Center for America

Speaker's Resource: 3. Lawsuit Abuse Costs, p 2

 

 

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Key Reference Citations (KRC)

 

Costs to: Consumers

  • “It is argued that the excessive costs of this tort system are borne by the American public.  Undoubtedly, the legal liability of tort law is carried by private firms.  If the distribution of tort costs is random, tort costs increase the costs of a firm and decrease the profits of a firm in a manner analogous to the corporate income tax.  Most economists think that the brunt of the corporate tax is shifted to the consumer through higher prices or to the worker if wages are reduced as a result of a decrease in demand for the taxed item.”  (KRC: Nicolaides,U.S. Tort Reform and the Implications…” July 2004, p. 5, citing Tillinghast-Towers Perrin, U.S. Tort Costs: 2003 Update, Trends and Findings on the Costs of the U.S. Tort System, 2003, p. 14)

  • “Like the corporate income tax, the litigation costs imposed on businesses are passed on to consumers through a “tort tax” that businesses add to the price of goods or services to cover litigation costs”.  (KRC: Nicolaides,U.S. Tort Reform and the Implications…” July 2004, p. 5, citing Tillinghast-Towers Perrin, U.S. Tort Costs: 2003 Update, Trends and Findings on the Costs of the U.S. Tort System, 2003, p. 14)

  • A poor tort system, on the other hand, imposes excessive costs on society, not the least of which is foregone production of goods and services.  PRI conservatively pegged excessive tort costs at $589 billion in 2006, equivalent to a 7-percent tax on consumption or a 10-percent tax on wages.  This imposes an annual “excess tort tax” of $7,848 on a family of four.  Not only is the U. S. tort system excessively costly-wasting resources each year equal to the annual output of Illinois-it also applies to a very inefficient method of compensating injured parties.  (McQuillan, Abramyan, and Archie, Jackpot Justice, p. 35. See pp.30 and 31 for a discussion of the five sources of excessive tort costs)

Costs to: Families

  • “The annual price tag, or “tort tax,” for a family of four in terms of costs and forgone benefits is $9,827. “(KRC: Pacific Research Institute, "JACKPOT JUSTICE…”  p. 28)  Note:  Includes both direct AND indirect costs.

  • The average American family of four pays a “tort tax” of $3,280 a year. ( KRC: Washington Legal Foundation, “Conversations With …", Hantler, p. 3)  Note:  includes only DIRECT costs.  See above for both direct and indirect costs.

  • “For an American family of average income, tort costs could pay for more than three months of groceries, six months of utility payments, or eight months of health care costs.”  (KRC: Hantler, “Seven Myths…”, p. 6 )

  • “Tort reforms passed in the states between 1981 and 2000 prevented approximately 22,000 net accidental deaths from occurring.” (KRC: Pacific Research Institute, "JACKPOT JUSTICE…”  p.15, citing Paul H. Rubin and Joanna M. Shepherd, “Tort Reform and Accidental Deaths,” Emory Law and Economics Research Papers , Nos. -5-17 (February 20, 2006)

  • The average person pays for lawsuit abuse in many ways: higher product prices, higher insurance premiums, higher taxes, reduced access to health care, lower wages, lower returns on investments in capital and land, and less innovation.  (KRC: USTLI, Why Legal Reform Is Important, page 49)

 

Costs to: Employees

  • “For tens of thousands of loyal employees (soon perhaps hundreds of thousands) who are building savings through ESOPs and 401(k)s, punitive judgments leave them “Enron-ed.” From asbestos alone, one could conclude—contrary to ATLA’s assertion—that the tort system in America is dysfunctional in the extreme.” (KRC: Hantler, “Seven Myths…” p.7, citing Steven Hantler, Toward Greater Judicial Leadership on Asbestos Litigation, Address before The Federalist Society’s National Lawyers Convention (2002), in Asbestos Litigation and The Role of The Courts (The Federalist Soc’y for L. & Pub. Pol’y Stud., April 2003) at 5)

  • “It is estimated that asbestos bankruptcies have resulted in the loss of 60,000 jobs.  Even employees of bankrupt companies, who have retained their jobs are injured by asbestos liability, as many employees of these companies have lost 25% of the value of their pensions.  Moreover, financial markets are closed to companies that could be subject to bankruptcy caused by asbestos liability, resulting in “capital costs” of $2.4 billion and 30,000 jobs every year. (KRC: Nicolaides,U.S. Tort Reform and the Implications…” July 2004, p. 5, citing Patrick M. Hanlon, “Asbestos Legislation: Federal and State”, SJ031 ALI-ABA, p. 553-554)

