Nowadays, million dollar verdicts no longer shock the conscience. Indeed, the $2.7 million punitive damage award in the infamous McDonald's coffee case doesn't appear too disproportionate when compared to the $4.8 billion proposal from American Home Products to settle the fen-phen diet drug litigation. That amount, in turn, is completely dwarfed by the $246 billion settlement between the tobacco industry and the state attorneys general.

These mind-boggling sums should serve as a wake-up call to those companies who have not yet integrated the proactive management of legal liabilities into their ordinary business practices.

Tort Law

A host of wrongful criminal and civil acts may expose a business to liability. Examples include a physician defrauding the Medi-Cal program, a dealership selling a car with a defectively designed fuel tank, and a distributor reneging on a contract to provide a fixed amount of memory chips at a preset price. Of these three, tort law covers the second example - civil wrongs, other than a breach of contract, that injure persons, property, economic interests or business relationships and are caused by the acts or omissions of others.

To avoid debilitating verdicts and bottomless attorney fees, all businesses need a basic understanding of tort principles. This will allow them to identify and minimize potential risks and to select the best form of business.


A person is negligent if he fails to exercise ordinary care to avoid injury to other persons or their property. In other words, he failed to do something a reasonably careful person would do or he did something a reasonably careful person would not do under the same or similar circumstances. For example, if a person causes an auto accident because he was driving faster than was safe for the existing conditions, the resulting lawsuit will likely include a negligence claim.

For a negligence claim, a plaintiff must establish four elements:

  • Duty of care
  • Breach of duty
  • Causal connection; and
  • Actual loss or harm

Duty of Care

A duty of care is owed to all foreseeable plaintiffs, which means that a reasonable person would have foreseen a risk of injury to the plaintiff under the circumstances. If such a duty exists, the standard of care is that of a reasonably careful or prudent person. In other words, a person's act or omission is measured against that of a reasonably careful person in similar circumstances.

In certain circumstances, a person may be subjected to a heightened standard of care. This arises when a person possesses special professional or technical skills or training. For example, in making a medical decision, a doctor must exercise the degree of care that a reasonably careful doctor would under similar circumstances. Furthermore, if the doctor is a neurosurgeon, then he must exercise the degree of care that a reasonably careful neurosurgeon would under similar circumstances.

Example - Oklahoma Uniform Jury Instructions (Civil)
Instruction No. 14.1
A physician should possess and exercise that degree of knowledge, skill, care, and diligence that is possessed and exercised by physicians in the same field of practice at that time. It is for you to determine from the evidence what such physicians would, or would not, have done under the same or similar circumstances. A physician's standard of care is measured by national standards.

Except for children, this standard is not ratcheted downwards to accommodate a person's mental deficiencies and inexperience.

In the business context, a company may owe various duties of care to customers, strangers, neighbors, and even competitors. These duties of care may arise when a electrician enters company premises, when an employee with a company car drives out to entertain clients, or even when a stranger passes through the company parking lot.

Defenses to Negligence

A business may defend against a negligence claim by attacking any of the four negligence elements. Possible defenses include (1) challenging the status of the plaintiff (e.g., invitee v. licensee) and the corresponding duty of care, (2) asserting that it acted in accordance to the requisite standard of care, (3) attacking the causal link between act or omission and harm or injury, or (4) questioning whether the plaintiff suffered any actual loss.

In addition, some jurisdictions allow an otherwise negligent party to escape some or all of its liability if it can prove that the injured party was also negligent.

Contributory Negligence vs. Comparative Negligence

The doctrines of contributory negligence and comparative negligence take into account the relative degrees of fault between the plaintiff and defendant, and attempt to adjust the damages award accordingly.

Contributory negligence bars the plaintiff from any recovery if his own negligence contributed to the loss at all. Most jurisdictions have abandoned this for comparative negligence, under which a plaintiff's damage award is reduced by the proportion of loss attributable to his own negligence. For example, in the McDonald's coffee case, the jury awarded the plaintiff $200,000 in compensatory damages. Because the jury found the plaintiff 20% at fault, this amount was reduced to $160,000.

Some jurisdictions take this even further and completely disallow recovery if the plaintiff bore more responsibility for his losses than the defendant.

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