The Judgment-Proof Society

TLDR: Most Americans are judgment-proof as discussed by the authors, i.e., they are not required to pay damages from their own assets unless they have purchased liability insurance in adequate amounts, which is called "blood money" liability.

Abstract: "As the system currently operates, liability is, for wrongdoers ... voluntary."1I. Introduction: The Myth of Personal Tort LiabilityIn theory, tort law requires individual tortfeasors to compensate their victims for the wrongs they have negligently or intentionally inflicted. Negligent tortfeasors must pay damages from their own assets, unless they have purchased liability insurance in adequate amounts. Intentional tortfeasors do not have the option to insure because liability insurance almost always excludes intentional torts. Hence they must compensate their victims out of their personal resources.Supposedly, this system serves the twin objectives of deterring wrongdoing and doing justice. The threat of personal tort liability-or, at a minimum, of increased liability insurance premiums-induces potential tortfeasors to be more careful. When an accident does occur, corrective justice is accomplished by shifting the loss from the victim to the wrongdoer. And if the tortfeasor has liability insurance, the welfare loss is spread across the pool of liability insureds, rather than concentrated on the victim.Explicitly or implicitly, this account of how the tort system regulates the behavior of individuals is standard fare in torts scholarship and torts courses.2 The truth is dramatically different. Most people in our society face little or no threat of personal liability for any intentional or unintentional torts they might commit. Many tort claims are not large enough to be worth litigating in the first place. But even when it comes to larger, litigable claims, many Americans are "judgment-proof: They lack sufficient assets (or sufficient collectible assets) to pay the judgment in full (or even in substantial part).3Knowing that they can collect at best a fraction of the plaintiff s claim even if they litigate and win, plaintiffs' attorneys typically decline to litigate meritorious tort claims against uninsured or underinsured individuals. In the absence of liability insurance, plaintiffs are effectively barred from bringing suit unless the tortfeasor is an asset-rich corporation or an affluent individual who neglects to take elementary precautions to protect his or her assets from tort liability.4 And precisely because it is so easy to achieve judgment-proof status, individuals frequently fail to purchase adequate-or any-liability insurance.5Perhaps this description seems unremarkable. After all, everyone knows that plaintiffs' lawyers prefer to sue "deep pockets" such as liability insurers and big companies, and, at the other extreme, that it is pointless to sue persons living at the subsistence level. True, but what is not generally understood is that most Americans would have much deeper pockets were it not for a multitude of legal rules that shelter the lion's share of their income and assets from collection by tort plaintiffs (and other creditors). Most Americans are judgment-proof not because we are poor, but because state and federal laws entitle us to be judgment-proof. The paradoxical result is that contemporary America, one of the most affluent societies in human history, is simultaneously-and largely by operation of law-a judgment-proof society.This Article is about how our laws have made being judgment-proof the rule rather than the exception; about what this implies for the standard deterrence, corrective justice, and loss-spreading accounts of tort law; and about whether anything should be done to lower the legal barriers to enforcing and collecting tort judgments from individual tortfeasors. The Article proceeds as follows: Part Ð offers a preliminary overview of the judgment-proof problem, and of the principal legal barriers to collecting the personal income and wealth of American tortfeasors. The thrust of the argument is that these barriers greatly reduce the threat of personal tort liability-what tort lawyers call "blood money" liability6-for individuals across the spectrum of income and wealth. …