a tamer tort law: the canadian-us...
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A Tamer Tort Law: the Canadian-US Divide
Michael Trebilcock & Paul-Erik Veel
November 30, 2010
Table of Contents
I. Introduction ............................................................................................................................. 1
II. Canada and America Compared: Is there less of a tort crisis in Canada? .............................. 4
III. Canada and America Compared: Legal Rules Side by Side ................................................ 5
1. Liability Standards ............................................................................................................... 5
2. Quantum Rules..................................................................................................................... 7
A. Recovery for Non-Pecuniary Losses ............................................................................ 7
B. Liability for Punitive Damages................................................................................... 10
C. Collateral Source Off-set ............................................................................................ 14
3. Procedural Rules ................................................................................................................ 16
A. The Right to a Jury Trial............................................................................................. 16
B. Cost Awards ............................................................................................................... 18
C. Class Action Rules ..................................................................................................... 21
D. Discovery Rules .......................................................................................................... 23
4. Partial or Total Displacement of the Tort System ............................................................. 25
A. Auto Accidents ........................................................................................................... 25
B. Workplace Accidents .................................................................................................. 28
IV. Conclusion ......................................................................................................................... 30
I. Introduction
Tort law in its traditional forms has been under attack from a variety of perspectives for
several decades. On the one hand, the “crisis” in tort law is alleged to be that enormous damage
awards are driving up the costs of engaging in certain socially useful activities—like providing
certain types of medical care or innovative products—to the point that those activities are driven
2
out the market. On the other hand, critics also charge that the tort system does a poor job of
providing compensation to the vast majority of people who have suffered injuries and are in need
of such compensation. As such, the tort system is often characterized as an unjust lottery: a
small number of plaintiffs receive unjustifiably large awards for non-pecuniary losses and
punitive damages, while many others are denied even a modicum of compensation to begin to
pay for necessary medical care.
Such criticisms have prompted legislative efforts to reform tort law in a variety of ways.
On one end of spectrum, some jurisdictions have undertaken relatively minor reforms that leave
the tort system essentially intact while attempting to ameliorate or eliminate some of its worst
tendencies. In other cases, the regulation of certain types of accidents has been entirely removed
from the tort system. Workers‟ compensation regimes have replaced tort law as the means of
dealing with workplace accidents for over a century in some jurisdictions, and many jurisdictions
have in recent decades removed other types of accidents—most notably automobile accidents—
wholly or partially from the domain of tort law. The extreme range of such reforms can be seen
in New Zealand‟s general no-fault compensation scheme, which has almost entirely supplanted
tort law as the means of providing compensation to parties injured in accidents.
Our purpose in this article is not to contribute to the expansive empirical literature on
whether or to what extent there is truly a “crisis” in tort law,1 nor is it to argue in favour of or
1 Indeed, academic commentary has by no means unreservedly confirmed the popular wisdom on the supposed evils
of the tort system. Many commentators have questioned whether there really is any type of “crisis” in tort law. See
e.g. Deborah Jones Merritt and Kathryn Ann Barry, “Is the Tort System in Crisis? New Empirical Evidence” 60
Ohio St. L.J. 315 (1999) (finding low recovery rates and damages in medical malpractice and products liability
cases); David A. Hyman and Charles Silver, Medical Malpractice Litigation and Tort Reform: It's the Incentives,
Stupid” 59 Vand. L. Rev. 1085 (2006): (meta-analysis of other empirical work on medical malpractice suits,
strongly contesting, inter alia, the claims that Americans are exceptionally litigious, that frivolous lawsuits are
extremely common, and that damages are random and typically overcompensate plaintiffs); John T. Nockelby,
“How to Manufacture a Crisis: Evaluating Empirical Claims Behind “Tort Reform” 86 Or. L. Rev. 533 (2007):
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against the replacement of the tort system in whole or in part with various no-fault compensation
schemes.2 Rather, starting from the assumption that the social cost of contemporary American
tort law is higher than is desirable, our intention here is to provide a comparison between two
reasonably similar tort regimes which can inform more modest reforms for lowering the direct
costs of the tort system.
In this article, we compare dominant features of the American tort law with Canadian tort
law. While both American and Canadian tort regimes share broad substantive and procedural
similarities, Canadian tort law historically been more conservative in a variety of respects, where
by conservative we simply mean that Canadian tort law is relatively less favourable to plaintiffs.
Perhaps for this reason, there has been much less of a public debate over the existence of a
“crisis” in Canadian tort law than there has been in relation to tort law in the United States.3
Thus, an understanding of the Canadian tort system and how it differs from its American
counterpart is useful, as it provides a potential model for a somewhat more conservative tort law
regime which nonetheless is broadly similar to the current structure of American tort law.
This paper proceeds as follows. First, we discuss existing empirical research which
compares the litigiousness and social costs of litigation between Canada and the United States.
While the empirical evidence on these points is relatively limited, based on such evidence as
(finding that there is no evidence for the existence of a litigation crisis, in that filing rates in tort cases are dropping,
and taking inflation into account, median damage awards are declining). 2 For a more detailed overview of no-fault systems than the present paper permits, see Michael Trebilcock, “No
Fault Accident Compensation Systems” in Jennifer Arlen, ed., Research Handbook on the Economics of Torts
(Edward Elgar) (forthcoming). 3 Indeed, Canadians have historically seen themselves as being less litigious than their American counterparts. See
e.g. Herbert M. Kritzer, “Fee Arrangements and Fee Shifting: Lessons from the Experience in Ontario” (1984) 47
Law & Contemp. Probs. 125 at 129.
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does exist, it appears that there is less of a “crisis” in tort law in Canada than there is the United
States.
Building on this observation, we then compare four different aspects of the legal
treatment of accidents in Canada and the United States to assess whether and to what extent
various differences in legal rules play a role in explaining this overall difference. The first three
relate to differences in tort regimes, while the last relates to differences in no-fault compensation
schemes. First, we briefly highlight some differences in liability standards between Canada and
the United States. Second, we discuss various differences in the rules governing the
quantification of damages. Third, we consider differences in certain procedural rules that have
an impact on the incidence of tort claims. Finally, we briefly sketch some differences between
the Canadian and American experiences with workers‟ compensation programs and no-fault auto
insurance schemes.
II. Canada and America Compared: Is there less of a tort crisis in Canada?
The conventional wisdom is that Canada suffers from less of a “crisis” in tort law than
does the United States. Without attempting to define precisely what it means for there to be a
“crisis” in tort law, it suffices to note there does seem to be some, albeit limited, empirical
support for the view that the direct costs of the tort system are lower in Canada than in the
United States.
