Changing the U.S. tort system will have little effect on the economy and might even hurt job creation, according to a recent study from the Economic Policy Institute, in Washington, D.C.
"Tort litigation has been blamed for a host of ills: driving liability insurance premiums to excessive levels, reducing real wages and overall employment, undermining corporate profits, dampening productivity growth, and discouraging research and development," wrote the study's authors, economist Lawrence Chimerine and attorney Ross Eisenbrey. "But macroeconomic trends since the early 1990s are especially inconsistent with the argument that supposedly high and rapidly rising tort costs have inflicted serious harm on the economy."
Despite the fact that the legal system's critics continue to argue that a tort liability crisis warrants changing the system, Chimerine and Eisenbrey found no credible evidence linking civil litigation activity to the nation's economic ills. The authors targeted annual reports from Tillinghast-Towers Perrin on the costs of the U.S. tort system, calling them flawed and one-sided. Any arguments based on data in these reports also are unreliable, Chimerine and Eisenbrey caution. In particular, they cited the president's three-member Council of Economic Advisors 2004 report, which drew extensively on TTP's estimates for its facts.
The EIP report maintains that there is no tort crisis. Although advocates for tort reform assert that legal costs and case filings are rising precipitously, and that the tort system causes a diminution of earning power equivalent to a so-called tort tax of 5 percent of wages, the EIP research does not support those arguments. In fact, according to the EIP report, the number of tort cases has declined significantly.
"Unlike TTP's unverifiable calculation of tort costs, the number of tort cases filed in certain U.S. courts is knowable and verifiable," Chimerine and Eisenbrey stated. "Despite the nation's constantly growing population, the number of new tort suits has fallen in recent years." The ratio of tort filings to population declined by 8 percent in the last quarter-century of the 1900s, from 230 per 100,000 residents in 1975 to 212 per 100,000 in 2000, according to the report.
Half of the costs that Tillinghast-Towers Perrin attributes to the tort system are not costs in any real economic sense, the authors maintained. "They are transfer payments from wrongdoers to victims," they said. "As the Congressional Budget Office points out, costs that 'merely shift money from injurers to victims … are not true costs to society as a whole.'"
In addition, the claim that the tort system is the cause of insurance premium increases is erroneous, the report noted. "The actual causes are the collapse of the stock market; record low long-term interest rates, which reduced investment income for insurance companies; the recession, which increased claims in some lines of insurance; and high and rising medical costs, which pushed up health insurance premiums."
The authors also pointed out that, despite the alleged explosion in tort costs since 2001, insurance industry profits also have risen strongly, more than doubling between 2001 and 2004.
In many areas, the U.S. tort system has had positive effects, according to Chimerine and Eisenbrey. For example, highway deaths have fallen to the lowest rate ever recorded, 1.48 deaths per 100 million miles traveled, down from 4.80 deaths per 100 million miles in 1970. "Cars are safer than ever before, and no one doubts that the tort system has played a role in encouraging the production of safer vehicles, although there are many factors involved in highway safety," they said. In a study of the relationship between motor vehicle safety and the tort system, John D. Graham, before he became the Bush Administration's regulatory chief, concluded that product liability had contributed in many ways to highway safety.
The spectre of product liability suits has prompted U.S. manufacturers to create better and safer products, according to the study. While J.D. Power and Associates reports that defects in American cars have dropped by 32 percent since 1998, similar improvements have been recorded for consumer appliances, television sets, medical devices, and other products.
Tort reform can help improve insurance market conditions by making costs more stable and predictable, benefiting the country's economy overall, according to the American Insurance Association. "There's no doubt that the tort system is a huge drag on the American economy, in terms of payouts in questionable circumstances, lost jobs, higher prices, and denied product innovation," said David Snyder, AIA assistant general counsel. Exact dollar amounts are difficult to determine because of the "deliberately opaque" nature of the tort system, he said.
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