What is tort reform?

Tort reform refers to a movement designed to limit damages and exposure in a wide variety of tort suits. Much of tort reform focuses on limiting damages in products liability and medical malpractice cases. Many tort reform proponents also emphasize—as mentioned earlier in

Punitive damages can be capped by state law; tort reform efforts are designed to limit how much plaintiffs can receive in compensation (iStock).

Punitive damages can be capped by state law; tort reform efforts are designed to limit how much plaintiffs can receive in compensation (iStock).

the text—the danger of large punitive damage awards.

Tort reform proponents warn about the high costs that lawsuits and damage awards have on the creation of products, small businesses, and rising medical costs. Tort reform advocates claim that there has been a litigation explosion filled with frivolous lawsuits that drives up the costs of doing business for everyone, which ultimately leads to increased costs placed upon consumers. The issue has even come up during presidential campaigning, as candidates have sparred about issues surrounding health care reform and medical malpractice.

What is the difference between a lump-sum settlement and a structured settlement?

The difference between a lump-sum settlement and a structured settlement centers on when the plaintiff receives the monies from the tortfeasor or the tortfeasor's insurance company. A plaintiff who receives all of her money in one payment up front has received a lump-sum settlement. A plaintiff who receives periodic payments stretched out over a period of years has received a structured settlement.

Are awards in tort cases taxable?

It depends upon the nature of the award. The Internal Revenue Service provides that compensatory damages for personal physical injuries are not taxable whether received in a lump sum or in installment payments over a period of time. Damages for emotional distress are not taxable if they are received for an underlying physical injury or sickness. However, if the emotional distress damages are not due to a physical sickness or illness then those damages are taxable.

Other forms of damages that are taxable include: interest on any award, compensation for lost wages and lost profits, and punitive damages in most cases even if the award relates to a physical sickness. For further information on this admittedly difficult subject, see Internal Revenue Service, "Publication No. 525—Taxable and Nontaxable Income," at irs.gov/pub/irs-pdf/p525.pdf.

What is vicarious liability?

Vicarious liability means that one party or entity is (vicariously) liable for the negligence committed by another. When applied in the employer-employee context, the term is called respondent superior, which is Latin for "let the superior answer." This doctrine applies to employers who are responsible for most torts committed by their employees.

For example, if you are driving down the road and a truck driver employed by Ace Trucking Company negligently hits your car, you can sue not only the truck driver but also Ace Trucking Company. The general rule is that employers are vicariously liable for the tortious acts of their employees. If you shop in a department store and an employee at the department store starts cursing at you and falsely accuses you of shoplifting without reasonable or probable cause, you can sue not only the employee individually but also the department store.

Employers generally are not liable for the torts of independent contractors. Thus, an important legal question in many tort cases is whether an alleged tortfeasor is an employee or an independent contractor. Take the example of a newspaper delivery person who negligently hits another vehicle. The question becomes whether the newspaper company can be sued for the tortious action of the delivery person. If the delivery person is an employee, then the newspaper publisher may be liable. If the delivery person is only an independent contractor, the newspaper publisher may not be liable.

What is a "frolic and detour"?

"Frolic and detour" refers to the action of an employee/agent in which the employee advances his own personal business rather than engaging in work for his employer. The concept is important in tort law, because if an employee is engaging in a "frolic and detour," the employer is not vicariously liable for the negligent acts committed by the employee during this time period.

What is the concept of deep pockets?

"Deep pockets" is an important principle in tort law and refers to the principle that a plaintiff hopes to be able to recover damages from a party who has the ability to pay a court judgment. Recall that the primary purpose of tort law is to compensate an injured party for the damages that he or she has suffered. A party with deep pockets has the financial ability to pay in a tort case. Take the example of the newspaper delivery person who hits your car, causing significant property damage to your car and personal injury to you. You hope you can sue the newspaper that employed the delivery person, because the newspaper publisher probably has "deep pockets," while the delivery person may not be able to pay any judgment or settlement.

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