28 January 2011

Unhealthful News 28 - coffee, olive pits, and liability as regulation

An interesting confluence of two events seems to have been overlooked, and I suspect that neither one is being reported outside the U.S.  The movie "Hot Coffee", which tries to counter some of the ridicule that is the conventional wisdom about personal injury lawsuits, debuted at the Sundance Film Festival, and U.S. member of congress Dennis Kucinich filed suit against the food service company in his congressional office building for the dental injury he suffered as a result of a hidden olive pit.

Though print stories I saw about Kucinich were short and matter-of-fact, the television clips included open ridicule.  Taking a shot at Kucinich is undoubtedly tempting for the corporate media since he is a huge outlier among high-office elected officials in America – there is pretty much no other major official who is close to him on the populist left (maybe Bernie Sanders).  Thus he has pushed hard for some very unpopular positions, like "do not start a land war in Asia" (you might recall that opposing the wars was a very unpopular position before everyone else caught on).  [Disclosure: I campaigned for him, a rare fellow libertarian left vegan (I used to be) from Ohio and back in the days I was at the higher end of my widely changing income I was at the "have cocktails with the candidate and hand-signed mementos" level.]

What you would not learn from the giggling talking heads was that biting into the olive pit, hidden in a wrap sandwich where it was easy to bit on without warning, caused so much damage that Kucinich had to endure multiple surgeries and suffered a lot of pain and loss of functionality.  I suspect most of us who are not impoverished would pay a year's salary to avoid what he went through, and the amount of the suit ($150,000) was less than what he earns in a year, though it sounds like a large number when described without the context of the injury's severity.

Similarly, you have probably heard of the seven figure judgment awarded against McDonalds for someone getting burned by a cup of their coffee.  The new movie sets the record straight on that one, in the context of a polemic intended to push back against the conventional wisdom about such lawsuits, which its creators characterize as being a concerted campaign by corporations to create scorn and thus increase support for protecting them from further lawsuits.  (For more about the movie from that perspective, there is a series of stories from the anti-corporate media here (scroll down past the video window to find transcripts).)  To briefly correct the story about the coffee:  It was not a case of a driver taking the cup and spilling it on herself, as widely reported.  Rather she was a passenger in a parked vehicle, holding the cup between her legs, and the claim was that the styrofoam cup just collapsed (the last part is hard to verify, of course).  The injuries were so bad that they required surgery and were reported to have substantially ruined her life. 

Yet the family merely asked McDonalds to cover their out-of-pocket medical expenses (recall that this is in medical-financing-backward America), just like a homeowner's insurance policy might provide such coverage if this happened at a private home.  When McDonalds refused, the family went to court, still seeking a fairly modest sum.  At trial it came out that McDonalds intentionally keeps its coffee at an extremely high temperature, far hotter than coffee would normally be served, because it saves them money, and that hundreds of people had suffered medical-treatment-level injuries from it.  The judge and jury were so incensed by what they learned that they awarded over $2 million in punitive damages, though the plaintiff probably only collected a small fraction of this in the final (secret) settlement.  That final outcome is typical for lawsuits like this; even if the consumers win a big award that makes the news, they usually have to negotiate for a much more modest sum in exchange for the company not tying up the finalization of the award with further legal action that can last longer than the person might live.

Another case I am reminded of, which was a favorite example 20 years ago, was someone who successfully sued the owner of a phone booth when he was struck by a car while using it.  (For my younger readers, a phone booth is like a mobile phone, except that it is bolted to a particular piece of tarmac and a lot cheaper to use.)  It sounds utterly absurd until the fact – not mentioned by those delighting in the example, of course – that this was the second time such a thing had happened in that particular phone booth, which suffered from both dangerous placement and a door that was difficult to open to get away from oncoming traffic.

Why are the Kucinich and Hot Coffee stories important health news?  Because they reflect an important part of the U.S. regulatory system for health risks.  I believe almost half of my readers are from the E.U., and many of you grouse about the increasing morass of regulations there.  In the U.S. we have fewer command-and-control regulations and depend on the threat of lawsuits to give companies the incentive to police themselves.  This is explicitly recognized as an important part of the regulatory regime by those who study law and economics, though probably not by most people.  In theory it has big advantages:  Companies are theoretically in a better position to keep track of possible hazards and, because they are creating the hazards, to figure out the best way to reduce them.  It is flexible, forcing companies to worry about creating new hazards that hurt people even if the regulators have not caught up with the situation.  It is also accepted, as part of this theory, that the optimal number of bad outcomes is not zero, and sometimes it is more efficient to compensate the occasional victim rather than to engage in overly-expensive interventions to reduce the risk. 