First, there appears to be some empirical support for the view that there is less tort
litigation in Canada than the United States. A variety of empirical evidence suggests that while
the number of medical malpractice claims and the severity of the claims have increased over
time in both Canada and the United States, absolute numbers of such claims are still lower in
5
Canada than in the US.4 Similarly, the amount of products liability litigation in the United States
has historically dwarfed such litigation in other jurisdictions.5 Consistent with these findings,
Kritzer, Bogart, and Vidmar find that, in the aftermath of injury, Americans are more likely to
bring legal claims than are residents of Ontario.6
Second, there also appears empirical support for the broader proposition, which depends
in part on but is broader than the first proposition, that the direct cost of tort litigation is higher in
the United States than it is in Canada. The empirical evidence suggests, for example, that both
the size of damages awards and various insurance premiums both increased more quickly and
reached a higher level in the United States as compared to Canada between the 1960s and
1980s.7 Thus, insofar as the crisis in tort law is that direct costs of the tort system are too high,
then it seems reasonable to conclude that Canada is, at the very least, in less of a tort law “crisis”
than is the United States.
III. Canada and America Compared: Legal Rules Side by Side
1. Liability Standards
In most domains, Canadian and American tort law are similar in terms of the liability
standards. For the most part, both Canadian and American tort regimes require that an individual
4 See Patricia M. Danzon, “The „Crisis‟ in Medical Malpractice: A Comparison of Trends in the United States,
Canada, the United Kingdom and Australia” (1990) 18 L. Med & Health Care 48; Michael Trebilcock, Donald N.
Dewees, and David G. Duff, “The Medical Malpractice Explosion: An Empirical Assessment of Trends,
Determinants and Impacts (1990) 17 Melbourne University L. Rev. 539. 5 Gary Schwartz, “Product Liability and Medical Malpractice in a Comparative Context” in Peter Huber and Robert
Litan, eds., The Liability Maze: The Impact of Liability Law on Safety and Innovation (Washington, D.C.: Brookings
Institute, 1991) 28-80 at 46-51. 6 Herbert M. Kritzer, W. A. Bogart, Neil Vidmar, “The Aftermath of Injury: Cultural Factors in Compensation
Seeking in Canada and the United States” (1991) 25 Law and Society Review 499 7 See the discussions of the empirical evidence in Michael Trebilcock, “The Social Insurance-Deterrence Dilemma”
(1987) 24 San Deigo L. Rev. 929 at 933-936, 942-948; Michael Trebilcock, Donald N. Dewees, and David G. Duff,
“The Medical Malpractice Explosion: An Empirical Assessment of Trends, Determinants and Impacts (1990) 17
Melbourne University L. Rev. 539 at 542-543.
6
be demonstrated to be negligent, in the sense that that individual has fallen below an expected
standard of care in his conduct, before the legal system will find that individual to be liable for
damage resulting from his conduct. Both regimes also impose liability without any
demonstration of fault for certain classes of wrongs; for example, both regimes impose strict
liability for damages caused by inherently dangerous goods.8
However, Canadian and American tort regimes diverge in the area of products liability
law. The dominant rule among American jurisdictions is that liability for damages caused by
defective products is strict.9 By contrast, in most Canadian provinces, product liability of
manufacturers is still predicated on proof of negligence.10
Like American law, Canadian law recognizes the difficulty faced by plaintiffs in such
cases of actually proving that the manufacturer was negligent. However, rather than responding
to this problem by adopting a standard of strict liability in the domain of products liability,
Canadian courts instead apply a reformed version of the doctrine of res ipsa loquitor.11
Under
the Canadian rule, once the plaintiff demonstrates that the object which caused the harm was
under the exclusive control of the defendant, the defendant is subject to a tactical burden to
demonstrate that it acted in accordance with the requisite standard of care. Thus, it remains open
to a manufacturer to avoid liability by demonstrating that reasonable care was used in the
manufacture of the product. Canadian law thereby recognizes the evidentiary difficulties faced
8 Rylands v. Fletcher, [1868] UKHL 1. 9 Restatement (Second) of Torts § 402A. See also discussion in Stuart M. Speiser, Charles F. Krause, and Alfred W.
Gans., The American Law of Torts (San Francisco: Bancroft Whitney Co., 2003) at 18.27. Over 40 jurisdictions
have explicitly adopted strict liability: see Spieser et al. at 18.28. 10 Allen M. Linden, Canadian Tort Law (2001, Butterworths Canada Inc.) at 585. However, Saskatchewan, New
Brunswick, and Quebec have adopted some form of strict liability for injuries caused by defective products. See
Consumer Protection Act, S.S. 1996 c. C-30.1 at s. 64; Consumer Product Warranty and Liability Act, S.N.B. 1978,
c. C-18.1 at s. 27(1); Consumer Protection Act, R.S.Q. c. P-40.1 at s. 53. 11 Fontaine v. British Columbia (Official Administrator), [1998] 1 S.C.R. 424.
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by plaintiffs in products liability cases, yet it responds to this difficulty through an evidentiary
rather than a substantive solution.
2. Quantum Rules
A. Recovery for Non-Pecuniary Losses
One area to which both tort reform-minded academics and policy-makers have paid
significant attention is the problem of non-pecuniary damages. Because such damages are
intended to compensate plaintiffs for their non-pecuniary losses, they are necessarily difficult to
translate into pecuniary terms in a just and consistent manner. Consequently, non-pecuniary
damages have often been extremely large, and much attention has been paid to means to limit
non-pecuniary damage awards.
In the domain of non-pecuniary damages, there are significant differences between
Canadian and American law. While both Canada and the United States have moved in the
direction of capping non-pecuniary damages, the route travelled has been sharply different.
The Canadian experience with caps on non-pecuniary damages is largely a function of
judicial innovation. In a trilogy of cases in the late 1970s, the Supreme Court of Canada limited
claims for non-pecuniary losses for personal injuries to $100,000, indexed to inflation, largely
out of a concern for the social cost of high non-pecuniary damages awards.12
As of 2007, this
cap sat at roughly $310,000.13
While the Supreme Court referred to this cap as a “rough upper
limit”, this amount has functioned in practice as an absolute cap on the quantum of non-
pecuniary damage awards. While individual provinces remain free to modify or abrogate this
cap, no province has in fact done so.
12 Andrews v. Grand & Toy Alberta Ltd., [1978] 2 S.C.R. 229; Thornton v. Prince George School District No. 57,
[1978] 2 S.C.R. 267; Arnold v. Teno, [1978] 2 S.C.R. 287. 13 Jamie Cassels and Elizabeth Adjin-Tetty, Remedies: The Law of Damages, 2nd ed. (2008, Irwin Law Inc.) at 170.
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The American experience with caps on non-pecuniary damages has been radically
different. In contrast to Canada, there is no overall cap of the kind imposed by the Supreme
Court of Canada on all personal injury claims in tort law. While non-pecuniary damages are
capped in many states, there are a number of key differences between Canada and the United
States. First, rather than being products of judicial creation, caps on non-pecuniary damages in
the United States have been the exclusive creation of state legislatures.14
Indeed, far from
supporting the creation of caps on non-pecuniary damages, courts in a number of states have
found such caps to be unconstitutional.15
Second, rather than extending to all tort claims as in
Canada, many of the caps on non-pecuniary damages enacted by state legislatures have been
confined to certain types of claims, such as medical malpractice claims.16
Third, the caps
enacted thus far have all been enacted at the state level. While Congress has in the past
considered imposing a federal cap on non-pecuniary claims in medical malpractice cases,17
none
of those efforts have thus far resulted in the enactment of such a cap.
