 5. Which of the following is/are a defense to product liability claims in most states? a. b. c. d. contributory negligence assumption of the risk both (a) and (b) defenses to product liability claims none of the above Answer: c Type: K 6. From an economic perspective, the tort system would not be necessary if: a. b. consumers were uninformed about a product’s risk and transactions costs were low consumers were fully informed about a product’s risk and transactions costs were low consumers were fully informed about a product’s risk and transactions costs were high consumers were partially informed about a product’s risk and transactions costs were high c. d. Answer: b Type: A 7. John was speeding into an intersection when Mary negligently was making a left turn. Their cars collided and Mary sued John for her injuries. The jury determined that John was negligent and that Mary was 30% responsible for her own injuries. Mary’s actual damages were $25,000. If the contributory negligence rule applies in that jurisdiction, how much will Mary get? a. b. c. d. $25,000 $17,500 $7,500 nothing Answer: d Type: A 8. Using the information in question #7, if the comparative negligence rule applied, how much would Mary get? a. b. c. d. $25,0000 $17,500 $7,500 nothing 174 Answer: b Type: A 9. According to the collateral source rule: a. b. you cannot get compensation from more than one source for the same injury. you must try to mitigate your own damages by requesting compensation from all possible sources courts are precluded from reducing damages by the amount of coverage provided by a plaintiff’s life, health, or property insurance. none of the above. c. d. Answer: c Type: K 10. Which one of the following liability rules frequently applies to products liability cases? a. b. c. d. no liability negligence strict liability absolute liability Answer: c Type: K 11. When the U.S. legal system assigns a liability rule for a general type of loss the system is essentially a. b. c. d. assessing fault protecting consumers allocating risk measuring damages Answer: c Type: K 12. In business liability cases, courts may apply an economic standard for negligence – cost-justified precautions. This standard is met if the business firm a. b. c. spent at least 10% of it revenue on safety efforts undertook safety costs whenever the marginal benefit of the safety effort was greater than the marginal cost undertook safety costs whenever the marginal benefit of the safety effort was less than the marginal cost 175 d. has purchased adequate insurance Answer: b Type K 13. Ted was injured in an accident that was caused by Judy’s negligence. As a result of the accident, Ted incurred $8,000 in medical bills. He filed and won a lawsuit against Linda, and the medical bills were paid by the judgment. These medical bills are what type of damages? a. b. c. d. special compensatory damages general compensatory damages special punitive damages general punitive damages Answer: a Type: K 14. Which of the following statements is/are true regarding the objective(s) of the U.S. tort system? a. b. c. d. the system attempts to provide the rights incentives for safety the system attempts to provide the right amount of compensation for accident victims the system attempts to minimize the cost of risk to society all of the above Answer: d Type: K 15. Which one of the following is not a potential source of limited liability (or being judgment proof)? a. b. c. d. bankruptcy laws being elderly lack of wealth being incorporated (as a business) Answer: b Type: K 176 II. Fill-Ins 1. From an economic perspective, the two fundamental objectives of the tort system are to provide incentives for people to engage in the optimal level of safety and to provide optimal compensation to victims 2. The liability rule that is most often used in defective product cases is liability. 3. An example of a non-monetary loss is pain and suffering . 4. Compensatory damages in tort liability cases compensate victims for monetary losses such as medical expenses and lost pay . 5. Common law is the body of law that has evolved over time as a result of previous court decisions and not the result of specific legislative actions. 6. The burden of proof under a negligence rule is on the plaintiff 7. A person or firm is said to be wealth to pay for damages judgment proof strict . if they have insufficient III. Problems and Short Answer Questions 1. What are the main suggestions that have been made for reforming the tort liability system? Answer: Some of the proposals for tort reform are designed to reduce the incentive to bring lawsuits, e.g. limits on contingency fees charged by lawyers, requiring the loser to pay the winner’s legal fees. Other proposals are directed at reducing damage awards, e.g. caps on pain and suffering awards, limits on punitive damages, restrictions on the collateral source rule. Elimination of the joint and several liability rule has been proposed on the grounds that it does little to encourage safety. Type: K 2. Explain how a) consumer information and b) transactions costs imply that the private marketplace will not provide optimal incentives in the absence of a system of legal liability. Answer: Without a legal liability system, transactions would be designed to ensure that each party engages in the optimal level of loss control and payment to injured parties. If one party to the transaction is not fully informed, then there will be insufficient incentives. Similarly, if the transactions costs of contracting with all parties who might cause you injury are too high, then the market will not allocate the 177 costs optimally. In these cases, the tort liability system can improve incentives to engage in loss control and to provide optimal compensation for victims. Type: A 3. Stinky Inc. has a factory which emits air pollutants which could have long term effects on the environment and also smell terrible. This reduces the values of surrounding property. Stinky has estimated that the cost of installing anti-pollution devices is $500,000. Fines are imposed by the EPA for exceeding limits on certain types of emissions but these are only $1,000 per year. Considering liability rules, transaction costs and information availability, analyze the optimality of installing the anti-pollution devices. Answer: Since air pollution is generally contributed to by a number of sources, including vehicles and equipment, it is difficult to assign responsibility for bad smells in the air. Furthermore, any single consumer will be unlikely to have sufficient damage to warrant bringing an expensive lawsuit against a company. Therefore, the probability of a lawsuit is relatively low and the likelihood of a substantial damage claim if a suit were brought is also fairly low. The government regulation of pollution is not a big enough motivator in this case either. When consumers are relatively uninformed and the legal liability system does not provide strong deterrents, there will generally be too little investment in safety. Stinky will find it optimal to forego the investment in the anti-pollution devices. Type: A 4. Make an argument that optimal safety incentives can best be imposed by government regulation rather than by a system of tort liability. Answer: It is more efficient for a single governmental entity to determine the optimal level of safety expenditures since regulators can achieve economies of scale in obtaining information about accidents, methods and technology for reducing frequency and severity of accidents, costs of implementing safety and the willingness of people to pay for additional safety. A tort liability system implies that private individuals must all do this, which results in costly duplication of effort. Safety regulation is also superior in that it is an ex ante rather than an ex post approach. The regulation is aimed at preventing the accident before it occurs rather than simply assigning the blame and cost after the fact. Type: K 178 5. The J.D Trucking Company is near bankruptcy. To improve his circumstance J.D. signs a lucrative contract to haul toxic waste. In a further effort to save money, he also discontinues all of his insurance policies and skips truck and trailer inspections. Discuss J.D.’s incentives and how it affects the level of risk in society. Answer: It would appear that J.D. is taking on excessive risk because he thinks he is judgment proof. i.e. has little to lose. If his contract to haul toxic waste is successfully completed he will (at least temporarily) have restored his business’ good fortune. The result of J.D.’ decision to take on excessive (and uninsured) risk increased the level of risk in society during the period of his contract. If J.D. causes an accident while hauling the waste, it is very unlikely that he will be able to compensate the victims. Type: A 179