Whatever happened to the stiff upper lip?

What happened to the tough, self-reliant, forbearing American -- the kind who brushed off setback or injury and got on with the job?

Somewhere along the line, according to many social critics, that traditional role model of the American breed has given way to a new set of values reflecting a new attitude. This attitudinal shift, some say, has rejected the stiff upper lip and replaced it with a national mood demanding near-total redress for nearly every injury.

The shift is evident -- to the point of becoming a stale joke -- in the familiar cry of "Whiplash!" that accompanies many minor auto accidents. It is reflected in the curious incidents wherein passers-by at the site of accidents pretend to be victims in hope of grabbing a piece of the inevitable lawsuit.

This attitudinal shift may be one cause of the nation's current "civil liability crisis": America today has an excess of personal, corporate and governmental liability and a shortage of insurance to cover it.

The liability insurance crunch touches almost every element of American life. It will almost surely lead to higher prices and taxes for every consumer. It is forcing some familiar products and services off the market because they cannot be insured. And it could have an adverse effect on the worldwide competitiveness of U.S. companies.

This broad impact, in turn, has sparked major political battles in state capitals and in Washington as governments search for a solution. To date, the official responses have been atomized and often contradictory.

There's nothing close to agreement on corrective action.

One reason the political system has not agreed on a fix is that there's no agreement on what is broken. Some talk of a "tort crisis," some see an "insurance crisis" and some speak of an "attitudinal crisis" in society.

Many business and political leaders argue that the nation's liability problem reflects a growing litigiousness in American life. This camp holds that there has been a "tort explosion" in recent years, with unprecedented numbers of civil cases burdening the legal system and civil defendants.

"Filing lawsuits has replaced baseball as our national pastime," says Colorado Gov. Richard D. Lamm. " 'See you in court' used to be a real threat," Lamm says. "Now it's as common as 'Have a nice day.' "

Although many legal scholars have studied the question, there is no hard data showing a "tort explosion" in recent years. The per capita number of civil suits has increased in some states and dropped in others. In Lamm's Colorado, there are fewer personal injury suits per capita now than a decade ago.

As Chief Justice Warren E. Burger regularly complains, there has been a huge increase in civil cases filed in the federal courts over the past decade. But a "tort explosion" isn't the culprit.

Professor Marc Galanter of the University of Wisconsin, one of the leading scholars in this area, says the statistics mainly reflect a big increase in lawsuits over government aid payments. For liability cases, he says, "the pattern of use . . . is conservative, departing relatively little from earlier patterns."

The professor's point is that the United States, bulwark of individualism, has always been a litigious society. Alexis de Tocqueville's observation that every American dispute eventually finds its way to court was first published, after all, in 1835.

For these reasons, Galanter and others conclude that the alleged "explosion" in numbers of civil suits does not exist -- and thus cannot explain the country's current liability crisis. They look for other explanations: economic patterns, social trends and changes in the substance, rather than the quantity, of civil law.

The insurance industry argues that the crisis is the fault of activist judges and fee-hungry lawyers who have expanded the legal concept of liability for physical, financial or emotional injury far beyond its traditional limits. Some consumer groups and many trial lawyers argue that the current crunch is the fault of short-sighted insurance executives who led their industry to the brink of financial disaster and want their business, professional and governmental customers to bail them out.

Both sides are right. The 'Tort Crisis'

The "tort crisis," as reflected in the expansion of legal definitions of liability, stems from a gradual but fundamental change in our society's notion of risk.

Once the American people prided themselves on qualities of toughness and forbearance. When the stagecoach turned over atop John Wayne, he dusted himself off and shrugged to Olivia de Havilland, "It's nothing, ma'am." That rugged acceptance of the risks of everyday life was considered a cardinal American virtue.

This attitude was enshrined in American law. "The general principle of our law," Oliver Wendell Holmes wrote in a famous treatise, "is that loss from an accident must lie where it falls, and this principle is not affected by the fact that human being is the instrument of misfortune."

