Economic Analysis of Joint and Several Liability
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A plaintiff sometimes has a common claim against multiple parties. In some of these instances, each defendant may be jointly and severally liable for the plaintiff’s harm. In others, the liability of each defendant is several only. Under joint and several liability, each defendant is liable for the entire harm though the total (judicial) recovery by the plaintiff is limited to the total harm. Under several-only liability, by contrast, each defendant is responsible for only her portion or share of the harm. The regime of joint and several liability has great practical importance as well as significant and subtle legal and economic consequences that were largely unnoticed prior to the use of economic analysis. Prior to the economic analyses of joint and several liability, conventional wisdom identified two major differences between regimes of joint and several liability and regimes of several-only liability. First, joint and several liability reallocates the cost of potential insolvency of a defendant from plaintiff to the solvent defendant. Second, under several-only liability, the plaintiff must collect from each (losing) defendant, while under joint and several liability, the plaintiff need only collect from a single defendant. Joint and several liability, thus, depending on the precise details of the legal regime, either reallocates the cost of collection from plaintiff to the defendants or reduces those costs. The economic analysis of joint and several liability confirmed the second claim, but modified our understanding of the first largely because economic analysis also revealed an important, and hitherto unnoticed difference between the regimes: the regimes affect the value of the underlying claim. Specifically, the expected value of a claim is at least as great, and generally higher, under joint and several liability than under several-only liability. The higher claim value under joint and several liability alters not only the risk of insolvency, but also the ex ante decisions of the defendants to take care. Joint and several liability applies to important classes of torts and other wrongs. In most medical malpractice actions, the plaintiff sues multiple parties; an adverse outcome from surgery may provoke litigation against the surgeon, the anesthesiologist, the hospital, and one or more nurses. Each of these defendants, if negligent, is jointly and severally liable for the plaintiff’s injury. Similarly, under the antitrust laws in the United States, firms that agree to fix prices are jointly and severally liable for treble damages that such price fixing cause. In the environmental area, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) imposes joint and several liability for the cost of remediating contamination caused by hazardous waste on past and present owners of the contaminated site, the generators of the hazardous waste, and those who transported the waste to the site. In the United States, the federal securities laws imposed, until 1995, joint and several liability on both the corporation and its auditor for knowing or reckless material misstatements of fact in the firm’s financial statements. Today, the firm can be held jointly and severally liable with any responsible officers or directors for securities fraud. These examples cover a wide variety of legal and economic relations, each of which has distinctive features, both legal and economic. The economic literature explains how some of these variations in the underlying transactions lead to different behaviors, but many differences remain unexplored. A brief review now, however, may help to delineate the scope of this survey. Three distinct reasons argue for the imposition of joint liability on multiple tortfeasors. First, one joint tortfeasor may serve as an insurer of another. This justification is often invoked when commentators note that joint and several liability shifts the risk of insolvency of one tortfeasor from plaintiff to the other tortfeasor. In some contexts, however, insurance may serve as a primary reason for the imposition of joint liability. The second, and perhaps the classic reason the law imposes joint liability, states that it is when the harm is “indivisible” in order to deter wrongdoing. Consider two related hypotheticals. In the first, two people, Row and Column, go hunting. Row carries a shotgun and Column carries a rifle. They observe motion in the brush and discharge their weapons, striking and killing plaintiff. Plaintiff would have died had either hunter struck him alone: his injury is indivisible. Each defendant is jointly and severally liable for plaintiff’s injury. In the second hypothetical, the situation is identical except that Row negligently wounds plaintiff’s arm and Column negligently shoots his leg. Now the harm is divisible. Row is responsible only for the wounded arm while Column is responsible only for the wounded leg. Deterrence argues that joint and several liability applies in the case of indivisible harm, while several-only liability apply to the case of divisible harm. In the former case, each defendant has acted wrongly. To deter her conduct, she must internalize the cost of her action; joint and several liability partially accomplishes this goal. In the case of divisible harm, each defendant acted wrongly but each caused a separate injury; consequently each internalizes the appropriate costs under several-only liability. Of course, many instances in which joint and several liability applies fall between these two categories. In the hazardous-waste scenario, for example, harm is indivisible but the actions of each party exacerbated the total amount of harm suffered.
Source Publication
Research Handbook on the Economics of Torts
Source Editors/Authors
Jennifer Arlen
Publication Date
2013
Recommended Citation
Kornhauser, Lewis A., "Economic Analysis of Joint and Several Liability" (2013). Faculty Chapters. 1021.
https://gretchen.law.nyu.edu/fac-chapt/1021
