Strict Liability 177

§6.5 Strict Liability

Strict tort liability means that someone who causes an accident is liable for the victim's damages even if the injury could not have been avoided by the exercise of due care (PL might be $150 and B $300). I AS a first approximation, strict liability

§6.5 1. Notice that this is like liability for breach of contract where the breach is efficient. 178 Tort Law

has the same effects on safety as negligence liability, provided that there is a defense of contributory negligence, as there usually is though often under a different name. (Why is the defense actually more important for strict liability than for negligence?) If B is smaller than PL, the strictly liable defendant will take precautions to avoid the accident, just as the defendant in a negligence system will, in order to reduce his net costs. Less obviously, if B is larger than PL, the strictly liable defendant will not take precautions, just as under negligence. True, he will have to pay the victim's damages. But those damages, discounted by the probability of the accident, are less than the cost of avoidance; in other words, the expected cost of liability ( = PL) is less than the cost of avoidance, so avoidance doesn't pay. And yet tilere are significant economic differences between negligence and strict liability. Think back to the distinction between more care and less activity as methods of reducing the probability of an accident. One way to avoid an auto accident is to drive more slowly; another is to drive less. But rarely do courts in a negligence case try to determine the optimal level of the activity that gave rise to the accident; they do not ask, when a driver is in an accident, whether the benefit of the particular trip (maybe he was driving to the grocery store to get some gourmet food for his pet iguana) was equal to or greater than the costs, including the expected accident cost to Other users of the road; or whether driving was really cheaper than walking or taking the train when all social costs are reckoned in. Such a judgment is too difficult for a court to make in an ordinary tort case. Only if the benefits of the activity are obviously very slight, as where a man runs into a burning building to retrieve an old hat and does so as carefully as he can in the circumstances but is ~/ seriously burned nonetheless, will the court find that engaging in the activity was itself negligence, even though once the decision to engage in the activity was made, the actor (plaintiff or defendant) conducted himself with all possible skill and circumspection. Judicial inability to determine optimal activity levels except in simple cases is potentially a serious shortcoming of a negligence system. Suppose railroads and canals are good substitutes in transportation but railroads inflict many accidents that cannot be avoided by due care by either the railroad or potential accident victims, and canals none. Were it not for these accident costs, railroads would be 10 percent cheaper than canals, but when these accident costs are figured in, railroads are actually 5 percent more costly. Under a rule of negligence liability, railroads will displace canals even though they are the socially more costly method of transportation. In contrast, potential injurers subject to a rule of strict liability will automatically take into account possible changes in activity level, as well as possible changes in expenditures on care, in deciding whether to prevent accidents. Suppose in our locomotive spark example that spark attesters don't work but that the railroad could achieve the same results, at the same costs as in our table, by running fewer trains per day. This is a change in activity level and might well escape notice under a negligence rulerain which event the farmer would be induced to take all the precautions, an inferior solution. Figure 6.2 shows the effect of strict liability in reducing accident costs by inducing changes in activity level. The industry demand curve is depicted, since the rule of strict liability is presumably imposed on all members of the industry. Accident costs unavoidable by due care and borne entirely by strangers to the industry (hence external to the industry) are assumed to be proportional to the industry's output. Strict Liability 179

