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University of Miami Business Law Review

Document Type

Article

Abstract

According to the modern tort theory, that dominates in the legal academy, deep pocket entities that profit from facilitating harmful activity must compensate those foreseeably injured by that activity. The rationale is that allowing enterprises to externalize the costs they impose on others encourages excessively risky behavior. Therefore, cost internalization must be mandated to achieve the twin goals of tort law: compensation of tort victims and deterrence of potentially harmful conduct.

The thesis of this Article is that the academic model is misleading and incomplete. The concerns of the tort system are not limited to compensation and deterrence. Our legal system also cares about the rights of defendants, the protection of lawful enterprise, and the encouragement of investment. Legal rules advancing these policies contradict modern tort theory. A prime example, and the subject of this Article, is the doctrine of corporate individuality, which the U.S. Supreme Court unanimously reaffirmed in February 2025. This doctrine holds that a corporation is a separate and autonomous legal person, legally distinct from its owners and affiliates, and therefore not a conduit of liability to them. The doctrine allows businesses to avoid liability by outsourcing risky behavior to a separately incorporated company and protects shareholders from liability for conduct they enabled, in defiance of modern tort theory. The continuing vitality of the corporate individuality doctrine demonstrates that modern tort theory needs the supplement of an alternative model, more in line with the classic common law of the late nineteenth century, that can account for competing policies and current legal reality.

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