Tort costs in the United States reached a record $246 billion in 2003, approximately $845 per person, according to U.S. Tort Costs: 2004 Update, a recent report from Tillinghast Towers Perrin.
This figure represents a 5.4 percent increase in tort costs from 2002, a much slower growth rate than the prior two years. In 2002, tort costs rose 13.4 percent increase, while 2001 saw a 14.7 percent increase.
"The moderation in tort cost growth during 2003 merits closer consideration," said Russ Sutter, a Tillinghast principal. "Essentially, the double-digit increases in 2001 and 2002 raised costs to such a high level that growth rates were bound to level off, at least for a short period of time, but there is plenty of uncertainty lurking beneath the surface, so we can't really say that this more modest growth trend in tort costs will definitely continue."
The 2004 Update analyzes tort costs from 1950 through 2003, with projections into 2006. The 5.4 percent rate of growth in tort costs in 2003 slightly exceeded overall economic growth of 4.9 percent, as measured by gross domestic product.
Factors that may affect the growth of tort costs in the near future include a possible reversal in personal auto liability trends from their current benign growth, enactment of widespread asbestos reform, industry scandals prompting lawsuits, and the potential for obesity-related claims.
"There seems to be a shift under way in the types of liabilities that comprise tort costs" said Sutter. "In particular, substantial improvements in auto safety over the last several years have led to a long-term decline in the frequency of auto accidents. As a result, personal line tort costs have been relatively stable, and we expect this trend to continue." The annual growth rate for personal line tort costs, excluding medical malpractice, has averaged around 5 percent since 2001.
"Commercial line tort costs tend to fluctuate more year to year, as there are more unknown quantities involved with lawsuits that involve commercial entities," Sutter said. "Based on what we know right now, we expect any future spikes in tort costs to come from this side."
Growth in commercial line tort costs dropped significantly from 20 percent in 2001 to 5.5 percent in 2003, which slowed total tort cost growth. Asbestos losses increased by $9 billion in 2003, slightly less than the $10 billion increase in 2002, but still significantly higher than the $2 billion increase in 2000 and the $5 billion increase in 2001. The 2003 decline was partly the cause of the dampening effect on the percentage growth of total commercial tort costs.
Given current trends, Tillinghast expects that tort costs will increase between 5 percent and 8 percent through 2006.
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