14 See e.g. Cal Civ Code. § 3333.2 (non-pecuniary damages in medical malpractice cases capped at $250,000);
Idaho Code § 6-1603 ($250,000 cap, adjusted to inflation, on non-pecuniary damages in personal injury and
wrongful death cases); S.D. Codified Laws § 21-3- 11 (non-pecuniary damages in medical malpractice actions
capped at $500,000); Va. Code. Ann. § 8.01-581.15 (total damages in medical malpractice actions were capped at $2
million as of 2008). 15 A majority of courts have upheld caps on non-pecuniary damages as constitutional. See e.g. Prendergast v.
Nelson, N.W.2d 657 (Neb. 1977); Johnson v. St. Vincent Hospital, Inc. 404 N.E.2d 585 (Ind. 1980); Fein v.
Permanente Medical Group, 695 P.2d 665 (Cal. 1985); Kirkland v. Blaine Co. Med. Ctr., 4 P.3d 1115 (Idaho 2000)
However, some courts have held such caps to be unconstitutional on the basis of provisions in state constitutions.
See e.g. Arneson v. Olson, 270 N.W.2d 125 (N.D. 1978); Morris v. Savoy, 576 N.E.2d 765 (Ohio 1991); Moore v.
Mobile Infirmary Ass’n, 592 So.2d 156 (Ala. 1991); Best v. Taylor Machine Works, Inc., 689 N.E.2d 1057 (Ill.
1997).
By contrast, Canadian courts have upheld as constitutional even extremely low caps for non-pecuniary damages.
For example, in Morrow v. Zhang, 2009 ABCA 215, the Alberta Court of Appeal upheld as constitutional a cap of
$4,000 on non-pecuniary damages for minor injuries arising from motor vehicle accidents. 16 Carly N. Kelly and Michelle N. Mello, “Are Medical Malpractice Damages Caps Constitutional? An Overview of
State Litigation” (2005) 33 The Journal of Law, Medicine, and Ethics 515. 17 In the early 2000s, the House of Representatives passed a number of bills which would have imposed limits on
non-pecuniary damages in medical malpractice cases, but those legislative efforts never passed the Senate. See e.g.
Help Efficient, Accessible, Low-Cost Timely Healthcare (HEALTH) Act of 2003, H.R. 5; Patients First Act of
9
Insofar as caps on non-pecuniary damages awards function as an effective means of
imposing consistency in damages and in controlling the overall quantum of tort damages, it
would appear that the Canadian model of imposing a uniform cap on non-pecuniary damages in
all personal injury cases is preferable to the patchwork regime present in the United States.
However, this assumes that caps on non-pecuniary damages are indeed an effective mechanism
for controlling the cost of tort awards.
Unfortunately, the research on the effects of caps on damages has yielded mixed
conclusions. While some research on the American experience with such caps has indicated that,
as expected, they operate to lower payouts,18
other authors have suggested that such caps actually
increase economic damages, such that there is no significant overall difference in damages with
or without caps.19
Moreover, some authors have theorized that because caps on non-pecuniary
damages weaken the deterrent function of tort law, such caps may actually lead to increases in
claims.20
There has also been some controversy as to whether caps lower the incidence of
“defensive medicine”, i.e. unnecessary and wasteful medical test and procedures taken by
doctors who are overly concerned about litigation. Intuitively, one would expect caps of
damages to reduce the incidence of defensive medicine, and some research has confirmed this
2003, S. 11; Help Efficient, Accessible, Low-Cost Timely Healthcare (HEALTH) Act of 2004, H.R. 4280, 108th
Cong. 18 David A. Hyman, Bernard Black, Charles Silver, and William M. Sage, “Estimating the Effect of Damages Caps
in Medical Malpractice Cases: Evidence from Texas” 1 J. Legal Analysis 355 2009 19 Catherine M. Sharkey, “Unintended Consequences of Medical Malpractice Damages Caps” (2005) 80 NYU L.
Rev. 391 20 Claudia M. Landeo, Maxim Nikitin, and and Scott Baker, “Deterrence, Lawsuits, and Litigation Outcomes under
Court Errors” (2010) 23 The Journal of Law, Economics, and Organization 57.
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view.21
However, Sloan and Shadle find that the enactment of caps on damages did not
significantly impact Medicare payouts for various procedures.22
Unfortunately, there does not
appear to be any empirical research on the effect of the Supreme Court of Canada‟s judicially-
imposed cap in the late 1970s, so it is impossible as of now to assess whether such phenomena
occurred in Canada following the imposition of that cap.
B. Liability for Punitive Damages
As with non-pecuniary damages, restricting punitive damages has become a focus of
many tort reformers due to fears about both the quantum and the inconsistency of such damages.
In this area, Canada and the United States have experienced some degree of convergence. While
Canada has historically followed English law in being extremely restrictive as to when punitive
damages can be awarded, Canadian courts have gradually expanded the availability of such
damages in recent decades. By contrast, the Supreme Court of the United States has in recent
years promulgated a number of constitutional limits on the availability and permissible quantum
of punitive damages. However, notwithstanding this gradual convergence, it appears punitive
damages awards in the United States still tend to much larger than those in Canada.23
American rules regarding punitive damages vary sharply across states. In some states,
punitive damages are prohibited except where explicitly allowed by statute, while in others they
are legislatively capped, either at an absolute maximum or at a particular multiple of
21 Kessler, D., McClellan, M., “Do doctors practice defensive medicine?” (1996) 111(2) The Quarterly Journal of
Economics 353-390. 22 Frank A. Sloan and John H. Shadle, “Is there empirical evidence for „Defensive Medicine‟? A reassessment”
(2009) 28 Journal of Health Economics 481 23 For a more detailed discussion of the differences in the treatment of punitive damages in Canada, England, and the
United States, see Bruce Chapman and Michael Trebilcock, “Punitive Damages: Divergence in Search of a
Rationale” (1989) 40 Alabama L. Rev. 741.
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compensatory damages.24
However, in most jurisdictions, punitive damages can properly be
awarded to further the goals of retribution and deterrence in cases where a defendant‟s conduct
has been “outrageous” or “deplorable”.25
In such cases, the quantum of punitive damages is
generally determined by a jury, with appellate courts reviewing jury awards on a fairly
deferential standard, sometimes characterized as reasonableness26
and sometimes as an abuse of
discretion standard.27
Beyond simply reviewing juries‟ punitive damages awards for reasonableness, the
Supreme Court has held that the Eight Amendment to the Constitution of the United States,
which is incorporated against the states via the Fourteenth Amendment, also places a
constitutional limit on the magnitude of punitive damages. Specifically, the Supreme Court has
held that the Eighth Amendment prohibits awards of punitive damages which are “grossly
excessive”, with the question of whether a particular awarding is grossly excessive being
determined by: (1) the degree of the defendant‟s reprehensibility or culpability; (2) the
relationship between the penalty and the harm to the victim caused by the defendant‟s actions;
and (3) the sanctions imposed in other cases for comparable misconduct.28
Thus, on this basis,
the Supreme Court held in Gore that a jury award of $2,000,000 in punitive damages for a
plaintiff who found out that a new car he bought had been repainted and for which he received
$4,000 in compensatory damages was grossly excessive. However, in other cases, sizeable
24 See the discussion in Exxon Shipping Co. v. Baker, 128 S.Ct. 2605 (2008).
There have been occasional cases where state courts have struck down certain forms state legislation to limit
punitive damages. See e.g. Kirk v. Denver Pub. Co., 818 P.2d 262 (Colo. 1991) (holding unconstitutional a Colorado
statute that required one-third of exemplary damages awards to be paid to the state); Henderson By and Through
Hartsfield v. Alabama Power Co., 627 So. 2d 878 (Ala. 1993). 25 Exxon. 26 Exxon. 27 Cooperman Industries Inc. v. Leatherman Tool Group Inc., 532 U.S. 424 (2001). 28 BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996); Cooperman Industries Inc. v. Leatherman Tool Group
Inc., 532 U.S. 424 (2001).
