On the Extreme Wisdom radio show, Bruno Behrend and I briefly discussed some implications of a murder at a Burger King in Lake County. It turns out that the murder suspect had a prior criminal record which leaves local residents wondering why background checks weren't done. There is, of course, a lawsuit because Burger King "should pay" for their negligence.
Any murder is a tragedy, and this is no different. However, part of the typical lawyer advice is to go after money in a lawsuit and Burger King has money. Some of their claims, if true, certainly do indicate negligence. However, the idea that Burger King "must pay" is something that needs to be addressed.
No lawsuit will make Burger King pay for this death. Even if they were grossly negligent and could have done something reasonable Burger King will not pay. Even if a jury awards the victim's family $10 billion dollars, Burger King will not pay. No executive, no store manager, nor middle management bean counter will pay one cent. The people who pay are Burger King's customers and society as a whole.
Every business has liability insurance. What this insurance does is protect you in a lawsuit. It's similar to car insurance. If you get into an accident, as long as you follow the terms of your policy and the settlement isn't above your limits, the insurance company pays and you are inconveniences a bit to placate paper-pushing lawyers. As long as you have car insurance, you do not pay the price for car accidents. Sure, premiums go up, but they do not go up nearly enough to cover the cost of an accident.
Car insurance companies make money not on individual clients but on the industry as a whole. It isn't likely all of their customers will get into a car accident so the spread the cost over all their customers. While "high-risk" drivers pay a little more for insurance, by and large, the entire pool of customers pay for those who cause accidents.
Medical malpractice insurance is even more problematic. Every doctor with the same type of practice pays the same as every other doctor in that same type of practice. The world's best surgeon pays the same price as a night-school butcher surgeon. What this means is that good doctors pay liability into a liability insurance bucket to cover the lawsuits for bad doctors. However, more importantly is that businesses pass down costs to consumers when they set their prices. That means you've already paid the price for that settlement when you saw the doctor. Not a red cent comes out of the doctor's salary or estate.
Because businesses know their liability insurance rates in advance, they can set their prices to cover that cost. This means that businesses have access to pre-paid legal settlement money. If this family gets $10 million, that money has already been given by consumers to the insurance company to pay for this exact thing. The people most responsible for negligence will bear no personal cost for their negligence. Because insurance is spread across industry segments, customers who would never eat at Burger King also paid into this pool of money.
Actuarial scientists work some mathematical magic to come to an expected amount of money they will need to pay for future legal actions against their clients. This means, assuming you have a good actuary, that the insurance company can figure out what money is going to be taken out, work in some profit, and then set their rates. They pass this down to the business that passes it down to the consumer.
The idea that suing a company for some injustice (many imaginary and some, sadly, very real) to make them pay is false. It's a creation of trial lawyers who like collecting 40% of those big multimillion dollar settlements. The dirty little secret is that society pays an increased amount for products to sustain that system. No matter what you think about a hack artist doctor or a negligent fast-food restaurant owner, they never pay for these lawsuits, society does.
You get as much as you put up with as a consumer. If you want businesses to behave morally, consumers need to put that into their economics decisions. Until they do, businesses will continue to minimize costs and maximize profits.
Listen to my comments on Extreme Wisdom with the podcast here at the bottom of the post.
John Bambenek is the Assistant Politics Editor for Blogcritics and is an academic professional for the University of Illinois. He is a freelance columnist who blogs at Part-Time Pundit and the executive director of The Tumaini Foundation which helps AIDS orphans and other children in Tanzania to get an education.He is the current owner of BlogSoldiers, a blog-only traffic exchange.
