Providing a Safe Harbor for Those Who Play by the Rules: The Case for a Strong Regulatory Compliance Defense

On September 25, 2003, a fire broke out at the National Health Care (NHC) nursing home facility in Nashville, Tennessee, causing sixteen deaths and a number of injuries from smoke inhalation. Thirty-two victims subsequently filed suit against the nursing home, alleging that NHC was negligent for failing to install sprinklers in its facility. This claim was made notwithstanding the fact that applicable federal, state, and local safety regulations did not require the installation of sprinklers in this particular type of building, and notwithstanding that the NHC facility had been inspected by state fire inspectors just months before the fire and was found to be in compliance with all requirements of the fire code. NHC eventually settled these lawsuits in order to avoid the uncertainty and expense of further litigation. The NHC case illustrates how good-faith compliance with applicable safety regulations provides businesses with almost no protection against potentially devastating tort liability. The problem is with the legal rule that governs compliance with government regulations. In effect, most courts treat a defendant's compliance with governmental regulations as evidence of due care, but allow the jury to find that a defendant was negligent, notwithstanding his or her compliance with legislative or administrative regulations. We shall refer to this as the "traditional approach" to regulatory compliance. The traditional approach originated in Grand Trunk Railway Co. of Canada v. Ives, decided by the United States Supreme Court in the late nineteenth century. Later, § 288C of the Second Restatement of Torts endorsed this version of the rule, declaring that compliance with safety regulations was not conclusive evidence that a defendant exercised due care. The American Law Institute is currently in the process of drafting the Third Restatement of Torts, and the revised version of the regulatory compliance defense is substantially similar to that of the Second Restatement. In our view, there are many problems with the traditional approach. First, legislatures and administrative agencies have more expertise than lay juries when it comes to determining efficient levels of safety, but the traditional approach allows lay juries to second guess them. Second, under our constitutional system, legislative bodies and administrative agencies, not courts, are responsible for making resource allocation and other policy decisions. Therefore, courts should accept the trade-offs that are often embodied in safety regulations instead of allowing plaintiffs to use the litigation process to substitute their own policy choices for those of legislative bodies and administrative agencies. Third, the traditional approach wrongly assumes that government safety regulations merely set minimum standards, while, in reality, modem regulations typically reflect state-of-the-art standards. Thus, by adding jury-created safety standards on top of existing regulatory requirements, the traditional approach to regulatory compliance adds to the cost of doing business without achieving significant safety gains. Fourth, the traditional approach to regulatory compliance undermines the principle of uniform application of regulatory standards. Because jury verdicts are seldom consistent, business entities are often subjected to nonuniform safety "standards." Finally, the traditional approach deters useful economic activity by imposing potentially crushing tort liability upon those who have complied in good faith with regulatory standards. Part II of this Article examines the traditional approach to the regulatory compliance defense, beginning with the Supreme Court's opinion in Grand Trunk Railway Co. of Canada v. Ives, and proceeding to the Restatement (Second) § 288C and the Restatement (Third) of Torts: Liability for Physical Harm § 16. In Part III, we discuss a number of cases that explicitly recognize a strong regulatory compliance defense, as well as cases that achieve a similar objective by expressly or impliedly applying the Second Restatement's § 16, comment (a) exception. Part IV reviews some of the arguments that support a stronger regulatory compliance defense. These include: (1) the institutional competence argument, (2) the separation of powers argument, (3) the regulatory efficiency argument, (4) the nonuniform standards argument, and (5) the overdeterrence argument. In Part V, we focus on nursing home regulation to -see what impact a stronger regulatory compliance defense would have on this socially useful industry. Finally, in Part VI, we set forth a proposed alternative to the current version of Restatement (Third) of Torts: Liability for Physical Harm § 16.

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