This article is written by Shivani Nair, from Manipal University Jaipur. This is an exhaustive article which deals with the topic of Deep Pocket Theory and its legal essentials.
Table of Contents
Introduction
The deep pocket theory has originated from the American slang word which means “extensive financial wealth and resources”. It became popular in the terms of litigation towards the end of the second half of the 20th century. Initially, it was used against persons or organisations who were deemed to be wealthy but now it has been termed to organisations, who are in the position to pay the dues. In the context of a suit of law, the defendant is often considered to be the one with a “deep pocket”.
A basic fundamental principle of the law of Tort lies in the fact that the liability should always be imposed on the person who commits the wrong act. A person or a party that is injured should not be given the burden of paying up any sort of liability. Most of the courts and the judges follow this principle of law. However, in some of the cases, the onus is shifted to the fact that the wrongdoers have immunity from the proceedings.
What is Deep Pocket Theory?
It is a concept that is used in the sphere of tort and environmental law, and other economic parts of the law. It refers to the idea that the uncertainty of an activity should be borne by the person who is in a better or a relatively good position to handle such a risk. This can be achieved by either spreading such a risk or uncertainty to a large number of risk-bearers or the fact that this could be imposed upon a person who is tentatively neutral in such a position. The deep pocket argument, amongst other arguments, may be used as a weapon to justify the liability of a product as the producers with the “deep pockets” will normally be better able to accommodate the risk of the damages that those kinds of individuals who are not endowed with “deep pockets”.
Sometimes, the law changes itself because of the changing values in the society. But, in this regard too, for some reason, the law has decided to take over the principle of “deep pocket theory”. In an expressive form of Tort law, it can be stated that the innocent person is supposed to pay the cost of the harm caused, because, for whatever reason it may be, the wrongdoer has not been available.
The subtle characteristic of Deep Pocket Theory
Since the deep pocket theory has never actually been much acknowledged by the courts, when engaged, it can be almost impossible to identify. Relatively, lesser courts have been expressing outcome-oriented decisions for the cases.
In 2014, the Supreme Court of Iowa in the State of Iowa, in The United States of America, in the case of Huck v. Wyeth Inc., became the first-ever State of the United States of America to identify the plaintiff’s liability theory as a “deep pocket theory”. In the case, the plaintiff had sued the defendant’s incorporation on brand name drugs, even though he had only taken the generic versions of the drug which were made and had been sold entirely by different companies. While dismissing the case, the court of Iowa had stated that the theory of “deep pocket” had been a law without any principle.
The decision given in this case is a gem in the field of law. This has to be used in those cases where the citation of the deep pocket theory is required to be shown.
Four examples of Deep Pocket Theory
Here are the four different examples and circumstances of a deep pocket theory.
Innovator liability
In the case mentioned above, the liability was the innovator liability. This theory called “the innovator liability” stretches the liability of the product law, beyond its basic moorings. A company can be held subject to liability even though it did not make that product that had allegedly injured the plaintiff. If one takes the example of the case that has been cited above, one can say that the very specific theory which is alleged by the lawyer of the plaintiff to accomplish such a transfer of the responsibility from a generic brand to a brander company is called “misrepresentation”. This theory argues that since the generic drugs must carry the warnings based on the branded drugs, the company that had created the branded drugs must, in all cases, pay the person who claims injury even for the usage of a generic drug. However, most of the courts have now rejected this theory.
Stretch of the Law of Public Nuisance
More often than not, the lawyers and the advocates of the plaintiffs have managed to enlarge the scope of the law of public nuisance to subject the defendants who have the “deep pocket” to the liability for various social and environmental risks or harms.
This Tort related to the nuisance in public has traditionally had a very narrow purpose. The purpose can be stated as the allowance of the government to use the Tort system rather than the criminal or regulatory law to stop anyone from unlawfully interfering with the rights of the public or make the persons responsible for the damage they have caused to the rights of the public.
A regular suit filed against public nuisance generally seeks to cease the quasi-criminal conduct, such as the blocking of the public road or illegally dumping of the pollutants into a river. The court, in this case, can issue an injunction against those persons and the actions that cause such public nuisance and require the payment of the costs of abetment.
Nevertheless, the theory of public nuisance has been used against product manufacturers.
In India, there has been a landmark case of M. C. Mehta v. Union of India, that talks about the decision given by the judges, in that case, related to the “deep pocket theory” in the field of public nuisance and environmental law.