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punitive damages awards been found to withstand constitutional scrutiny on the “grossly
excessive” standard. For example, in TXO Production, the Supreme Court upheld as
constitutional a punitive damages award for $10,000,000 where actual damages were only
$19,000.
Leaving aside constitutional considerations, the Supreme Court has recently signaled a
desire to curb what it views as excessive punitive damages awards. In Exxon Shipping Co., an
admiralty case, the majority of the Supreme Court found that a jury award of $5 billion in
punitive damages was inappropriate.29
Rather, it held that in that case, a one to one ratio of
compensatory to punitive damages was appropriate, and it therefore lowered the punitive
damages award to roughly $500 million. While this result was not reached as a matter of
constitutional law and is therefore not directly binding on state courts as such, it does signal the
Supreme Court‟s preference for restraint in the size of punitive damages awards.
The contemporary Canadian law of punitive damages shares a similar normative
foundation as does its American counterpart. As in most jurisdictions in the United States but
unlike in England, punitive damages are not reserved for a few particular classes of cases.30
Punitive damages can be awarded in Canada in order to further deterrence, retribution, and
denunciation, and they can only be awarded where there has been “high-handed, malicious,
arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary
29 Exxon Shipping Co. v. Baker, 128 S.Ct. 2605 (2008). 30 The dominant American and Canadian approach to punitive damages can be contrasted with that employed in
England. There, the House of Lords held in Rookes v Barnard [1964] AC 1129 that punitive damages can only
properly be awarded in three classes of cases: 1) where there was oppressive, arbitrary or unconstitutional action
taken by servants of the government; 2) where the defendant‟s conduct was calculated to make a profit for himself;
and 3) where a statute expressly authorizes the awarding of punitive damages.
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standards of decent behavior”.31
They are typically awarded in cases of intentional torts, while
they are rarely awarded in negligence or products liability cases.32
However, beyond these conceptual similarities, punitive damages are in general much
less widely awarded in Canada than they are in the United States. For example, the Supreme
Court has held that in cases tried by a jury, the trial judge‟s charge should inform the jury that
“[p]unitive damages are very much the exception rather than the rule”.33
Moreover, “[p]unitive
damages are awarded only where compensatory damages, which to some extent are punitive, are
insufficient to accomplish” the objectives of retribution, deterrence, and denunciation.34
[emphasis in original]
Additionally, appellate review of punitive damages is much stricter in Canada than it is in
the United States. The Supreme Court of Canada has held that appellate courts have much
greater scope and discretion in reviewing punitive damages than they do with respect to other
types of general damages.35
Under Canadian law, the test to be applied by appellate courts in
reviewing punitive damages awards is to ask “whether a reasonable jury, properly instructed,
could have concluded that an award in that amount, and no less, was rationally required to punish
the defendant‟s misconduct.”36
Whether for these reasons or for others, the magnitude of punitive damages awarded in
Canada has generally been much smaller than that which has been awarded in the United States.
A 1991 Ontario Law Commission Study of punitive damages awards found few awards greater
31 Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595 at para. 94. 32 Jamie Cassels and Elizabeth Adjin-Tetty, Remedies: The Law of Damages, 2nd ed. (2008, Irwin Law Inc.) at 288-
290. 33 Whiten, at para. 94. 34 Whiten, at para. 94. 35 Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130, at para. 197. 36 Whiten, at para. 107.
14
than $50,000. While the quantum of punitive damages awards has risen since that time, even
today there have been only a handful of awards made in Canada exceeding a million dollars at
any level of court. While the Supreme Court upheld a punitive damages award of $1,000,000 in
Whiten and $800,000 in Hill, such awards have been rare and have only been awarded in
exceptionally egregious circumstances.
Of course, while public attention in America focuses on the enormous punitive damages
awards of the type seen in the Exxon Valdez litigation, many have argued that such awards are
relatively rare. In an empirical study of punitive damages, Eisenberg et al. find that juries rarely
award punitive damages, especially in cases which have arguably attracted the most public
attention and debate, such as medical malpractice and products liability cases.37
C. Collateral Source Off-set
Another area that has been considered at length by tort reformers relates to the question
of whether tort damages should be reduced by the value of benefits received from collateral
sources. The question of whether collateral source benefits should be deducted from damage
awards is a difficult policy question which requires an assessment as to whether it is worse to
allow a plaintiff to be doubly compensated or to allow a defendant to escape liability due to the
benefits which a plaintiff receives from third parties. While it is difficult to generalize on this
point, it appears that the Canadian approach to collateral source benefits is somewhat more
beneficial to defendants than is the American approach.
37 Theodore Eisenberg, John Geordt, Brian Ostrom, David Rottman & Martin T. Wells, “The Predictability of
Punitive Damages” (1997) 26 Journal of Legal Studies 623:
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The dominant common law rule in American states is that evidence of benefits from
collateral sources is inadmissible at trial.38
Thus, benefits obtained from collateral sources could
not at common law be used to reduce the magnitude of damages. However, a number of states
have now modified or abolished this common law rule, at least in certain domains.39
For
example, in New York, the collateral source rule has been eliminated with respect to medical
malpractice claims.40
The Canadian approach to collateral source benefits begins from the opposite starting
point from the dominant American common law rule. Specifically, the general rule in Canada is
that collateral source benefits may be deducted from a damages award.41
However, while the
general rule is that collateral benefits are deductible, this rule is subject to two major exceptions,
neither of which is precisely defined. First, benefits conferred through private charity are not
deductible. This exception has been construed fairly broadly. Second, benefits that a plaintiff
obtains pursuant to a private insurance contract are not deductible. Like the “private charity”
exception, the “private insurance” exception has been construed quite broadly. For example,
benefits obtained through workplace insurance schemes are not deductible under the “private
insurance” exception, provided that the employee has implicitly paid for the benefit in some
way.42
While these two exceptions are fairly broad and thus in significant part appear to
attenuate the general Canadian rule that collateral benefits are to be deducted, there are indeed
38 Restatement (Second) of Torts § 920. 39 See John C. Goldberg, Anthony J. Sebok, and Benjamin C. Zipursky, Tort Law: Responsibilities and Redress, 2nd
ed. (Austin: Wolters Kluwer Law & Business/Aspen Publishers, 2008) at 481. 40 N.Y. Civ Prac. L. & Rules § 4545(a) (2007). 41 Ratych v. Bloomer, [1990] 1 S.C.R. 940. 42 Cunningham v. Wheeler; Cooper v. Miller; Shanks v. McNee, [1994] 1 S.C.R. 359.