That "general principle" probably wouldn't stand a chance in an American courtroom today. Our society has decided that loss from an accident need not lie with the victim. To the contrary, we have created mechanisms to assure that almost anyone who suffers injury will be reimbursed. The chief mechanism serving this purpose is the legal tort system. (In civil law, "tort" means a violation of the duty to avoid harming others.)

Where did this change in attitude come from?

Some sociologists suggest that the shift from quiet self-reliance to aggressive demand for redress results from a growing dependence on government. According to this theory, the same mindset that sees an "entitlement" to a government benefit check sees an "entitlement" to reimbursement for any hurt.

Another explanation lies in a "lottery" mentality, fueled by extensive state lottery advertising that seems to suggest that people are entitled to a windfall.

D.C. City Council member Nadine P. Winter noted this connection last fall when the council was debating no-fault auto insurance. She said some people think of an accident, and the resulting lawsuit, the way others think of the lottery: a way to make a quick million.

Whatever the soundness of this theory, the courts have been aligning themselves with this emerging social impulse for decades.

Two men played a crucial role in the extension of tort liability: Justice Roger Traynor of the California Supreme Court, one of the most distinguished state judges of his time, and Prof. William L. Prosser, a scholar and author who was to torts what Dr. Spock is to child care.

Prosser's books and articles, together with a series of Traynor opinions from 1946 to 1962, created an influential concept called "risk distribution." This theory deemphasized the question of who was at fault for an accident -- in many modern accidents, the fault was hard to pinpoint -- and moved toward a notion of "strict liability" that often made businesses (or their insurance carriers) pay damages to an injured person even if they had done no wrong.

The soaring expansion of civil liability in the state courts was matched by a series of federal court decisions that sharply increased the liability exposure of local and state governments. The old notion of "sovereign immunity" -- the rule that a governmental unit could not be sued -- was condemned to the trash heap as the courts permitted people to fight city hall in court over wrongs from police brutality to puddles on a public skating rink.

The momentum of legal change has continued almost unabated for four decades. Courts and juries continue to expand the range of business and governmental liability.

Exacerbating the changing rules of liability, the courts have been changing the rules for awarding damages as well. In addition to standard "compensatory" damages, which are supposed to make good any losses the victim suffered in an accident, courts and juries have been much more willing in recent years to award "punitive" damages. This kind of award is designed to punish a defendant for reprehensible conduct and the punishment sometimes runs into the millions of dollars.

If there has been a "tort explosion" in recent years, some contend, it is not in the numbers of cases filed but rather the explosive growth of punitive damage awards.

Highly publicized litigation, such as that following the 1981 collapse of the Kansas City Hyatt Regency Hotel skywalks that killed 114 during a tea dance, attracts great attention. So do large awards of punitive damages, or "punies," to use the trial lawyers' shorthand: $9 million to a man whose insurance company refused to pay a $46,000 claim; $128 million to a man burned when the fuel tank of his Pinto exploded in a crash.

People reading those headlines conclude that something crazy must be going on. Indeed, a business group called The Product Liability Alliance, which is working to reverse the expansion of tort liability, distributes a list of recent awards that it calls "the crazy cases list."

But almost all these "crazy" awards have come from juries of ordinary, sane people. Many of them are later reduced by judges or appeals courts (the Pinto award was cut to $6.3 million.) And according to a recent study by the American Bar Foundation, the number and size of the megajudgments in liability cases are not as high as many believe.

To understand what prompts a jury to return a huge damage award, it might be instructive to look at one of the classic "crazy" cases.

A California man, Earl Norman, visited his doctor and then filed the $48 bill with his medical insurance company. The insurance company refused to pay, saying the visit wasn't covered in Norman's policy. Norman sued the insurance company over the unpaid $48 bill; the jury awarded him $4.5 million.

What possessed a jury to return an award 100,000 times as great as the unpaid doctor bill?

