Tort Liability Annual Report Released by Think Tanks

The Pacific Research Institute (PRI), a free-market think tank based in San Francisco, and the Manufacturers Alliance/MAPI, a public policy and economic research organization based in Arlington, VA, announced last week the release of their 2010 U.S. Tort Liability Index, a measure of which states impose the highest and lowest tort costs and risks.

According to the report, Alaska, Hawaii, and North Carolina lead the pack with the best rankings, while New Jersey, New York and Florida bring up the rear. Again, the states with the worst performance had the highest monetary tort losses and tort litigation risks, meaning they had more costly and riskier business climates due to larger plaintiff awards, larger plaintiff settlements, more lawsuits, or some combination of the three.

Direct tort costs account for almost 2 percent of GDP in the United States, which is the highest in the world, not surprising to our readers. Such high costs cause businesses to divert revenue, that could hire workers, to fight lawsuits. But all our readers ultimately shoulder the burden through higher prices and insurance premiums, lower wages, restricted access to health care, less innovation, and higher taxes to pay for court costs.

The Best Tort climates, according to the report:

North Carolina
South Dakota
North Dakota

The Worst climates, according to the report:

New Jersey
New York

States were also ranked according to their tort rules and reforms to reduce lawsuit abuse and limit tort costs and risks, such as award caps, or venue reforms to stop “litigation tourism."  Oklahoma, Texas, Ohio, Colorado and Mississippi did well on the tort reform scale in this report. The states with the least favorable tort rules for defendants, according to the analysis, are Rhode Island, New York, Pennsylvania, Minnesota and Illinois. 

This report can also be contrasted with the Chamber of Commerce report ranking state liability systems, and the ATRA report of the "most unfair jurisdictions."

U.S. Tort Costs Rise: No Surprise

The global consultants Towers Perrin have released their 2008 Update on U.S. Tort Cost Trends.  This represents the 12th study of  U.S. tort costs published by Towers Perrin. The first study was completed in 1985.

This study takes no position on whether tort costs are too high or too low. (MassTortDefense votes too high.) Its stated purpose is to attempt to quantify the costs. 

The study's definition of tort cost is largely governed by traditional liability insurance coverages. Thus, it understates the true cost of torts.  For example, it has excluded things like the tobacco settlements with the state AG's.  It also does not appear to cover punitive damages.  Certain indirect costs are also omitted, such as those associated with litigation avoidance. These costs range from potentially unnecessary and duplicative medical tests ordered by doctors as a defense against possible malpractice allegations, to the disappearance of certain products or whole industries from the marketplace because of high product liability cost.

Key results:

  • U.S. tort costs increased by 2.1% in 2007. 
  • This is the largest increase in personal tort costs since 2003.
  •  The increase in personal tort costs was at least partly the result of a rise in auto accident frequency, the first such rise since 1999.
  • The U.S. tort system cost $252 billion in 2007, which translates to $835 per person or $9 per person more than in 2006.
  • Since 1950, growth in tort costs has exceeded growth in GDP by an average of  approximately two percentage points.

Towers is forecasting growth in U.S. tort costs of 4.0% in 2008, with higher growth (5.0%) in 2009 and 2010. There are several issues that will impact the future trends in U.S. tort costs, including:
the change in administration as well as shifts in the U.S Congressional makeup.  This may well lead to modifications in the federal government’s behavior and attitudes toward litigation.

Other emerging issues noted by the report:  global warming and obesity continue to be potential areas for significant tort costs, they say, as well as claims related to data security breaches.