16
certain class of benefits which have been held to be properly deductible. For example, social
assistance provided by the government has been held to be deductible from damage awards.43
Moreover, the law remains unclear in relation to certain classes of benefits, such as housekeeping
services provided by third parties.44
3. Procedural Rules
Beyond the substantive rules discussed above, procedural rules also play a significant role
in leading to particular outcomes in litigation. In this section, we highlight some major
differences in the procedure applicable to tort suits in Canada and the United States, and discuss
how such differences may play a role in contributing to the relatively lower prevalence and
social costs of tort litigation in Canada.
A. The Right to a Jury Trial
One noteworthy procedural difference between tort suits in Canada and the United States
is the availability and prevalence of jury trials. Due to a perception that juries have a
predilection for making excessive damage awards, jury trials are sometimes viewed as being a
factor that contributes to the tort crisis in the United States.
In the United States, the right to a jury trial in a large range of civil cases is afforded
constitutional protection. Under the Seventh Amendment to the United States constitution,
plaintiffs claiming damages are guaranteed a right to a jury trial. While the Seventh Amendment
43 M.B. v. British Columbia, [2003] 2 S.C.R. 477, 2003 SCC 53. 44 Jamie Cassels and Elizabeth Adjin-Tetty, Remedies: The Law of Damages, 2nd ed. (2008, Irwin Law Inc.) at 423.
17
applies only to federal claims and is not incorporated against the states, a number of state
constitutions also contain a right to trial by jury in civil cases.
By contrast, there is no constitutional right to a trial by jury in civil cases in Canada. In
Ontario, tort claims for damages can be tried by a jury at the request of either party,45
but the trial
judge retains the discretion to order that an action proceed without a jury.46
Jury trials are also
generally not permissible where equitable relief is claimed47
or where a claim is brought against
the government.48
Even in situations where a claim could be tried by a jury, jury trials are still
relatively rare.
Insofar as it is true that juries do make larger damages awards than do judges sitting
alone, it would appear that the relatively restricted use of jury trials in Canada may be a factor
that would explain the relative absence of a crisis in Canadian tort absence. However, whether
juries do systematically award higher damages than do judges sitting alone is not clear. In an
empirical study comparing punitive damages awards made by judges and juries, Eisenberg et al.
find that both the rate at which punitive damages are awarded as well as the relationship between
punitive and compensatory damages is relatively similar as between awards made by a jury and
awards made by a judge sitting alone.49
However, Hersch and Viscusi reach the opposite
conclusion, finding instead that juries are more likely than judges sitting alone to award punitive
damages, and that they also do so at higher levels than judges.50
45 Courts of Justice Act, R.S.O. 1990, c. C.43, at s. 108(1); Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 47. 46 Ibid. at s. 108(3). 47 Ibid. at s. 108(2) 48 Crown Liability and Proceedings Act, R.S.C. 1985, c. C-50 at s. 26; Proceedings against the Crown Act, R.S.O.
1990 c. P.27 at s. 11. 49 Theodore Eisenberg, Neil LaFountain, Brian Ostrom, David Rottman & Martin T. Wells, “Juries, Judges, and
Punitive Damages: An Empirical Study” (2001-2002) 87 Cornell L. Rev. 743. 50 Joni Hersch and Kip Viscusi, “Punitive Damages: How Judges and Juries Perform” (2004) 33 J. Legal Studies 1.
18
B. Cost Awards
Another area in which American and Canadian law diverge significantly is in the rules
relating to the payment of the costs of legal proceedings.51
Rules relating to costs have received
significant attention as a possible source of the perceived difference in litigiousness between the
United States and the rest of the world. However, as discussed below, the actual impact of these
rules remains unclear.
The standard American rule for most proceedings and most jurisdictions is that each
party bears their own costs (the so-called no-way cost rule). There are certain notable exceptions
to this rule even in the United States. For example, the standard rule in Alaska is that the loser
pays the winner‟s costs (the so-called two-way cost rule).52
Additionally, there are a variety of
statutes which allow courts to order losing parties to pay the winning parties‟ costs.53
However,
for most claims, the default rule in the United States remains that each party bears their own
costs.
By contrast, the default costs rule under Anglo-Canadian law is the two-way cost rule,
under which the losing party is required to pay a substantial fraction of the winning party‟s legal
costs.54
While this general principle is the starting point, Ontario law provides judges with
51 In this paper, we focus exclusively on the rules governing when parties are required to bear opposing parties‟
costs. There are, of course, other differences, both historic and current, in the ways in which lawsuits are funded
between Canada and the United States. Perhaps most notable among these differences is that contingency fees, long
permissible in the United States and even in many other Canadian provinces, were prohibited until late 2002 in
Ontario. Contingency fees were permitted with the enactment of the Justice Statute Law Amendment Act, 2002,
S.O. 2002, c. 24 - Bill 213, (Schedule A, Amendment to the Solicitor's Act). 52 Alaska Rules of Civil Procedure, Rule 82. 53 See e.g. 42 U.S.C. 1988 (providing for the payment of attorney‟s fees for successful litigants under federal civil
rights law). 54 The general principle that losing parties should pay the winning parties‟ costs is not limited to Anglo-Canadian
law, but rather is a feature of most similar legal systems. The general American rule that each party bears their own
19
significant flexibility as to the quantum of cost awards and even whether such awards should be
made at all.55
In general, judges are authorized to make cost awards along three scales of costs—
partial indemnity, substantial indemnity, and full indemnity—with the default rule being partial
indemnity of costs. Whether a higher costs award is made depends on a number of factors,
including in large part the conduct of the parties in the lawsuit. Judges can also decline to award
costs to or can award costs against the successful party in appropriate cases.56
In addition to these general principles, Ontario also has particular cost rules which are
designed to encourage parties to settle the lawsuit before trial. It does so through a mechanism
commonly known as Rule 49 offers to settle, which imposes adverse cost consequences on
parties that do not accept certain settlement offers. Under Rule 49.10(1) of the Ontario Rules of
Civil Procedure, where a plaintiff makes an offer to settle at least seven days before trial that is
not withdrawn until the trial begins and the defendant does not accept that offer, if the plaintiff
obtains a judgment that is at least as favourable as their offer to settle, the plaintiff is entitled to
partial indemnity costs to the date of the offer to settle and substantial indemnity costs after that
date.57
Rule 49.10(2) provides an analogous rule for defendants who make offers to settle.58
Through such cost consequences, Rule 49.10 provides both parties with incentives to make early
offers to settle and to accept such offers.
