The 5th Circuit Court of Appeals returned a measure of economic sanity to the loony world of tort liability with the ruling that the federal government, acting through the U.S. Army Corps of Engineers, cannot be held liable for damages in New Orleans from Hurricane Katrina. People's extensive property losses to Katrina are lamentable. But holding the government liable in this case would have opened up a shipping container full of worms and created all sorts of future problems.

The question of whether government should have the same legal status as private individuals in liability for harm done to others is an old one. Historically courts favored “sovereign immunity,” based on the medieval idea that “the king can do no wrong,” and blocked most tort liability suits against any unit of government.

That often resulted in obvious injustices. One example in my home town occurred when a public works backhoe snagged a natural gas line, causing an explosion that killed three, injured several others and caused millions in property damage. The National Transportation Safety Board later ruled that the crew had done several things wrong, but the city was largely exempt from damages.

Over time, however, sovereign immunity has eroded. One indicator might be that the victims of the 1995 Oklahoma City bombing received no payments from the federal government while families of those killed only six years later on 9/11 received substantial settlements.

But while strict immunity has eroded, most liability suits against government still require proving specific negligent actions.

In the case of Katrina, the plaintiffs' argument was that the corps of engineers had constructed a ship canal, the Mississippi River Gulf Outlet, or Mr. Go as it became known, but then failed to maintain it properly. Mr. Go destroyed substantial areas of marsh and trees that acted as barriers to storm surges. That contributed to the overtopping of flood barriers.

There are important differences, however, between the decision to dig an extensive canal and then maintain it or not and the instructions of a street crew foreman about where a backhoe operator should move his bucket relative to marks made by the gas utility.

Constructing Mr. Go was not a whim of the Corps of Engineers. It was a project that New Orleans leaders had sought for more than 50 years. It eventually was authorized in 1956.

It never had the economic benefits advocates had touted and eventually languished. Maintaining a 76-mile ship canal is not something that the corps can do out of its petty-cash fund. Over a 30-year-period, Congress could have appropriated funds for its maintenance, or for its closure and restoration of the wetlands. It did neither.

The fact that the channel may have contributed to hurricane damage resulted from a policy decision by Congress, not a decision by a federal agency.

Nearly any major project, public or private, results in unanticipated and unattended negative effects on someone. In the case of private projects, that can result in court awards of damages to those harmed. But in most cases it does not, largely because the transaction costs of lawsuits are a deterrent.

That is the economic argument for government regulation of activities where the potential for external damage is high.

There also are cases where Congress acts to compensate those inadvertently harmed by federal projects.

But this also is rare. Suffering uncompensated collateral damage from government projects is common.

This may be regrettable, but subjecting government to the same tort standards as private individuals and businesses would be bad policy.

It may benefit society for government to build flood-control structures. However, some storm or flood will overwhelm any structure built by humans.

Should the fact that government made any effort to control flooding automatically impose strict liability for any flood damages?

If government acts to limit floods in one area, but is liable whenever its measures prove inadequate, is that worse than if government does not act at all?

Could communities that never succeeded in getting a congressional appropriation for some project sue when they suffer harm as a result?

There clearly will be injustices regardless of the legal doctrine the courts may decide on.

But this is a case where the economy, and society as a whole, are probably better served by the 5th Circuit's decision to continue limited federal liability.

Ed Lotterman teaches and writes in St. Paul, Minn. Write him at ed@edlotterman.com.