I I I Fi re 6.2 I q* q0 g D u Quantity

The curve labeled MCp is the industry's private marginal cost curve; the curve labeled MC, is the industry's social marginal cost curve, i.e., including the costs of accidents. Under strict liability, MC, becomes the industry's private marginal cost curve, inducing it to reduce output from qo to q*, which results in eliminating socially wasteful accident costs (the shaded area in the diagram). The problem with using this analysis to support a general rule of strict liability is that changes in activity level by victims are also a method of accident avoidance, / and one that is encouraged by negligence liability but discouraged by strict liability. Suppose that the cost to the railroad of preventing damage to the farmer's crops, whether by more care or less activity, is greater than $150, the expected loss, so that the railroad will do nothing, but that the farmer could prevent the loss by switching to a fire-resistant crop at a cost of $100. Under a rule of strict liability, he will have no incentive to do so, because his failure to change his activity will not be deemed contributory negligence and therefore the railroad will have to pay for the damage. But under a regime of negligence liability, since the railroad will not be liable for the damage, the farmer will switch to the fire-resistant crop, a switch that will now give him an expected gain of $50. So if a class of activities can be identified in which activity-level changes by potential injurers are the most efficient method of accident prevention, there is a ~-strong argument for imposing strict liability on the people engaged in those activities. Conversely, if there is a class of activities in which activity-level changes by potential victims are the most efficient method of accident prevention, there is a strong argument for no liability, as by applying the doctrine of assumption of risk to participation in dangerous sports. Through the concept of ultrahazardous activities, tort law imposes strict liability on activities that involve a high degree of danger 180 Tort Law that cannot feasibly be prevented by the actor's being careful or potential victims' altering their behavior. An example is strict liability for injuries by wild animals. If my neighbor has a pet tiger, there is little I can do (at reasonable cost) to protect myself. And there is only so much the owner can do, in the way of being careful, to keep the tiger under control. The most promising precaution may consist simply of his not having a tiger--an activity-level change. 2 But suppose we are speaking not of a neighbor's tiger but of the zoo's. Is it likely that the best way of controlling accidents to visitors at zoos is not to have dangerous animals in zoos--just gentle ones? The cost of this particular activity change would be prohibitive. So it is no surprise that the courts have made an exception to the rule of strict liability for injuries caused by wild animals in zoos, circuses, and other animal parks and shows. Another area of strict liability for ultrahazardous activities is blasting with explosives. No matter how careful the construction company is, there will be accidents; and since construction goes on everywhere, it is unlikely that the best way to minimize these accidents is for potential victims to alter their activities. The best way may be for the companies to switch to alternative methods of demolition that are less dangerous; and strict liability creates an incentive to consider such alternatives. The category of ultrahazardous activities is not fixed; the tendency is to apply the label to new activities (often called nonnatural), such as reservoirs in England s or ballooning in early nineteenth- century America. 4 New activities tend to be dangerous because there is little experience with their safety characteristics. For the same reason, the dangers may not be avoidable simply by taking care--yet the fact that the activities are new implies that there are good substitutes for them. Hence the best method of accident control may be to cut back on the scale of the activity (as in Figure 6.2)--to slow its spread while more is learned about conducting it safely. The distinction between care and activity is not the only dimension along which negligence and strict liability differ. Another, developed at greater length in Chapter 21, has to do with the costs of administering these different rules. The trial of a strict liability case is simpler than that of a negligence case because there is one less issue, negligence; and the fewer the issues, the easier it should be to settle the case without a trial. On both counts we can expect litigation costs to be lower under strict liability than under negligence--for the same number of claims. But the number may not be the same. In principle, under strict liability, every accident to which there is more than one party gives rise to a claim, not just every accident in which the defendant may have been negligent. 5 This makes it important, before one chooses strict liability, to assess the responsiveness of the accident rate to the incentives that such liability will create. If the accident rate in some activity will fall dramatically if strict liability is imposed, because accident costs exceed the costs of avoiding them through changes in the level of the activity, there may well be fewer claims under strict liability; and since the average cost of processing claims should be lower under strict liability, the substitution of strict liability for negligence will