While the law on costs differs significantly between Canada and the United States, it
remains somewhat unclear whether costs rules have a significant impact in practice on litigation
legal fees is quite exceptional: see W. Kent Davis, “The International View of Attorney Fees in Civil Suits: Why is
the United States the “Odd Man Out” In How It Pays Its Lawyers?” 16 Ariz. J. Int'l & Comp. L. 361 1999. 55 See the factors listed in Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 57.01. 56 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 57.01(4). 57 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 49.10(1). 58 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 49.10(2).
20
costs and the cost of litigation overall. It is commonly argued that the Anglo-Canadian rule
discourages high risk litigation, because of the prospect of having to pay the other side‟s costs,
while the US rule may encourage more speculative tort claims. Indeed, in a 1984 study, Kritzer
found that Canadians viewed fee-shifting provisions as a major reason for their perception that
Canadians are generally less litigious than Americans.59
Similarly, it has also been argued that
fee-shifting rules increase the likelihood of settlement prior to trial.
However, despite both the conventional wisdom as well as significant theorizing as to the
effects that cost awards ought to have,60
the empirical evidence finding such effects is limited. In
an empirical analysis of the effect of a fee-shifting statute in constitutional litigation in the
United States, Schwab and Eisenberg find that the fee-shifting statute has had very little effect on
constitutional tort litigation.61
Although the empirical research is not entirely unequivocal, there
seems to be little conclusive evidence that fee-shifting regimes increase the likelihood of
settlement.62
Additionally, as Kritzer notes, many countries that do require losing parties to pay
the winning parties‟ legal costs, such as Germany and Sweden, actually have higher litigation
rates than does the United States.63
At the very least, this latter fact suggests that any popular
59 Herbert M. Kritzer, “Fee Arrangements and Fee Shifting: Lessons from the Experience in Ontario” 47 Law &
Contemp. Probs. 125 1984. 60 Thomas D. Rowe, Jr., “Predicting the Effects of Attorney Fee Shifting” (1984) 47 Law and Contemporary
Problems 139; Jennifer F. Reinganum and Louis L. Wilde, “Settlement, Litigation, and the Allocation of Litigation
Costs” (1986) 17 The RAND Journal of Economics 557; Robert D. Cooter and Daniel L. Rubinfeld, “Economic
Analysis of Legal Disputes and their Resolution” (1989) 27 Journal of Economic Literature 1067. 61 Stewart J. Schwab and Theodore Eisenberg, “Explaining Constitutional Tort Litigation: The Influence of the
Attorney Fees Statute and the Government as Defendant” 73 Cornell L. Rev. 719 1987-1988 62 For studies finding no evidence that fee-shifting encourages settlement, see e.g. Gary M. Fournier & Thans W.
Zuehlke, “Litigation and Settlement: An Empirical Approach” 71 Rev. Econ. & Stat 189. However, for evidence to
the contrary, see Don L. Coursey & Linda R. Stanley, “Pretrial Bargaining Behavior Within the Shadow of
the Law: Theory and Experimental Evidence” 8 Int‟l Rev. L. & Econ. 161 (1988) (experimental laboratory evidence
finding that the Anglo-Canadian rules makes individuals more likely to settle than does the American rule). 63 Herbert M. Kritzer, “Lawyer Fees and Lawyer Behavior in Litigation: What Does the Empirical Literature Really
Say?” 80 Tex. L. Rev. 1943 (2001-2002), 1981.
21
perception that fee shifting rules play an overwhelming rule in determining rates of litigation is
unwarranted.
C. Class Action Rules
One set of procedural rules which has a significant impact on the ability of plaintiffs to
meaningfully bring tort claims is the rules governing the availability of class actions. This is an
area in which Canada and America have historically differed significantly but have increasingly
converged in recent years.
While certain forms of representative or group actions were available earlier, the modern
form of class action under federal law in the United States was introduced in 1966. Under Rule
23(a) of the Federal Rules of Civil Procedure, one or more members of a class may sue on behalf
of the entire class if
(1) the class is so numerous that joinder of all members is impracticable,
(2) there are questions of law or fact common to the class,
(3) the claims or defenses of the representative parties are typical of the claims or
defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.64
In addition to the four requirements in rule 23(a)—all of which must be met for a class
proceeding to be permissible—rule 23(b) lists three additional requirements, one of which must
be met for a class proceeding to be permissible.65
Most importantly among these additional
requirements is rule 23(b)(3), which provides that a class action may be maintained if, in
64 FRCP, Rule 23(a). 65 FRCP, Rule 23(b).
22
addition to the conditions in rule 23(a) being met, “questions of law or fact common to class
members predominate over any questions affecting only individual members”.
Class actions in Canada are of a much more recent vintage. The first jurisdiction in
Canada to allow U.S.-type class proceedings was Quebec, which enacted legislation permitting
class proceedings in 1978. In 1992, Ontario became the next province to provide for class
actions. Class actions are now permitted in all jurisdictions in Canada.
While the rules governing the availability of class actions are substantially similar to
those rules under American law, there are some minor differences. For example, while the
requirement under rule 23(b)(3) that the common issues predominate is a de facto requirement
for many American class actions, this is not a strict requirement to maintaining a class action in
Canada. Under most Canadian statutes, the question of whether common issues predominate
over individual issues is merely a factor for the court to consider in determining whether a class
proceeding would be a preferable form of proceeding.66
Thus, in certain respects, it is actually
easier to have a class action certified in Canada than in the United States, although in general the
rules governing certification are substantially quite similar.
Notwithstanding these similarities, class actions are much less common in Canada than
they are in the United States. This may be a function of the relatively recent origins of class
actions in Canada, of the other differences in legal rules described in this paper, or of some other
factor entirely.
66 Class Proceedings Act, 1992, S.O. 1992, c. 6, at s. 5; Class Proceedings Act, R.S.B.C. 1996, c. 50, at s.4.
23
D. Discovery Rules
An important set of procedural rules that play a significant role in influencing the cost of
litigation relates to discovery rules. While rules allowing for extremely broad discovery may or
may not have any substantive impact in systematically favouring plaintiffs or defendants, they
almost certainly raise the costs of litigation for both parties.
