Liability and cargo claims cost too much, as do the lawsuits that arise from them, Joseph R Farris told the closing session of the Truckload Carriers Association Refrigerated Division annual meeting. The easy answer to eliminating those costs is not to have any accidents or freight claims, he said.

Farris is managing partner of Feldman, Franden, Woodard, Farris, and Boudreaux, a law firm in Tulsa, Oklahoma. The Refrigerated Division meeting was held July 14 to 16, 2004, in Rockport, Maine.

Opening his remarks with a disclaimer, Farris said, “We have to recognize a certain irony in asking a lawyer how to cut legal costs. That's a lot like asking the big bad wolf for the quickest route to grandma's house. However, if anyone learns anything from this presentation, I would ask sincerely that no one tell their lawyer where the information came from.”

Trucking companies have a reason to desire tort reform, because truck wrecks, auto accidents, dog bites, and most other problems that result in a civil suit are torts. Freight claims, however, are contract disputes. Technically, a tort is a civil wrong not arising from a contract, Farris said.

Some people who are not lawyers say that the courts handle too many lawsuits and that they certainly handle too many frivolous lawsuits, he said. For instance, in one recent suit, the courts were asked to resolve a dispute between two airline passengers over which of the two got to use the toilet first. The problem is that, ridiculous or not, lawsuits must be defended, Farris said. Otherwise, the court will issue a default judgment in favor of the plaintiff.

Conventional wisdom holds that crazy plaintiffs and their willing accomplices in the plaintiff's bar are choking the courts with time-consuming suits over trivial matters, Farris said. Statistics from the American Bar Association provide a different picture. In the year 2000, the number of contract cases arising from disputes between businesses was 50% higher than the number of injury cases filed by individuals. In addition, business cases account for 47% of all punitive damage awards. In contrast, only 4.4% of punitive damage awards were due to product liability cases, and only 2% of the punitive damage awards rose out of medical malpractice cases, he said.

The low level of punitive damage awards in personal injury cases, however, is no cause for comfort, Farris said. The threat of punitive damages is real, and it should always remain a cause for alarm among fleet operators. In almost every case filed against a trucking company, the suit asks for punitive damages.

Based on the relative rarity with which a claim for punitive damages against a trucking company ever goes to a jury for verdict, the urgency behind tort reform might not be quite as important as it is presented by most advocates, Farris said. The issues at question in tort reform don't really affect the trucking industry all that much. For instance, trucking is not all that concerned about reforming health care liability. Reform of the rules for class action suits could impact trucking in rare instances, but mostly it is not an issue. Another plan put forward for most tort reform is promotion of jury service. Tort reformers want to increase the fines for avoiding jury service, he said.

Support several liability

Another part of tort reform would be abolition of the rule of joint and several liability, Farris said. Under this rule, a defendant found liable for as little as 1% of a judgment can be required to pay the entire amount if the plaintiff is fault-free. Reform should require several liability, where a defendant found 10% negligent is required only to pay 10% of the judgment.

Reformers also want to abolish the collateral source rule, which allows a plaintiff to collect damages resulting from a judgment plus recovery from insurance. Abolishing the collateral source rule would reduce the amount a liable party could be required to pay by the amount covered by the plaintiff's insurance, Farris said.

The United States Supreme Court has issued several recent rulings that deal with due process that mostly take care of the efforts to limit punitive damages sought by tort reformers, Farris said. Someday soon, businesses should have guidance from this court that provides a clear picture of exposure they face from punitive damage claims.

Most people are thinking of limits on non-economic damages when they consider tort reform, he said. Most reformers seem to favor limits of $250,000 to $300,000 for non-economic damages. This reform does nothing to limit economic damages such as the cost of health care following a catastrophic accident.

Reform appeal bonds

One of the most important parts of the tort reform discussion should be appeal bond reform, Farris said. This is frightening, because a company that loses a suit must post a bond that is held by the court while an appeal is in process. If a company cannot post the bond, the plaintiff can execute the judgment of the lower court. In effect, a company could appeal a verdict and potentially prevail at appeal but lose the company anyway because it could not post sufficient bond, he said.

Those who want tort reform also want to limit testimony to sound science in the courtroom, Farris said. Until recently, a plaintiff could hire experts who were at liberty to say anything as long as they held some sort of credentials. The courts, and particularly the Supreme Court, have begun to place severe limits on what experts can say. “Junk science from the witness box is mostly a thing of the past,” he said.

Tort reformers want to stop the practice of regulation by litigation rather than by legislation, Farris said. The problem here is that advocates of a particular regulatory activity often manage to win a case in one state. That win has the effect of changing the national playing field, because trucks running through that state must conform whether they are based in that state or not.

Insurance lawyers represent carriers

Many fleet managers understand that insurance companies provide legal representation when carriers are sued. They do not always understand that they can pick their own lawyer, Farris said. Simply accepting the lawyer supplied by the insurance company is not always a good idea. Carriers should know who the insurance company plans to assign to them, and carriers should establish a relationship with the attorney — hopefully before any suit ever is filed.

Perhaps the most important part of working with a lawyer from an insurance company is remembering that the carrier is the client, not the insurance company, Farris said. The lawyer must act for the client, not for the company paying the bills. When the legal claim involves an accident, early settlement often is in the best interest of the motor carrier, although the insurance company may object to settling.

One of the first things a motor carrier should do in response to an accident is to send an accident reconstructionist to the scene, Farris said. “I'm part of a national team of lawyers that represent trucking companies,” he said. “Our clients call us in the middle of the night, and we call the accident investigators and go to the scene to try to take control of the investigation. It is amazing how often we can influence law enforcement decisions about how an accident happened. Spending the money upfront for accident investigation can save a great deal more money later when legal papers begin to fly. In fact, a rapid, thorough accident investigation can often prevent lawsuits from being filed.”

Settle early

Get involved in the negotiations early and settle the claim as soon as possible, Farris said. “I just finished a settlement on a fatality before a lawsuit was ever filed,” he said. “At the time of the accident, it looked as though it would be a multi-million-dollar case, but we got lucky. The man who was killed had no dependents, so we were able to settle the case for a modest six-figure amount. Had that case ever gone to court, the punitive damage exposure would have been huge, and punitive damages, in Oklahoma at least, are not covered by insurance.”

Everybody hates the discovery process that goes with legal claims. Do not ignore the discovery process, Farris said. The best solution is to put together a standard discovery package because the first step in most cases is answering a bunch of written requests. Those are general questions about the company, its size, and other information. Don't stall; as soon as the discovery letter arrives, respond with a detailed, standard package of answers. “Some of the questions don't matter, but answers must be produced anyway,” he said. “Get the package together early and save the time and frustration. Don't fight over early discovery. In fact, fight over only those things that are important to fight about.”

No matter how careful a company may be, it will still get sued from time to time. When a suit is filed, get in touch with the lawyers and try to find a way to get out of the problem, Farris said. Settlement is the best way to approach a suit. However, some suits may contain grounds for dismissal. For instance, every now and then carriers will get sued in one state for an accident that happened in a different state. The court where the suit was filed has no jurisdiction in such a case, he said.

In the end, trucking executives need to remember that their companies are natural targets for lawsuits. The first step in limiting the costs from legal action is to hire a lawyer that understands the trucking industry, Farris said.