Facts of the case:
A writ petition was filed by the renowned advocate, M.C. Mehta, against the Shriram Industries as it was engaged in the manufacture of hazardous chemicals and also the fact that it was located in an area, which was densely populated. While this was pending in the court, there had been a leakage of the oleum gas and had affected a lot of people.
Issues of the case:
Following were the issues in the case-
- Whether such hazardous industries must be allowed to be present and function in such areas where there are densely populated people?
- If such industries are allowed to function, can regulation be issued for the guidance of such industries as to prevent them from causing harm?
- Liability and the amount of compensation that needs to be determined to give each of the victims.
The decision of the case:
While deciding the case, Hon’ble Justice Bhagwati had shown deep concern regarding the affairs of such industries that existed in those areas and other industries that existed elsewhere in the country. He opined that one cannot adopt the policy of any organisation to merely do away with the chemical or the hazardous industries as they also help in the improvement of the quality of the lives of the individuals. In the present case, it was the supply of the chlorine to the water management so that good water could be supplied to the households.
He stated that one can only hope for the reduction of the risks and hazards in the society by taking up several steps that are necessary in order to prevent any harm, by the relocation of such industries to areas which are low in population or away from any place of residence.
In this case, it is important to note that the Supreme Court had turned down the principle of unlimited damages in the civil law and had reduced the quantum of the compensatory relief, thus naming it the principle of the “deep pocket theory”. According to the judges, while mentioning this theory, it means that the amount of the damages that have to be paid by the enterprise should always be correlated to the magnitude and the capacity of the enterprise due to the fact that such compensation must have a deterrent effect. This means that the larger and more economically prosperous an enterprise is, the higher their amount of compensation shall be deemed to be payable by that enterprise solely due to the fact that it has caused harm on account of an accident while carrying out a hazardous task or any form of dangerous activity that affected the public at large causing it to be a nuisance.
However, later on, the court went on to state that its findings earlier were merely obiter and nothing else. The essential decision that has generated after the rejection of the “deep pocket theory” by the Indian Judiciary, is not the fluctuations in their decisions but the fact that it questions the very litigating strategy for the government.
The value of the deterrent so litigated in the above-mentioned case could in no manner, matter much to the government since the matter pertained to the industries in India.
This theory could not be held as a principle that is pretty civilised in the matter pertaining to global corporate governance. This could recoil and block the process of any kind of investment coming into the country through various industries.
Expanding the scope of the liability of hirers of the independent contractors
The employers are generally subjected to the liability of the tort committed by their employees. This is for the reason that the employer exercises control over, and also generally profits from the work of the employee. In contrast to the previous statement, any person who hires an independent contractor is generally not subject to the liability of the tort committed by the independent contractor. This is because of the reason that the person who has hired these independent contractors has no right of control over the contractor’s business.
For example, if a person hires a moving company to move the furniture and the driver of the van negligently causes an accident on the road, whilst injuring someone, the moving company is the one that bears sole responsibility for any kind of harm caused. And the homeowner; the person who had hired the company has to pay no liability at all even if the moving company has no insurance to cover up the damages.
This is an area where the deep pocket theory has been quietly lurking in the shadows of such cases. Though quite a few courts have suggested reforms and make sure that the hirers are responsible for the damages, it has yet to be implemented completely.
Expanding the liability of the auto-maker
The manufacturers of automobiles may be subject to liability if they design any car or any automobile which has the potential to injure the person who is using that vehicle. According to the law of tort, any such vehicle which causes the injury must be deemed as “crashworthy”.
This theory of deep pockets comes into play when this doctrine of “crashworthiness” has been stretched beyond reasonable limits. The deep pocket theory in the automobile industry may arise even in the cases where the person involves a drunk person or an uninsured vehicle who have wrongfully caused the injury but are in no cases able to pay up the adequate compensation for the same.
Therefore, in this case, the plaintiff’s lawyers have known to be shifting the case to the defendants stating that it is the company that has failed to provide for the safety features in that particular automobile.
Conclusion
These are the earmarks of the deep pocket theory and its influence over the judiciary. The ones who have always supported the fair and balanced civil justice system can identify and use this knowledge to identify other instances of such unprincipled burden-shifting agendas or strategies and oppose the same. Under this theory though, big companies and organisations with the help of the judges, end up subsidising the lawyers or the advocates.
References
- https://www.wlf.org/2017/12/08/publishing/deep-pocket-jurisprudence-where-tort-law-should-draw-the-line/
- https://www.latestlaws.com/articles/case-analysis-m-c-mehta-v-union-of-india-shriram-industries-case-by-roopali-lamba/
- http://euroasiapub.org/wp-content/uploads/2017/04/12ESSMarch-4681.pdf
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