In the United States, parties‟ rights to engage in discovery are quite broad. Under the
Federal Rules of Civil Procedure, parties must provide to the opposing side all documents
“regarding any nonprivileged matter that is relevant to any party‟s claim or defense”.67
Additionally, the Rules provide parties with the opportunity to depose a number of individuals in
an oral examination. Under Rule 30, subject to certain exceptions, a party is entitled to take 10
depositions without having to seek leave of the court to take additional depositions.68
Canadian rules relating to discovery provide parties with a more limited scope for
discovery than do the corresponding rules in the United States. With respect to documentary
discovery, Canadian rules are relatively similar, though not identical, to American rules. Again
using Ontario as an example, the Ontario Rules of Civil Procedure provide that parties must
produce for inspection every document that is not privileged and that is relevant to any matter in
issue in an action.69
While the Ontario provision relating to documentary discovery is of roughly similar
scope to its analogue under the U.S. Federal Rules of Civil Procedure, Ontario rules relating to
oral discovery is much more limited than are corresponding American rules. As a general
67 FRCP, Rule 26(b)(1). 68 FRCP, Rule 30. 69 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 30.02.
24
matter, under the Ontario Rules, the only individual that parties have a right to examine orally for
discovery are those parties to the suit that are adverse in interest.70
Where a corporation may be
examined for discovery, the examining party has the right to examine one director, officer, or
employee of the corporation.71
Additional individuals may be examined under certain
circumstances, but the circumstances when additional oral examinations are permitted are quite
tightly circumscribed.72
Moreover, as of January 1, 2010, parties are limited to a total of seven
hours of examination for discovery, regardless of the number of parties or other persons to be
examined, except in cases where the parties consent or with the leave of the court.73
Additionally, Ontario has recently taken steps to further limit the scope and expense of all
forms of discovery. On January 1, 2010, a proportionality requirement in discovery came into
effect in Ontario.74
Under the proportionality requirement rule, where a court is making a
determination as to whether a party or other person should answer a question or produce a
document, the court is empowered to consider a variety of factors, including the time and cost of
answering the question or producing the document, whether answering the question or producing
the document would cause the person undue prejudice or interfere with the orderly progress of
the action, whether the information is available from another source, and whether an order would
require an excessive volume of documents to be produced. This represents an attempt to further
limit the scope of discovery, but the practical impact of this proportionality remains to be seen.
70 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 31.03(1). 71 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 31.03(2). 72 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 31.03. 73 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 31.05.1 74 Rules of Civil Procedure, R.R.O. 1990, Reg. 194, at r. 29.2
25
4. Partial or Total Displacement of the Tort System
While the tort system continues to be the legal framework through which individuals seek
compensation for most types of accidents, both Canada and the United States have replaced the
tort system with no-fault insurance schemes in certain domains. While we do not discuss in
detail the mechanics of these systems or comprehensively evaluate their performances,75
we
briefly outline and discuss differences between Canada and the United States in terms of the two
most prevalent and important no-fault insurance schemes: no-fault automobile insurance, and
workers‟ compensation programs.
A. Auto Accidents
The legal framework for obtaining compensation for injuries sustained in automobile
accidents has changed dramatically in the latter half of the twentieth century. Prior to the 1970s,
the tort system was the predominant legal framework applicable for losses in automobile
accidents in North American jurisdictions. However, since the 1970s, a number of American
states and Canadian provinces have adopted some form of compulsory no-fault insurance
program.76
At present, roughly half of American states have adopted some type of no-fault
automobile insurance programs. Under such no-fault insurance schemes, proof of another‟s fault
is not a prerequisite for an injured party to receive compensation. While such systems typically
provide full recovery for pecuniary damages, recovery for non-pecuniary damages is typically
tightly restricted.
75 For this, see Michael Trebilcock and Paul-Erik Veel, “No Fault Accident Compensation Systems” in Jennifer
Arlen, ed., Research Handbook on the Economics of Torts (Edward Elgar) (forthcoming). 76 See American Insurance Association‟s Automobile Insurance Laws 2008: Insurance Bureau of Canada 2008 Fact
Book.
26
The impetus for the move to some variety of no-fault scheme was the view that the tort
system was an inefficient means for compensating victims of automobile accidents. Specifically,
the tort system was seen as overly expensive, unfair as between victims, and slow to provide
compensation. While the empirical evidence is not entirely without dispute, it does seem that at
least particular types of no-fault regimes have ameliorated the problems of the tort system, at
least in part.77
Different jurisdictions have implemented a variety of no-fault schemes with various
characteristics. Only a few jurisdictions—namely, Quebec and Manitoba—have moved to a
“pure” no-fault system. In both of those provinces, no-fault automobile insurance schemes
provide generous compensation for pecuniary losses as well as impairment benefits, but the right
of victims to sue in tort has been removed entirely.
A much more common variant of no-fault insurance is “threshold” no-fault insurance
schemes, which have been adopted by a plurality of American states which have adopted no-
fault as well as a number of Canadian provinces. Under these systems, tort suits are barred
below some threshold. Some jurisdictions, such as Michigan, New York, and Ontario, use a
verbal threshold, under which tort suits are precluded unless an injury meets a described
77 An enormous body of empirical work exists on the relative merits of tort and no-fault schemes in the automobile
accident context. See e.g. John E. Rolph, James K. Hammitt, & Robert L. Houchens, Automobile Accident
Compensation: Who Pays How Much How Soon?, 52 THE JOURNAL OF RISK AND INSURANCE 667 (1985). (finding
that a greater percentage of automobile accident victims are compensated in no-fault states than tort states and that
there is less variability in payouts as between similarly situated plaintiffs); Ontario Task Force on Insurance (1986),
Final Report of the Ontario Task Force on Insurance (Toronto: Ministry of Financial Institutions) at 322, 332, 334
(finding that the proportion of victims receiving compensation increased by around 20% and that the ratio of net
compensation to premiums paid increased significantly after a pure no-fault scheme was introduced in Quebec);
Stephen J. Carroll & James S. Kakalik, No-Fault Approaches to Compensating Auto Accident Victims, 60 THE
JOURNAL OF RISK AND INSURANCE 265 (1993) (concluding that substantially fewer individuals experience
exceptionally long wait times for compensation under no-fault automobile insurance systems than under the tort
system); Roger C. Witt & Jorge Urrutia, A Comparative Economic Analysis of Tort Liability and No-Fault
Compensation Systems in Automobile Insurance, 50 THE JOURNAL OF RISK AND INSURANCE 631 (1983) (finding that
average loss ratios are higher in no-fault states than in tort states).
27
threshold of severity. Other jurisdictions, such as Massachusetts and Minnesota, use a monetary
threshold, under which tort suits are precluded unless the accident has caused the victim to incur
a certain monetary amount of medical expenditures.
Other jurisdictions have adopted “add-on” no-fault insurance schemes. Under this type
of scheme, no-fault insurance schemes provide benefits to accident victims, with the purchase of
the no-fault insurance being either compulsory or optional, depending on the jurisdiction.
However, under “add-on” regimes, unlike pure or threshold no-fault regimes, tort suits are not
precluded. Jurisdictions which have adopted this system include Arkansas, Maryland, and
British Columbia.
Finally, a small number of jurisdictions have adopted a system of “choice” no-fault,
which was initially popularized by Jeffrey O‟Connell and Robert H. Joost in an influential law
review article.78
Under these systems, motorists choose whether to purchase no-fault insurance
or third-party liability insurance governed by traditional tort principles. Kentucky, New Jersey,
Pennsylvania, and Saskatchewan currently operate choice no-fault regimes.
As is clear from the above description of various types of no-fault regimes, there is no
clear divide between the Canadian and American approaches to the legal treatment of automobile
accidents. However, certain general observations can still be made comparing the Canadian and
American approaches.