Costs to: Corporations

  • “[T]he plaintiffs’ bar has fundamentally changed the litigation landscape in ways that threaten American companies.”  “[M]ore than just legal fees and verdicts are at stake -- share value, brand equity and even a company’s business model are also on the line.” (KRC: Hantler, “New Core Competencies”, p 19, “The Trial Bar’s Secret Playbook”, p. 10)

  • Campbell et al. found that industries operating under “liability-increasing reforms” such as comparative negligence had less productivity growth: 5.1 percent less in the amusement and recreation sector and 2.9 percent less in the transportation sector.  (Thomas J. Campbell, Daniel P. Kessler, and George B. Shepherd, “The Link between Liability Reforms and Productivity: Some Empirical Evidence,” Brookings Papers on Economic Activity; Microeconomics 1998, pp. 104-148) 

  • “Why do so many large companies get pulverized in huge lawsuits that turn into media circuses and government agency investigations?  [I]t’s because these companies do not fully understand the trial bar’s playbook.  Plaintiffs’ attorneys are playing an elaborate game of three-dimensional chess; companies are playing a game of checkers.”  (KRC: Hantler, “New Core Competencies”, p 21)

  • “Lawsuits are now tried before shareholders and customers in the court of public opinion.  This is a much more sophisticated – and dangerous – game.  In fact, Trial Lawyers, Inc. now conducts briefings for financial analysts on its litigation portfolios against companies.  Why?  It seeks to drive those companies to the settlement table or risk losing share value.” (KRC: Hantler, “The Mounting Assault By Trial Lawyers, Inc.”, p. 7)

  • “After all, the public, and an important subset, jurors, are predisposed to distrust business.  Trial lawyers latch onto this distrust, portraying their clients as unwitting victims of corporate greed who deserve sympathy and help. Implicitly, the trial lawyers’ message to jurors is that helping the little guy will cost no one but the big, rich corporation.” (KRC: Hantler, “New Core Competencies”, p 21)

  • To put the loss and premium costs in perspective, for all states combined they accounted for about $500 billion in 2006, roughly equal to 4 percent of U.S. gross domestic product (GDP).  The payouts for tort losses and insurance premiums associated with state tort cases increased 60 percent in inflation-adjusted dollars during the decade from 1996 through 2005.  (KRC: TLT, Authors calculations using data from A. M. Best Company)

  • “It is no accident that polls show the American public has a high level of distrust for corporations – a phenomenon that predates recent corporate scandals.  It is not by happenstance that people believe that companies place profits ahead of safety and honesty.  And it is no mere coincidence that, primed with this misinformation, juries are all too willing to vote for eye-popping damage awards.  Make no mistake:  This is a well-orchestrated public relations campaign by the trial bar and its surrogates – self-anointed consumer and safety advocates – to undermine public confidence in corporations and distort our legal system.”  (KRC: Hantler, “New Core Competencies”, p 21)

  • “Already vilifying corporations in the media has played a role in influencing public perception of a lack of corporate malfeasance.  According to a 1998 public opinion survey, 62% of Americans believe a corporation’s “no comment” about a lawsuit means that company is covering up wrongdoing.  In addition, 48% of Americans are less likely to buy a company’s products when that company is accused of wrongdoing in a lawsuit.”  (KRC: Hantler, “Trial By Newswire”, p 21)

  • The Pacific Research Institute estimated the cost of tort-related net accidental deaths to be $7.51 billion in terms of forgone output in 2006.  (KRC: McQuillan, Abramyan, and Archie, Jackpot Justice, p. 19)

  • On the other hand, misdirected or excessive liability costs cause companies to spend resources on settling lawsuits, paying damage awards, paying higher insurance premiums, and hiring additional lawyers-resources that might otherwise have been spent on product and process improvements.  (KRC: USTLI, Why Legal Reform Is Important, page 51)

  • The Pacific Research Institute concluded that the suppression of product R&D and process R&D due to excessive liability resulted in lost sales of new products of more than $367 billion in 2006 alone.  (KRC: McQuillan, Abramyan, and Archie, Jackpot Justice, p. 27)

     

     

 

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