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The law of unintended consequences is not statutory. No state or federal government has enacted it into law. No manager has signed the law. Rather, it is a natural law for humans. It is a proverb or idiomatic warning that an intervention in a complex system always produces unexpected and often undesirable results.
General observation requires the hypothesis that the actions of people, especially governments, will always have effects that are unexpected or unintended, have been proven. Economists and other social scientists have respected its power for centuries. Regardless, for just as long, politicians, insurance companies, and public opinion have largely ignored the law of unintended consequences to their detriment.
There is no customary duty on a court, especially in a heavily regulated sector of the economy like insurance, to create new rules. Every court should be loathe to invent duties that are not anchored by existing precedent. The law of unintended consequences discourages it.
To find a good illustration of the law of unintended consequences, one need look no further than the Supreme Court’s decision in Williamson County Regional Planning Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172, 105 S.Ct. 3108, 87 L.Ed.2d 126 (1985). The court’s actual holding was pedestrian: that Hamilton Bank’s payment claim was untimely because the bank had not exhausted its administrative remedies, specifically its right to ask the county for a variance to develop the property in the manner proposed. In dictum, however — dictum in the sense that the court’s statement at the time was unnecessary to its decision — the court went on to say that the bank’s claim was “not yet ripe” for a “second reason.” That reason, too, was couched in terms of exhaustion: that under state law “a property owner may bring an inverse condemnation action to obtain equitable compensation for an alleged taking of property”; and that, until the bank “has used that procedure, its claim for payment is premature.” The Court’s implied assurance, of course, was that once a claimant has checked those boxes, it can bring its payment claims back to federal court.
That assurance turned out to be illusory. State courts are things to which the federal courts owe full faith and credit. That obligation means that claims tried in state court cannot be tried again in federal court. So – apparently unintentionally – Williamson County all but guarantee that plaintiffs will not be able to use the federal courts to enforce the Fifth Amendment’s guarantee of just compensation against state and local governments. [Lumbard v. City of Ann Arbor, 913 F.3d 585 (6th Cir. 2019)]
The law of unintended consequences applies as much in case law as elsewhere; Bending a rule to accommodate a plaintiff doesn’t always result in better justice—sometimes it just creates confusion for anyone trying to figure out what a court might do in other cases in the future. A prudent court will learn the lesson of leaving regulation to the legislatures and administrators, even when the result appears unjust. The orderly development of the law is not without rough patches, but it is better than living under the law of unintended consequences. [United States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., 892 F.3d 822 (6th Cir. 2018)]
Moreover, as one dissent said, the majority’s desire to cure all wrongs by eroding the doctrine of state immunity, while well-intentioned, is fraught with the law of unintended consequences. Stripping government officials of state immunity when they make policy decisions, when they make sentencing decisions, and when they run the government would surely make most of us rethink the traditional notion of public service. [Doe v. Dep’t of Corr., 323 Mich.App. 479, 917 N.W.2d 730 (Mich. App. 2018)]
Courts will often work hard to avoid making decisions that will lead to difficulties in the future by applying the law of unintended consequences that cause more problems than the decision can cure. My opinion is that the well-intentioned creation of bad faith has only helped an insured cost hundreds of millions of dollars, if not billions, to the unwitting purchasers of policies who have to pay more in premiums than they would have had in damages. not created by the California Supreme Court.
Adapted from my book It is time to abolish The Tort of Bad Faith
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, can be found at http://www.zalma.com and zalma@zalma.com
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