First, there has been a much greater displacement of the tort system as a means of dealing
with the consequences of automobile accidents in Canada than there has been in the United
States. Virtually all Canadian jurisdictions place at least some restrictions on the recovery of
78 Jeffrey O‟Connell & Robert H. Joost, Giving Motorists a Choice Between Fault and No-Fault Insurance, 72 VA.
L. REV. 61 (1986).
28
damages through the tort system; for example, almost all Canadian jurisdictions restrict the
availability of damages for non-pecuniary loss to very low levels for minor injuries (variously
defined) and subject to the judicially-imposed cap on total non-pecuniary damages (discussed
above). By contrast, in roughly half of American states, automobile insurance tends to be
regulated through the tort system without any significant restrictions on the ability to recover
certain types of damages.
Second, while two Canadian provinces operate pure no-fault systems, no American states
have followed a similar approach and completely ousted the operation of tort law. While pure
no-fault regimes are not without their problems, the complete displacement of the tort system
from that domain should be expected to keep costs down to a greater extent than in systems
where the tort systems retains a residual role.
B. Workplace Accidents
Workers‟ compensation is currently the most wide-spread form of no-fault compensation
program, as well as the oldest form of no-fault insurance currently in existence.79
Every
American state except for Texas and all Canadian provinces require most workers to be covered
by workers‟ compensation insurance.80
The basic structure of most of these workers‟
compensation programs is similar. In the event of accidents which arise out of or in the course
79 For the history of the adoption of workers‟ compensation in the United States, see Price V. Fishback & Shawn
Everett Kantor, The Adoption of Workers’ Compensation in the United States, 1900-1930, 41 JOURNAL OF LAW AND
ECONOMICS 305 (1998). 80 Ishita Sengupta et al., “Workers‟ Compensation: Benefits, Coverage, and Costs, 2006” (National Academy of
Social Insurance, 2008) at 9 [NASI Study, 2008]. Even in Texas, estimates suggest that 77 percent of workers were
covered by workers‟ compensation insurance in 2006. NASI Study, 2008, at 12.
Several states exempt relatively small firms and/or agricultural workers from the requirement of being covered by
workers‟ compensation. Additionally, railroad workers are also not covered by workers‟ compensation. NASI
Study, 2008, at 41.
29
of employment, workers‟ compensation insurance will typically cover a high percentage of both
the medical costs incurred by the injured worker as well as the workers‟ lost wages, without any
need to show fault by a tortfeasor. In exchange for this coverage, workers‟ compensation is
generally the exclusive mechanism by which employees can recover; tort suits against employers
are generally barred, absent exceptional circumstances. Additionally, workers‟ compensation
systems generally provide no or limited recovery for non-pecuniary losses.
Beyond these similarities, there are significant differences between different workers‟
compensation schemes. Waiting periods before benefits are received can vary between a few
days and several weeks. The percentage of income replacement also varies sharply between
schemes. The mechanism through which workers‟ compensation insurance is provided also
varies significantly. Most Canadian provinces and five American states operate exclusive state
insurance programs.81
The majority of American states require employers to purchase workers‟
compensation insurance for their employees on the private market, although many states also
operate a public insurer.
While Canadian and American workers‟ compensation schemes are broadly similar in
structure, one significant difference between the two systems lies in the types of claims that are
barred by the system. In both Canada and the United States, tort claims against workers‟
employers are barred. However, the schemes differ in terms of whether tort suits against third
parties are precluded. American workers‟ compensation schemes do not preclude injured
workers from suing third parties, such as manufacturers of defective products that injure them in
the workplace. By contrast, Canadian schemes often foreclose tort claims by injured workers
81 The five states are Ohio, North Dakota, Washington, West Virginia, and Wyoming. See NASI Study, 2008, at 13.
30
against not only their employers but also many third parties in return for no-fault workers‟
compensation benefits. The Canadian model may be preferable to the American model in this
respect, as those product liability claims are removed from the court system, but workers are still
compensated for their injuries.
IV. Conclusion
For the reasons discussed above, it seems reasonable to conclude that the differences in
the substance and procedure of Canadian tort law as compared to American tort law constitute at
least part of the explanation for why the direct costs of tort law are lower in Canada than in the
United States. To the extent that the crisis in American tort law is an over-abundance of
frivolous or vexation litigation or unreasonably high damages awards, Canadian tort law can
serve as an example of a broadly similar system which has tamed many of the excesses that are
apparent in American tort law. The less plaintiff-friendly Canadian tort system demonstrates
that, rather than rejecting the tort system entirely in favour of one or more no-fault compensation
systems, the excesses of American tort law can be curbed by incremental reforms which
nonetheless preserve the essential features of the tort system.
However, we posit this conclusion with several caveats. First, as we suggested above, the
prescription than American tort law should look to the relatively less plaintiff-friendly Canadian
tort law in order to ameliorate the “crisis” in American tort law is only tenable if the crisis in
American tort law is really a crisis of there being too much rather than too little litigation. To the
extent that the problem in tort law is actually that too few claims are being litigated, as some
31
posit it is,82
many (though not necessarily all) of the possible reforms suggested by this paper
would be counterproductive.
Second, even assuming that the crisis in tort law is that too many frivolous claims are
being litigated and that damages awards are too large and too random, it is by no means apparent
that the optimal system is a reformed, less plaintiff-friendly tort system along the lines of the
Canadian model. Indeed, it may be that no-fault systems would be preferable in a variety of
respects to both the Canadian and American tort systems, at least in the domain of certain
accidents, and we make no claims about the relative performance of no-fault systems as
compared to the tort system here.83
Our suggestion that American scholars and tort reformers
could look to the Canadian model of tort law will only have appeal for those who believe that the
essential features of the tort system should be preserved.
Third, while we have outlined the Canadian system as a system that has lower direct
costs, we are reluctant to reach conclusions about the social welfare impacts of the each of the
tort systems. While the Canadian system may entail fewer direct social costs, it may be that the
increased direct costs of the American tort regime actually achieve a preferable outcome in terms
of social welfare by achieving a more socially optimal level of deterrence. Moreover, while we
have no reason at present to believe that a suboptimal level of deterrence is achieved by
Canadian law, it is entirely possible that a proper level of deterrence is achieved in Canada either
a) because the Canadian system is free-riding on the deterrence effects of the US tort system,
given the integrated nature of the two economies, or b) because Canada is willing to rely more on
82 See Richard L. Abel, “The Real Tort Crisis—Too Few Claims” (1987) 48 Ohio St. L. J. 443. 83 For such an evaluation, see Michael Trebilcock and Paul-Erik Veel, “No Fault Accident Compensation Systems”
in Jennifer Arlen, ed., Research Handbook on the Economics of Torts (Edward Elgar) (forthcoming); Don Dewees,
David Duff, and Michael Trebilcock, Exploring the Domain of Accident Law: Taking the Facts Seriously (Oxford:
Oxford University Press, Inc., 1996) at chapter 7.
32
regulatory interventions to reduce the incidence of accidents, while the United States relies more
heavily on the tort system. For these reasons, it is exceptionally difficult to ascertain the welfare
effects that would be occasioned by the United States adopting a more “Canadian” tort system.
While the theoretical bases for making such a judgment are reasonably well developed,
additional empirical research is necessary to reach a determinate conclusion.