November 03, 2011 Articles

Social-Welfare Implications of Liability Rules in Major Damages Cases

Economic insights and social-welfare implications can guide where we draw the boundaries for liability in major environmental damages cases.

By Dr. Debra J. Aron and Dr. Francis X. Pampush – November 3, 2011

The risk reasonably to be perceived defines the duty to be obeyed, and risk imports relation; it is risk to another or to others within the range of apprehension. This does not mean, of course, that one who launches a destructive force is always relieved of liability if the force, though known to be destructive, pursues an unexpected path. . . . The range of reasonable apprehension is at times a question for the court, and at times, if varying inferences are possible, a question for the jury.

Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 344 (N.Y. 1928).

We build a dam, but are negligent as to its foundations. Breaking, it injures property down stream. We are not liable if all this happened because of some reason other than the insecure foundation. But when injuries do result from our unlawful act we are liable for the consequences. It does not matter that they are unusual, unexpected, unforeseen and unforeseeable. But there is one limitation. The damages must be so connected with the negligence that the latter may be said to be the proximate cause of the former. […] [T]he problem of proximate cause is not to be solved by any one consideration. It is all a question of expediency. There are no fixed rules to govern our judgment. There are simply matters of which we may take account.

Palsgraf, 248 352, 354–55 (Andrews, J., dissenting).


On April 20, 2010, BP’s Macondo oil well in the Gulf of Mexico incurred a catastrophic failure of its mechanical operations that resulted in a blowout that killed 11 men, injured more, and spilled an estimated 4–5 million barrels of crude oil into the gulf. See, e.g., Ian Urbina, In Report on Gulf Spill, BP Sheds Some Light and Casts Much Blame, N.Y. Times, Sept. 9, 2010 (late ed.). Aside from the tragic loss of life that occurred at the site of the blowout, the Macondo event has affected a variety of businesses in the gulf vicinity and beyond. The event will, therefore, inevitably raise the question of how far in the economic chain of production and conceptual chain of causation should liability extend.

The question of the extent of legal liability along the chain of causation in cases involving the boundaries of the effect of a negligent action was addressed by the Supreme Court inPalsgraf v. Long Island Railroad. Co., “perhaps the most famous case in the history of tort law,” from which we quoted above. G. Edward White, Tort Law in America: An Intellectual History 96–97(2003). That case pivoted on the question of the extent of liability resulting from a negligent act. The majority, in the decision written by Justice Benjamin N. Cardozo, found for the defendant on the theory that the plaintiff’s injury was not “within the range of apprehension.” The dissenting opinion concluded that the plaintiff should have prevailed because the negligent act was the “proximate cause” of her injuries, although her injuries might have been unforeseeable. While the majority and the dissent disagreed on the relevant theory of harm in the case, both the majority and the dissent appear to agree that the line that demarks the limits of liability is not subject to formulaic identification, and neither the majority nor the dissent appealed to guidance from general principles of social welfare as support for their analyses. In this article, we discuss how economic insights can provide some guidance as to the social-welfare implications of the demarcation of the limits of liability and the proximity of harm to a negligent act.

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