Center for America

  Updates on Business Liability Reform in the States

March 11, 2008

 

 

Breaking News:
 

States Ranked in Expansively Updated Economic Study:
Economic Performance Tied Directly to Health of Legal System

Terrific barometer for CEOs considering business locations and expansion in tough economy, says CFA President Dan Pero

WASHINGTON, DC — The Center for America (CFA) praised the newly released U.S. Tort Liability Index: 2008 Report, published by the California-based Pacific Research Institute (PRI), as “one of the best new tools to help corporate leaders – and state lawmakers and judges – better understand the direct link between a state’s legal system and its economic health.”

The new study, which follows on PRI’s groundbreaking 2006 Index, provides new analysis on all 50 states based on multiple variables of empirical data measuring both inputs (what states have done to reform their legal systems) and outputs (the cost/risk factors currently facing states based on their legal systems).

“The 2008 study confirms the predictions made by the 2006 study – when states take action to reform their tort lawsuit systems, they better position themselves for economic growth by lowering tort costs,” said Dan Pero, CFA president. “CEOs and corporate planners now have a better tool to assist them with tough decisions about where to add jobs and expand operations, particularly during this time of economic uncertainty.”

“The fact is, enacting and protecting basic legal reforms directly impacts the bottom line for businesses in terms of costs, risks, and prospects for future investment,” Pero added.

The new study, authored by PRI’s Dr. Lawrence J. McQuillan and Hovannes Abramyan, is a significant refinement of the 2006 study, and now includes two state rankings lists.
 

Output Rankings: Ranks states based on cost/risk analysis, reviewing hard tort costs and losses in discreet categories. According to McQuillan, the output ranking is “a good snapshot of a state’s current status in terms of liability risks and tort health.”

Best Output State in 2008: North Dakota; Worst Output State: Florida

Input Rankings: Ranks states based on tort and other legal reform measures “on the books.” According to McQuillan, the input ranking is “a solid predictor of a state’s future performance on the output side, because the more willing a state is to enact reforms and then protect them through the legislature and courts, the better the economic indicators will become over time.”

Best Input State in 2008: Colorado; Worst Input State: Rhode Island.

 

The empirical data examined in the study includes: the extent of monetary tort losses in each state, including specific categories such as homeowners’ tort losses, farm tort losses, and automobile-related losses; the existence of caps on certain damage awards; the enactment of substantive legal reform efforts by state legislatures; the adoption of procedural and structural reforms to discourage lawsuit abuse; and a more general analysis of the litigiousness of each state.

The PRI study resulted in an index score for each state to arrive at the two overall state rankings. The data reveals the previously hidden and obscure strengths and weaknesses of the civil-justice system in each state.

New State Ranking Category

Based on the composite analysis from both rankings, the study places the states in four categories – Saints, Sinners, Salvagables, and Suckers.

 

Saints: States that have enacted aggressive legal reform measures, protected those measures in the legislature and courts and, as a result, are well-positioned to experience economic benefits.

Top Saints in 2008:
Alaska, Mississippi, Ohio, Tennessee, and Utah

Sinners: States that have relatively high monetary tort losses and/or risk of litigation, and relatively weak tort laws on the books. These states are poorly positioned for future growth.

Worst Sinners in 2008:
California, New York, Illinois, and Massachusetts

Salvageables: States that have moderately high monetary tort losses and/or risk of litigation, yet have moderate to strong tort rules – typically as a result of recent reforms.

Top Salvageables in 2008:
Colorado, Florida, Georgia, Michigan, and Texas

Suckers: A new category for 2008, these are states that have weak tort rules on the books because they currently have low to moderate tort losses and/or risk of litigation and, therefore, “foolishly believe that they are not vulnerable and reforms are not needed,” according to the study.

Sucker States for 2008:
Iowa, North Carolina, Virginia, and New Mexico

 

“Reforms Need Time to Work”

In an interview with CFA, McQuillan points out that “behind the data are fundamental concepts that CEOs and others in decision-making positions should consider. First, when legal reforms are enacted, it will take two to five years for the positive effects to filter through the system in the form of reduced insurance rates, lower employment costs, and the like.”

“Second, the plaintiffs’ lawyers will attempt to knock down the reforms through lawsuits and lobbying,” said McQuillan. “A flurry of lawsuits challenging legal reform measures creates uncertainty in the system. Insurance rates are not likely to come down in a time of uncertainty. Then the lawyers come back and say the reforms were not needed and had no effect. It’s a self-fulfilling prophecy and a deliberate political strategy .”

“Finally, when one state in a region of the country enacts legal reforms, that puts a tremendous amount of pressure on neighboring states to follow, due to the highly competitive nature of state economics,” McQuillan added. “In today’s challenging economy, jobs and growth are all-important, and state leaders know that.”

 

Audio Interview with Lawrence McQuillan on 2008 Report
 

Download 2006 Report

 Download 2008 Report

 

 

 

The Center for America is a national nonprofit coalition of leading corporations, think tanks, foundations,

 trade associations, individuals and organizations advocating for legal reform at the state level. 

  www.centerforamerica.org

Original material © 2008 Center for America.