2. This may seem like a ridiculous example for a resident of Chicago to put in an ostensibly serious book. But as a matter of fact, some years ago the residents of a group of townhouses about a mile from the author's home put a young lion in their fenced back yard to scare off intruders. 3. A.W.B. Simpson, Legal Liability for Bursting Reservoirs: The Historical Context ofRylands v. Fletcheg, 13J. Leg. Stud. 209 (1984). 4. Guilie v. Swan, 19Johns. Ch. 381, 10 Am. Dec. 234 (N.Y. 1822). 5. In addition, strict liability results in higher information costs to potential injurers (as distinct from judicial information costs). Can you see why? Strict Liability 181 be an unequivocal economic gain. But if most of the accidents that occur in some activity are unavoidable in an economic sense either by taking greater care or by reducing the amount of the activity (because the costs of greater care, or less activity, / exceed any savings in reduced accident costs), the main effect of switching from negligence to strict liability will be to increase the number of damages claims. Another difference is that strict liability operates to insure victims of unavoidable accidents. It is a gain only if the cost of insurance through the tort system is less than the cost to potential victims of buying accident insurance policies in the in- ? surance market; almost certainly it is greater. All sides of the no-fault debate agree that the tort system is a very costly method of providing insurance; the debate is over whether it provides another good, the deterrence of non-cost-justified accidents. See §6.14 infra. A related point is that, as shown in Figure 6.2, the size of, and economic rents earned in, an industry subject to strict liability will be smaller than if the industry were subject to negligence. Courts make mistakes; which regime--strict liability or negligence--is more ./ robust against mistakes? On the one hand, an erroneous finding that an injurer is not negligent cannot have misallocative consequences under strict liability, because the injurer's negligence is not an issue. On the other hand, the consequences of a mistaken ascription of causation, or an overestimation of damages, are worse under '; strict liability. Under negligence, a person is sanctioned only for inefficient conduct; under strict liability, he may be sanctioned for efficient conduct, and if the actual : costs of that conduct are exaggerated, the conduct may be deterred. Suppose for example that the cost of some precaution is 10, the expected accident cost under an error-free regime of strict liability is 9, but the expected accident cost (really the expected legal-judgment cost) given errors as to causation or damages favoring plaintiffs is 11. Then the conduct will be deterred under strict liability but not under negligence, unless mistakes as to causation and damages infect the determination of the standard of care. Because of these differences between negligence and strict liability, we would not expect the tort system to opt all for one or all for the other. Nor would we expect the balance between the two regimes to be the same at all times. We shall come back to the latter point in Chapter 8. It would be a mistake to dichotomize negligence and strict liability. Negligence has a strict liability component (and in the next section we shall see that strict --' liability has a negligence component). This is a result in part of the reasonable-person rule, which makes persons having above-average costs of taking care strictly liable for their accidents, and in part of the doctrine of respondeat superior, discussed in §6.8 infra. Moreover, as we have seen, care has a stochastic (i.e., proba-bilistic) component. Being careful means having attitudes, acquiring skills and knowledge, etc. that reduce the probability of a careless slip but do not eliminate it; to eliminate it would require an excessive investment in care. The law, though, does not recognize "optimal negligence," and it has been argued that as a result it creates a bias in favor of investing in capital rather than labor methods of avoiding accidents (can you see why?). 6 Does strict liability avoid this problem? How, finally, to explain the greater role of strict liability in contract law than in / tort law? And greater it is. The promisee does not have to prove that the costs to

6. Mark E Grady, Why Are People Negligent? Technology, Nondurable Precautions, and the Medical Malpractice Explosion, 82 Nw. U.L. Rev. 293 (1988). 182 Tort Law

/ him of the breach were greater than the benefits to the promisor in order to collect damages; cases where discharge is allowed on one ground or another (e.g., impossibility, mutual mistake) are exceptional. The difference may reflect the greater availability of market insurance in tort cases (and hence the lesser value of providing insurance through the legal system) and the fact that contract cases are less likely than tort cases to involve an interactive mishap that either party could have prevented, although possibly at very different costs. Ordinarily one of the contracting parties is performer and the other payor. The former has complete control over performance, the latter complete control over payment. The presumption is therefore that a breach is preventable at lower cost by the promisor than by the promisee, or if not preventable then insurable by the former at lower cost. In contrast, most tort situations are collisions between two activities, such as driving and walking, and there is no basis for a general presumption, such as would warrant a general rule of strict liability, that the injurer was in a better position than the victim to have prevented the collision.