There is an endemic debate about doing something to stop "frivolous" lawsuits in the U.S., including Obama's promise to reduce medical malpractice lawsuits in his State of the Union speech this week.  It is important to realize that such lawsuits are an inherent part of consumer protection, and so this is really a call to reduce consumer protection regulation.  There is no obvious way to get rid of genuinely frivolous suits without creating barriers to other suits that are useful contributions to regulation, especially since some of the apparently frivolous examples are really being misrepresented. 

This does not mean that there are not frivolous lawsuits, and it certainly does not mean that the current system works as well as it might.  The fact that some suits even need to be defended is indefensible (I have worked on several of those – for the defense, I would like to note).  It is quite possible, for example, for someone to win a lawsuit even when ample science shows that there is almost no chance that the exposure in question caused the disease that is being attributed to it.  There is also an inherent arbitrariness to it (e.g., how should the blame be shared between the company that serves dangerously hot coffee and the consumer who takes the inadvisable step of holding it between her legs?).  As for medical malpractice, there is a lot damage done by bad medical practices, but it seems that consumer lawsuits do almost nothing to reduce most of the real errors and frequently punish providers for outcomes that were unfortunate but not caused by error.  So the incentivization to do better work and get rid of practitioners who are incompetent is minimal.

A lot of news stories about consumer health lawsuits, like many news stories, focus on extreme cases and look for ways to make the story entertaining.  Thus, the causal reader might think that a large fraction of lawsuits are silly.  It is true that pretty much no one would have come up with the American liability system if tasked with creating a regulatory system, but that is what evolved and as with most evolved systems, mutation (radical change) is more likely to make things worse than better.  But when you read a story about how we need to do something about the claimed excess of costly lawsuits, keep in mind that this is really saying that that we should reduce companies' expenses at the cost of having less consumer protection.  You may or may not agree that we should pursue such a change, but if you just read the news you probably would not even know that is what you were being asked to agree with.

[Update:  After writing this, I learned that Kucinich's lawsuit was settled (and he provided a lot more detail about it at that link) which is what typically happens.  An incentive for food providers to take greater care with pits in hidden olives has been created, and instead of this cost of imposing such incentives being paid to the government or being a deadweight loss, it goes to compensate someone who was injured.  Again, there is plenty wrong with the current system, but this is an example of what is right about it.]


  1. It seems to me the problem is elsewhere; it's the notion that the consumer is forbidden to share any risk that arises from buying something from the seller.

    Let's take the coffee example - the idea that if you are burnt by the coffee, it's the seller's fault can result either in this suite (US) or in regulation of 'safe temperature' (EU). However, quite many people would say that if not mentioned otherwise, the coffee just can be hot and you put yourself at risk if you buy it. Saying that McDonalds kept it's coffee at 'unsafe' temperature somehow presumes that you should be sold coffee at 'safe' temperature; that's basically a regulation.

    The courts are expected to find out what the expectations really are; do people really expect to be sold coffee at 'safe' temperature? Does McDonalds know people expect it? I would say most people who criticize this particular lawsuit would actually expect that they can be sold coffee at 'unsafe' temperature. BTW: is it the same as with tea? Tea is supposed to be put into 95C water....if I am sold something colder, I might consider it a 'fraud' :)

    Regarding the medical lawsuits - the regulation more or less says that the patients are forbidden to accept any risk. The payment of the patient, however, consists of payment for the treatment and payment for the insurance. The insurance payment seems exorbitantly high in the US - because you really have good insurance, you can get much more money for much pettier problems than people in the EU. However, I wouldn't call it 'less regulation'; it's different regulation. Less regulation would be if you let the consumers actually decide not to pay the insurance and later be able to get only very limited reimbursment if something happens. (BTW: are you sure that the medical services in the US are less regulated than those in the EU?)

