Tort Law in a World of Scarce Compensatory Resources

Large corporations facing extensive tort liabilities have often gone into bankruptcy, forcing tort plaintiffs to accept pennies on the dollar as compensation for their injuries. Bankruptcy painfully illustrates the social fact that the compensatory properties of tort law depend on the availability of compensatory resources. Although this feature of tort law is self-evident, no one has adequately analyzed whether it matters for substantive tort doctrine, and if so, how. Wealth would seem to be substantively irrelevant given the rule that excludes evidence concerning the defendant’s financial resources when determining breach or compensatory damages. The antecedent tort duty, however, depends on the burden it would impose on the ordinary duty-bearer across the general class of cases the duty governs. The reasonableness of this burden is affected by social facts such as per capita wealth, the replacement of debtor’s prison with bankruptcy, the availability of liability insurance, and the social meaning of monetary damages. These normatively relevant facts are largely absent from modern accounts of tort law, even though they contract or expand the scope of substantive tort duties for noncontroversial reasons grounded in widely recognized tort values. An extended historical and doctrinal analysis confirms as much, showing how the scarcity of compensatory resources has shaped the basic structure of tort law—why it employs a default rule of negligence liability, sometimes supplemented by strict liability, while also being limited for wide swaths of negligently caused harms involving economic loss and emotional distress. Accounting for the availability of compensatory resources reveals normative properties of substantive tort law that are often quite different from the ones modern tort theories depict, including the relation between tort law and criminal law and the vital role deterrence plays in a rights-based tort system. An adequate account of tort law must comprehend how the scarcity of compensatory resources alters substantive tort doctrine in principled ways.