The cost of civil litigation puts a virtual $865 billion tax per year on insurance and other goods and services, according to a study released this week.

The Pacific Research Institute, a free-market think tank based in San Francisco, said that such tort costs make it harder for the United States to compete in global markets.

"Rising tort costs increase the demand for, and cost of, liability insurance," said David Golden, director of commercial lines for PCI. "The majority of what you pay in liability premiums goes directly to pay for tort costs."

The PRI study calculated that the nation's tort system imposes a yearly "tort tax" of $9,827 for a family of four. Additionally, it found that the U.S. spent 2.2 percent of its gross domestic product on direct tort costs.

Birny Birnbaum, director of the Center for Economic Justice, said the PRI report is skewed in several ways.

"It fails to indicate how much of these tort costs are brought by companies by, for example, forcing consumers to go to court to get a fair claims settlement," he said.

The report also fails to mention the benefits brought by the tort system, including improved patient safety and reduced harm to consumers from faulty products, he added.

Mr. Golden noted that advanced economies around the world spend an average of 0.9 percent of GDP on direct tort costs.

"This means that the U.S. spends 1.3 percent of its annual GDP on excessive tort costs," he said. "So, compared to our economic competitors, 59 percent of direct tort costs, or $589 billion per year of social tort costs, is wasted on excessive tort costs.

In addition, Mr. Golden said there are efforts to reverse laws aimed at curbing excessive lawsuits.

"Mississippi and Texas serve as examples of where we face challenges to laws that are just starting to show their positive effects," he said.

Special Reports /

Litigation = An $865B Annual U.S. Burden, Study Finds

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