    Similar thing happens with extreme sports - e.g tandem flights on a paraglide. You may behave as safe as you want but the accidents just happen; not frequently, but they do. Should the 'society' allow the customer to run the risk? It seems to me that in most countries this is simply impossible. Yet this 'obligatory risk transfer' is definitely not inherent in the money transfer that happens with it. On a similar note - you can actually see such contracts on international shipping - the shipper is _not_ responsible for 'anything that happens'; he is responsible up to a certain sum. If you want more, you have to insure it yourself. Why cannot we have the same in medical services? Isn't _this_ the regulation?

  2. ondra, The issue in coffee and olive examples I cite (as represented by the plaintiffs) is that the consumer had little expectation that the harm could come from the product. If properly warned (this coffee is a lot hotter than what is normally served and the cup is not too sturdy, this sandwich contain olive pits) then the consumer could fairly be considered as sharing the risk. But consumers cannot be expected to be wary of everything they encounter, while the producers of those encounters should have incentives to make sure there are not unexpected hazards.

    This is quite different from riding a glider, or smoking or other drug use for that matter, where the hazards are quite obvious or known, and so the consumer can rationally choose whether to accept them. It could be argued, then, that no prohibition or liability is appropriate. To get some benefits, there is an unavoidable associated risk. But no one would choose a sandwich with a hidden injury hazard (assume it could not be removed), nor one with a 1% chance of such. If you break the top of a bottle or jar and are pretty sure that none of the glass is in the food/drink, but not totally sure, you throw it out (at least I hope you do). So for a risk like that, the choice of either a ban or liability can reasonably prohibit that risk.

    As for medical malpractice, if I understand you correctly you are proposing something that is called "no fault insurance", in which someone is compensated for a bad outcome without regard to why it happened. This does get some incentives right (the extra cost for the medical procedure, or whatever, that must be collected from each consumer to pay off those who have a bad outcome reflects the "expected value" of the bad outcome, and thus is properly part of the price the consumer should consider. However, this does not do as much as it might as a system that punishes improper actions that cause risk.

    I believe you are also proposing a system where someone can pay less for a service in exchange for foregoing the payoff for bad outcomes (either the no-fault version or regular liability). That is certainly possible, but would be difficult to implement without accepting that some people, who are more concerned about saving money, get medical care that is below the accepted standard. (Consumers who have waived liability protection are likely to attract the producers who are more likely to do something wrong.) There are many ways that people could save money by agreeing to less protection, and it is certainly possible to argue that they should be able to make that choice. In some places we allow that without hesitation (cars are made cheaper by leaving out some safety features) but in others we do not (most medical treatment can only be legally purchased from licensed providers who are generally expensive). But letting consumers make such a choice is quite different from changing the rules so that all consumers lose the protections they have now.

  3. That's why I mentioned the coffee case and not the olive pit where it seems to me the rationale is somewhat better (however still I think significantly less people in the EU would try a lawsuit in such case). However in the case of the coffee the reaction of people is not that "it was hotter than normally served" - but rather "it is normal to serve it hot". That's why I wrote about "what the consumer expects" - in the coffee case the feeling of frivolity is based on the idea that you should expect the coffee to be hot; while I would argue that expectation of having olive pit in a sandwich is significantly lower; having a piece of glass in a bottle still lower.

    What I meant is letting the consumers choose the level of protection. I agree with you that the incentives may be strange and somewhat unpredictable, however currently "we" have chosen that other people "need" this protection, even if it should bankrupt them or even at the cost of denying them treatment.

    There's the funny thing that quite many people over here (Czech republic) actually buy quite a lot of stuff knowing that there is zero liability possibility (there are many vietnamese sellers where you could be quite sure that any claims won't be honored). People buy it and they know the risks (and there are risk; the electric appliances sometimes catch fire...). So .. should "we" forbid people to make these choices? I am not so sure...
    (btw: you are writing very good blog with lots of insights, love reading it)

  4. ondra,
    Thanks for the clarification (and the feedback about the blog!). I see your point about getting to choose. I agree that someone who wants coffee in the style that McDonalds used to (I assume) serve it -- kept about 15C hotter than coffee is usually served -- they can no longer get it. So the difference is that no one would prefer the olive pit or broken glass, but some people might have preferred the extra-hot coffee. The argument might go on to say that even if the customer did not realize that McDonalds coffee is extra hot, hot enough to maim, she should have known that it was hot enough to injure and taken more care. So, to conclude that argument, one person's misjudgment forever deprived American consumers of the opportunity to buy extra-hot coffee, at least at a drive-through.