At the trial, Norman produced evidence showing that the insurer had paid that kind of bill routinely for years. Then Norman received a letter from the insurer urging him to buy a new and better policy at a higher premium. Norman bought the new policy. But under this new, more expensive policy, Norman's routine doctor visit was excluded from coverage.

Norman's lawyer argued that the insurance company had deliberately cut back its coverage -- and deliberately misled its customers about the change. An actuarial expert testified that the new policy, if issued to all the insurance company's customers, would save the insurer $4.5 million.

The jury concluded that Norman had been victimized -- and gave him the entire $4.5 million as recompense.

"This is the pattern for a lot of the so-called 'crazy cases,' " says Robert Hunter, an insurance expert who heads the National Insurance Consumer's Organization, a group affiliated with Ralph Nader.

"In the Earl Norman case, you have to say that the plaintiff was unjustly enriched by that million-dollar award. But you also have to say the defendant deserved the penalty it got. So yeah, it's crazy, but it's also not crazy."

The insurance company that lost the Norman case denounced the jury's award and swore to appeal. Eventually, however, the firm agreed to pay Norman $2 million and the case was settled before it reached the appellate court.

The expansion of the legal doctrine of "liability" and the growth of punitive damage awards have made it difficult to predict what a company or a government might be held liable for in the future. The uncertainty has been disastrous for insurance companies. They have no way to know what their liability exposure might be a year or a decade from now.

"There is no rule of law that today is certain," says Victor Schwartz, the Washington lawyer and tort scholar whose textbook is known to thousands of law students as "Schwartz on Torts." "That's an impossible situation for an insurance company. They try to set rates and run a business under certain rules of law, and then the rules change -- and change constantly." (Schwartz has represented The Product Liability Alliance, a coalition of business groups that has lobbied for a change in the country's product liability laws.) The 'Insurance Crisis'

But the uncertainty of liability law provides only a partial explanation of the liability crisis of 1986. Much of the blame for the current problems facing the insurance industry belongs to the industry itself.

Insurance leaders readily admit that their industry is in fiscal trouble -- and that the trouble is largely the industry's fault. A study carried out last year by the industry's research arm reached this conclusion: "The property/casualty industry must accept the major responsibility for its current financial condition."

In the late 1970s, when interest rates were reaching historic highs, insurance companies were eager, to put it mildly, to sell policies and thus take in premium payments that they could invest at interest rates as high as 20 percent. To sell more insurance, companies slashed prices and sold unusually risky policies. Actuarial and experience data were ignored in the competitive frenzy to accumulate premium dollars.

Today the insurers are reaping the results of their six-year binge. The firms are no longer getting high-interest returns on premium dollars, but claims are still coming in on policies sold at deep discounts. In consequence, property and casualty insurance companies reported record operating losses in the past two years.

It's key to note that despite the big losses on "operations" -- that is, on selling insurance and paying claims -- the insurance industry still racked up $1 billion in net profits last year, thanks to gains on investments and federal tax credits.

This explains why insurance stocks remain the darlings of Wall Street. In 1985, while insurance executives were bewailing their operating losses and talking of a "crisis," property-casualty insurance stocks jumped by twice as much as the overall Standard & Poor's stock index.

That experience has prompted Ralph Nader and other consumer advocates to argue that the present insurance famine is simply a ploy by a healthy industry to force rates higher and to change the rules governing liability. The Federal Trade Commission is reportedly investigating whether insurance firms are engaged in a concerted boycott to drive up prices.

Insurance executives say, though, that the decline in interest earnings and the losses on operations have cut sharply into the reserve accounts they maintain to pay future claims. And with reserve accounts depleted, the companies say they have to limit the coverage they provide.

In summary, then, the current liability crunch that extends across the fabric of American life stems from disparate social and economic phenomena: a basic change in the nation's notion of risk, a broad expansion of the legal concept of liability and a series of managerial blunders by the insurance industry.

"There's not a single explanation," says Schwartz. "And that means there's not going to be a solution that works unless it gets to all the causes."

NEXT: The liability crisis hits Schaghticoke