Our litigious climate is making us a global laughingstock
The verdict is in regarding America’s civil litigation system: It’s inefficient, unpredictable and virtually out of control.
News accounts are replete with stories of outrageous lawsuits, but defenders of the tort system attempt to discount those examples as anecdotal and not accurately representing the broader legal landscape.
However, two recent studies do examine the broad spectrum of personal injury lawsuits. They paint an horrific picture: the legal landscape looks like a tinderbox in a lightning storm.
In 2001, the cost of tort litigation in the U.S. was $205 billion – or $721 for every man, woman and child in America, according to an actuarial study by Tillinghast-Towers Perrin. In 1950, the per capita cost, adjusted for inflation, was just $87.
In a single year, from 2000 to 2001, litigation costs increased by 14 percent, while the general inflation rate for the same period was just 2.8 percent.
Were the tort system an item in the federal budget, it would be the fourth most expensive after social programs, interest on the debt, and defense. Moreover, this price tag does not include the cost of the multistate tobacco settlement.
An evaluation of tort litigation must recognize that its purpose is to fairly compensate victims who were injured or harmed and to deter unsafe practices or products. The U.S. tort system does neither effectively.
Awards for actual damages (e.g., lost wages, property damage, medical expenses) account for just 22 cents of every dollar spent on tort litigation.
Remarkably, more money – 24 cents – goes to victims for noneconomic damages, such as pain and suffering or emotional stress. That’s remarkable, because without actual damages, most lawsuits wouldn’t exist.
Yet juries have shown a propensity to award subjective non-economic damages at higher levels than the actual damage which prompted the lawsuit.
“Who Pays for Tort Liability Claims,” a study by the Council of Economic Advisers, questions whether noneconomic damages are awarded rationally or randomly.
That analysis also casts doubt that punitive damage awards – intended to punish and discourage bad behavior – achieve their purpose.
Harvard professor W. Kip Viscusi considered the risk performance in the four states that do not permit punitive damages as compared with the other states that do, and found “no evidence of any safety incentive role.”
“If punitive damages are essentially random, then they will not provide proper incentives for risk mitigation,” the council’s report notes.
While not an effective deterrent to bad behavior, the specter of unpredictable damage awards does result in additional costs, as doctors order unnecessary tests in order to defend against medical malpractice lawsuits, and lost opportunities, such as innovative products which are never introduced rather than risk liability exposure.
Other costs of the tort system include plaintiffs’ attorneys (19 cents), defense attorneys (14 cents) and insurance administration (21 cents).
Ultimately, the tort system’s inefficiencies function like a hidden tax, which business and industry necessarily pass to consumers.
“An important lesson,” the report says, “is that people pay taxes; firms are legal entities that can bear no real burden.”
When that hidden tax finally reaches real people, it represents as much as a 5.7 percent payroll tax (realized through suppressed wages) or a 3.4 percent tax on consumer goods (passed along as higher prices).
Because the U.S. tort system costs more than twice as much as those in England, Japan or France, investors look for better returns in foreign markets, resulting in fewer jobs, lower wages and depressed property values at home.
Our country’s litigious climate is making us a global laughing stock, but the economic reality isn’t funny at all.
State Sen. Mark Hillman
(R-Burlington) represents 12 counties in eastern Colorado. His e-mail address is email@example.com.
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