Torts - Cases, Principles, and Institutions Fifth Edition, 2016a

Witt & Tani, TCPI 10. Damages
who hopes for future referrals has a reputational interest in maximizing the value of the claim.
(Note, too, that the referring lawyer typically has no implicit hourly wage calculation because the
work is typically finished after the referral itself.)
Note that it is an interesting feature of American prohibitions on the unauthorized practice
of law that non-lawyers are not allowed to create for-pay referral systems. The result is that
lawyers have a monopoly on for-profit referral networks in the market for legal services. A
century ago, some labor unions (especially in dangerous railroad work) aimed to create referral
systems. They provided their members with expertise in selecting a lawyer in return for a small
cut of any winnings, which in turn allowed the unions to monitor lawyer performance. In 1964,
however, the U.S. Supreme Court ruled that while such organizations could offer referrals for
free, and that such offers were protected speech under the First Amendment of the Constitution,
there was no right to engage in referrals for a fee. See Brotherhood of Railway Trainmen v.
Virginia, 377 U.S. 1 (1964). State bar associations have effectively prohibited such referral
systems ever since.
2. The Role of Defendants’ Insurance
The plaintiff, the plaintiff’s lawyer, and the defendant are not the only three parties involved in the
actual practice of settling and paying damages. Insurance companies also play critical roles in this
process. As we’ve discussed since the outset of this book, defendants typically have insurance, for the
simple reason that defendants without insurance are often judgment-proof and not worth suing. But if
insurance is often a prerequisite for litigation, the policy limits set in the insurance contract often seem to
set the outer limits of damages because plaintiffs don’t typically push beyond the upper limit of the
liability insurance policy. Torts and insurance scholar Tom Baker has observed that plaintiffs’ lawyers
have a special term for damages above the policy limit, which would have to be paid by the defendant
herself or himself: they call such damages “blood money.” Baker interviewed one defense lawyer, who
explained the problem this way:
Q: “Do you ever have cases where your defendants are not insured?”
A: “Those are terrible. Yes I have. Those are the worst. I did two of those in a row
for an attorney, who is now a judge, who had people who for some reason or other
forgot to renew their insurance, and was driving the car without insurance. I think
they were both like that. Those are terrible. Those are absolutely the worst.
Without that umbrella behind you, you don’t even want to try. You’re petrified.
Normally, when you try these cases, even if somebody’s only got a twenty policy
or fifty policy, if it goes over, the insurance company just pays. But, when there is
nothing there, you walk in and they [the plaintiff’s lawyers on the other side] just
automatically assume because you’re there that there is insurance. I almost want to
wear a badge saying ‘There is no insurance here.’ This is what we call blood money,
instead of insurance company money. We call it blood money because it is coming
out of their pockets.”
Tom Baker, Blood Money, New Money, and the Moral Economy of Tort Law in Action, 35 LAW &
SOC’Y REV. 275 (2001).
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