I have a friend from New Zealand, let’s call him Tommy. Tommy is a very rough-and-tumble person, a person who works with his hands by day and coaches rugby by night. If Tommy were to lose an eye in a rugby match or a finger on the job, nobody who knows him would be surprised if he said “ah, it don't matter” and just kept on doing whatever he was doing. I used to think that this was particular to Tommy’s individual spirit. But lately I’ve been thinking that perhaps there’s something particular not to Tommy, but to New Zealand and its people, that impacts how they handle injuries. It turns out that New Zealand has a peculiar and fascinating approach to personal injury compensation, a system that wholeheartedly rejects Civil Recourse and focuses entirely on Remediation. It’s not quite a torts system because it eschews concepts like liability and fault. But New Zealand’s personal injury compensation system will be the subject of the last installment of our series on Theories of Torts nonetheless, because it draws a very big circle around the fact that our torts system reflects a number of societal choices--and that other modern societies could opt for something completely different.
When one thinks of New Zealand, the first thing that comes to mind might be that it’s Australia’s little brother or that it’s the setting for all of the Lord of the Rings movies. But while (or because) the rest of the world may not be paying attention to the country, they’ve quietly become a laboratory for testing out ideas that would only appear in fanciful law review articles in the United States. Once upon a time, New Zealand’s court system looked a lot like ours. That’s not surprising given that both are the offspring of the British common law system. If a person suffered an injury they could turn to the courts to seek redress from the person who caused the harm. In certain circumstances the injured person might have had access to private insurance, but for the most part it was a liability/fault-based system. Around the time that the United States started to explore slight alterations to this simple formula such as workers’ compensation, so too did New Zealand.
It varies from state to state, but in the United States, workers’ compensation is generally a state-mandated private insurance scheme that compensates people injured as part of their employment for lost income. The key is that workers’ comp is a “no-fault” system. If you want to make a claim for your injury you must go through the workers’ compensation process and generally cannot sue your employer in court. In some ways, this system benefits both the worker and the employer. It benefits the worker in that it can provide access to compensatory funds more rapidly than if tort law was the only option and it benefits employers by providing predictability and stability. In essence, workers' compensation is a legally-mandated insurance scheme that insures both employees and employers.
This brings us back to New Zealand. In the early 1900s, the country created a national no-fault workers’ compensation scheme for industrial accidents. Then in a fit of reform in the 1960s, the government appointed a commission, led by the Supreme Court Judge Owen Woodhouse, to investigate whether the country should expand the workers’ comp system to cover all personal injuries, not just those related to work. Even though there was no great public clamor on the issue, the commission still proposed a sweeping no-fault system based on five principles: community responsibility, comprehensive entitlement, complete rehabilitation, real compensation, and administrative efficiency. Critically, the commission argued that a no-fault compensation scheme would offer better coverage with much lower transaction costs, and without establishing a “false morality” that is characteristic of tort law. Without involving the court system, a greater portion of every NZ Dollar spent in compensating injuries would go to the victims and they would get it much faster.
In 1972 the New Zealand Parliament adopted the commission’s finding and passed the Accident Compensation Act. The act prohibited most personal injury tort claims from appearing in court. Instead, the injured would have to turn to the Accident Compensation Corporation (ACC), a government entity created to handle all personal injury claims, to be compensated for injuries that fall into one of five categories:
- “injuries from motor vehicle accidents on public roads
- work-related injuries to employees and self-employed people
- workers injured outside the workplace
- medical treatment injuries
- injuries to those who are not in the active labor force” such as children (source)
Unlike many/most workers’ compensation systems in the United States, the ACC is essentially a public pot of money, funded by general taxation and an employer levy, that makes payments to claimants. The ACC pays for things like “hospital and medical costs; wage replacement, starting only one week after injury, at a rate of 80% of average weekly earnings; rehabilitation and transportation costs; lump sum payments for permanent loss or impairment; and entitlements for surviving spouses and children.” In most circumstances, if you’re injured in New Zealand (even as a visitor!) you can likely receive some kind of compensation in a rote, mechanical fashion without the need for court or blame.
There are obvious pluses and minuses to this system. First among the positives is that it is extremely efficient when compared to a common law tort system. Claims are processed relatively quickly and are typically resolved within 9 months. The transaction costs are vastly lower because you don’t have to hire a lawyer or go to court. And critically, there is no moral interplay between fault and injury. Both of these last two factors make it vastly more likely that an injured person WILL seek compensation for their injuries. Without any data to back this up, I would imagine that the vast, vast majority of injuries suffered in the United States never lead to any sort of compensation. So in many ways, it is far better to be injured in New Zealand than it is to be injured in the United States.
But given some thought, the negatives of New Zealand’s system also become quickly apparent. First, the system’s reliance on a set of reward guidelines makes it less flexible than a tort system, covering fewer problems with less nuance. For example, the ACC limits compensation for emotional harm to mental injuries caused by “a covered physical injury,” work related trauma (which has only recently been covered by the ACC) or specific sex crimes. As a result, many people suffering emotional harm have brought their claims through the court system, but the majority have been rejected, in part due to the mere existence of the ACC. More critically, the lack of flexibility and a relative lack of funds means that the average claim payout is significantly less than a person might expect to be awarded in a jury-based tort law system. Though it’s difficult to find strict data on average claim payouts, we know that in 2006, the ACC received 1.6 million claims and paid “NZ$569 million on new claims and NZ$964 million on pre-existing claims.” However one breaks that down, the payouts likely look more like the awards we see in small claims court in the United States than in a standard tort case.
When we think about the New Zealand system with respect to TWiT’s Theories of Torts series, we can see that the government and people of New Zealand made a major decision based on Social Utility Theory to do away with a fault-based system and focus just on Remediation Theory. As we’ve seen above, one could argue about whether they’re doing a good job with this--on the one hand, people are compensated far less in New Zealand than if they had successfully brought a claim in the United States. But on the other hand, far, far more people have access to Remediation under the New Zealand system.
But in focusing on Social Utility and Remediation, New Zealand is essentially removing the concept of Norm Setting Theory from their compensatory system. A no-fault system yields actors who are not motivated to change their behavior, to do better. Further, the New Zealand system almost completely removes the concept of Civil Recourse and Corrective Justice. In New Zealand, if you want your day in court, well, too bad.
As you might see, the New Zealand ACC system is a tremendous tool for understanding our own torts system and assessing its own strengths and weaknesses. As we’ve been preparing the articles in our Theories of Torts series, we can’t help but remark on the human power of Civil Recourse Theory. Sometimes, having your day in court IS just compensation, and no amount of money paid through a compulsory insurance scheme will make up for it. At the same time, there is exceptional clarity in the way that New Zealand compensates most injuries. One need not hire a lawyer, march down to court, and go to war in order to make up for your losses.
In our first article on Theories of Torts I wrote about the series of medical mistakes that led to me being confined to a wheelchair for a long period of time, and how I decided that I did not want to seek compensation because of all that entailed. I wanted compensation, but I specifically did not want my day in court. And so I received nothing for my loss. In New Zealand, I would have been paid something. Perhaps not enough to make up for everything I went through, but something. It’s enough to make us think about whether New Zealand’s approach might be a better system. We’re not at all convinced. But at a very minimum, it helps us see that when it comes to tort law, we shouldn't make any assumptions as to what is just.
-Ellis and Acton