Understand the Intentional Tort “Baggage” that Can Destroy a Business

This module is an especially important one because we’re going to be talking about meeting your customer needs and how you can move from product liability to product innovation. This module brings together two key elements that are critical to business success. First of all it deals with one of your most important stakeholders, your customers and second it brings into play a very important area of law called tort liability. And so our game plan for this session is that we are first of all going to do a legal briefing that will introduce you to tort law. We’ll talk about business exposure to tort liability on a general basis. And then we’ll focus more specifically on product liability.

And especially the three key theories of product liability, which are contract, strict liability and negligence. We’ll then move to the question of how you can manage product liability risk. Looking at product liability from the perspective of a lawyer who is focused on preventing liability. And then finally, we’ll take a strategic look at product liability by asking how can you use this very difficult area of the law to create value. This is one of the most difficult areas to create value because liability can be so brutal on a business and it’s very unusual to think of product liability as a business opportunity. But that’s going to be our goal. So what is a tort?

When you read about tort liability in media, what does that mean? Well, I read a definition of tort once in a law school bulletin that ran something like this. Tort law involves non-consensual, obligatory relations among people and institutions. Let me give you a little bit more friendly definition of tort law. My definition is a tort is a wrongful act that injures another person’s body, property or reputation. So, let’s assume that you and I get together for a cup of coffee. And let’s assume you’re very critical of my teaching. And so, you clinch your fist and you say to me, Siedel if you don’t promise to improve your teaching style, you’re going to be in big trouble.

Now, have you just committed a tort? Please press pause and right down your answer, yes or no.

And the answer is that, yes, you have committed a tort. Now, if you had followed through with your threat, if I said to you, I’m not going to change my teaching style. And so you followed through with your threat. And you hit me with your fist, that would be a particular type of tort called a battery. But the threat of a battery is also a separate tort called an assault. In lawyer’s language, with a battery you have touched me in a harmful or offensive manner and with an assault you have threatened to touch me in a harmful or offensive matter.

So both of these are torts and they are examples of the first of the three types of tort listed here. There are three categories of tort and the first one is the intentional tort. And intentional torts carry with them a lot of baggage. When you commit an intentional tort, you are subject to a civil lawsuit for damages. You can be brought to trial in a criminal lawsuit. You can be subject to punitive damages which are damages beyond those designed to compensate you, but those are damages designed to punish you for doing something wrong. You can lose your insurance coverage.

And if you go into bankruptcy it’s likely that bankruptcy will not provide protection for intentional tort damages, you’ll still be liable for those damages. So let’s look at this at a little more detail. First of all, bringing you to trial for a civil lawsuit and a criminal lawsuit. Occasionally in the paper, you read about somebody who commits a tort that is also a crime and is sued twice. A notorious example in the United States is the case involving OJ Simpson. He was tried in a criminal lawsuit for murder and found not guilty and then he was tried in a civil lawsuit and the jury held him liable for around $33 million.

So often we’ll have a disparity, a difference in result, between the criminal lawsuit and the civil lawsuit. Another example involved a foreign exchange student who visited the United States from Japan. He attended a Halloween party or he intended to attend a Halloween party dressed as an actor, John Travolta, in a movie called Saturday Night Fever. He went to the wrong house and as he walked up the sidewalk to this house wearing his Halloween costume. The owner of this house saw him coming, loaded his gun, walked out on to the porch and said, freeze. The Japanese student did not understand what he was saying.

I’ve heard that the student thought he was saying please, I’m not sure if that’s true or not, but he took one more step and the homeowner shot and killed him. So criminal case brought against the homeowner found not guilty. The Japanese parents filed a several lawsuit against the homeowner and he was held liable for around $650,000 dollars in damages. So why the disparity in this case involving the Japanese student or in the O.J. Simpson case? Well the difference is the result of different burdens of proof. In a criminal lawsuit, the evidence must show guilt beyond a reasonable doubt.

Whereas in a civil lawsuit there’s only a need to show by a preponderance of the evidence, that is you know, roughly 51% that the person committed the tort. There are other differences too, in the United States for example, you cannot force somebody to testify in a criminal lawsuit where you can in a civil lawsuit. So, those are two very important elements involved in committing an intentional tort. Punitive damages are similar to a criminal fine for committing the intentional tort. The only difference is that, in the United States, punitive damages in most states will go to the plaintiff rather than to the government. Losing insurance can be a huge problem for business when you committed intentional tort.

Let say for example that you pollute property, you contaminate property. And the cleanup costs are huge, billions of dollars. So you go to your insurance company and you say well, I spent all this money cleaning up the property and now I want you to cover my expenses. Well the insurance company might say to you, wait a minute your insurance is designed to protect accidental loss. You intentionally contaminated the property and therefore you’re not covered. So this element, loss of insurance, can be a make or break issue for many businesses. It can force many businesses out of business. Finally, you lose bankruptcy protection when you commit an intentional tort.

Normally with bankruptcy, when you go through bankruptcy you wipe away your debts, but there’s an exception for debts related to intentional torts. So that concludes our look at intentional torts and in the next segment we’ll look at the tort of negligence.