    That makes sense to me. I would not say that no one should ever be deprived of choice to protect those who are not well-advised in making that choice. That is, I think there is still room to argue that, for example, extra-hot coffee is enough of a hidden risk and the preferences for it are not that strong, so it should be discouraged (liability) or forbidden (EU-style). I am not saying that position is necessarily right, but it is not absurd.

    I agree with you that we would lose a lot of every such case were decided on the side of eliminating the risk, which is the perception of what liability is moving us toward. I will, however, stand by my Unhealthful News point that the corporate media seems to have misled people about the case, and consistently in a way that encourages people to support a particular view of the world (that liability awards are frivolous rewards to irresponsible greedy people, rather than a useful part of consumer protection law). In that sense, it is an example of Unhealthful News, causing people to believe something something about public health that is just not so, even if we might decide that the case was bad policy even knowing the truth.

  5. I'm with ondra on this. Who would want to drink coffee that is not hot? Who would expect a coffee not being hot?
    Who would expect olives always come without pit? It's their natural ingredient and everybody knows that it is almost impossible to guarantee a pit-free jar of olives. My reaction as vendor of olive sandwiches would be to sell olive sandwiches without the olives.

    Last time I broke off part of a tooth on a piece of dry bread; Who was I going to sue?

  6. Ben,
    Be careful -- you are coming close to falling into the caricature that the those who want to strip away consumer protection want you to. The issue with the coffee was not that it was hot, but that it was *so* hot (hotter than is possible to sip, an thus hotter than you or anyone else wants) that a spill that would normally cause mild burns and discomfort instead caused life-changing injuries. If all coffee were served that hot then people would be expected to know it is highly dangerous, but McDonalds coffee was judged to be exceptional.

    Similarly, the issue is not an olive having a pit -- perhaps in its retail packaging or served whole on an appetizer plate -- but an olive pit hidden in a sandwich. Since a sandwich is implicitly represented as something you just pick up and eat, not sort through to remove the hazards first as you would properly expect with some foods, the olive pit is a fundamental manufacturing defect of a type that is a predictable effect of process decisions. The consumer has no control over whether that defect will be detected harmlessly or by hard impact on a tooth that is prone to fracture, so the incentive needs to be on the manufacturer.

    You could argue that the pit in the olive is a manufacturing defect that simply cannot be avoided every time, given the production process. If so, it might seem reasonable to restrict liability to compensating for actual injuries suffered (which, it is easy to show, gets the incentives right in terms of reducing the manufacturing risk), rather than considering the manufacturer to be deserving of punishment, which is basically what happened. In the coffee case, it was decided that McDonalds had known about the hazard and had made a business decision to continue doing something that increased consumers' risk of injury, thus the punitive damages. Reasonable people can disagree about whether what happened was the right response, but it is not fair to object to it on the grounds that "coffee is supposed to be hot" because it was not merely about coffee being hot.

    As for your own tooth, my sympathies. But unless the hard bread were, say, the middle layer of an otherwise soft multi-layer sandwich, it is a different situation. I am guessing that you could detect that the bread was hard before you bit it. Perhaps you had legitimate recourse to get the bread replaced -- if it was sold hard when it should have been soft -- but you probably had sufficient information to suggest you take greater care than bread usually calls for. You perhaps could argue that similar fair warning existed if McDonalds coffee actively warned consumers "careful: all coffee is hot but ours is hot enough to cause serious injury" or a sticker on a specific sandwich that said "the olives used to make this sandwich contain pits".

    That brings up one way in which liability, as it exists, does not provide good regulation. Most all take-away coffee cups in the U.S. now say something about the contents being hot. And there are disclaimers on menus that say "caution: olives may contain pits". These tend to reduce the liability without actually reducing the health risk. They contribute to the mistaken notion that product liability rewards people for not knowing the obvious. But those obvious statements offer no actual warning to the consumer that they need to take greater care in a particular case, to know which particular coffee is dangerously hot, and when a sandwich is not actually ready-to-eat. After all, to take this to an extreme, if a merchant put up a sign or used a label that said "shit sometimes happens", it could be considered warning about any harm the product might cause, but would not actually address the real problem.


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