Optimal Pooling in Claims Resolution Facilities

Abstract

The various claims resolution facilities discussed in this symposium exhibit a number of distinctive qualities and governing principles. A common characteristic of many of these facilities, however, is an attempt to avoid the litigation costs of individualized proof of damages by channeling mass tort claims into rough categories for compensation. All claimants within a particular category receive similar compensation, even though they might be able to prove disparate damages through litigation. This article seeks to analyze the efficiency of pooling disparate claims through the categorical compensation of claims facilities. An efficiency standard for evaluating tort law usually focuses on the ability of the legal rules to induce efficient levels of precaution; the costs of implementing the rules are relegated to a second order of importance. But this standard often is inapplicable to claims resolution facilities because many of the settlements that establish the facilities place an absolute cap on the defendant's liability. Ken Feinberg, trustee of the Dalkon Shield Claimants Trust, stressed the importance of such caps to the feasibility of establishing claims facilities: The breakthrough in Agent Orange... and the breakthrough in Dalkon Shield was a court imposed cap on liability. That gives the company total peace .... That is why, once the companies put the money in, they disappeared. Even if aggregate caps are not imposed by judicial fiat, they will be imposed by de facto economic fiat whenever the total liabilities of the defendant corporation exceed its net assets.