joint and several liability will increase the stakes in dispute to individual parties and, thus, can be expected to increase the costs of litigation.
Structural Effects of the Joint and Several Rule
One response to lowering the privily barrier has been a vigorous effort to change the law. The state CPA societies have been active in lobbying state legislatures to establish statutory privily requirements in auditor cases.(n332) At this writing, four states have enacted statutes which require third parties, in order to be eligible to sue auditors, to be identified in writing at the time of the audit.(n333) In the judicial arena there seems little doubt that judges have also become aware of, and perhaps influenced by, the accounting profession's public relations and lobbying efforts to slow down the erosion of privily requirements.(n334)
The accounting profession's struggle to maintain this last citadel of privily in tort law is given urgency by retention of the joint and several rule. While insolvent primary defendants are factors in many personal injury cases, in cases involving auditors' liability to third parties, insolvent clients are far more common. Thus, relaxed privily with joint liability dramatically increases the auditor's exposure to damages. As discussed, legal rules that increase potential damages are likely to result in the greater use of PLI.(n335) Liability insurance is not a fungible commodity, however. When risks become both high and eccentric, the larger insurance purchasers have an edge on both rates and availability. There is some likelihood, therefore, that the larger accounting firms will be better positioned to survive in the coming legal environment than the smaller ones. (We take no position on whether a more concentrated accounting profession would be an efficient result, but we doubt that it would be.)
Still another expected effect of heightened liability exposure will be that audits and other examinations will contain more information than is necessary, a response analogous to the practice of defensive medicine. Conversely, more opinions will be qualified when qualification may be unjustified, thus raising capital costs to business.(n336)
It is not at all clear that the purported value of better information for the financial community that might accrue from adopting this combination of legal rules will be worth the extra resources devoted to lobbying efforts, the excessive use of qualified opinions, and a more concentrated accounting profession. Add to this list the additional costs that can be anticipated from heightened exposure to high stakes litigation, and we can conclude that retaining joint liability after adopting the reasonably foreseeable plaintiff rule will likely produce substantial inefficiencies.
The Efficiency of a Reasonable Foreseeability/Several Only Liability Rule
As noted, Landes and Posner would require that injurers fully compensate non-negligent victims in the interest of economic efficiency.(n337) Thus, if there is likely to be an insolvent primary defendant, it is better to have a back-up co-defendant who can be held jointly liable and thus replace the deficiency of the judgment-proof defendant.(n338) Although this result is suboptimal in the "alternative care case" because the co-defendant is a higher cost avoider than the insolvent