Tort Reform A Dangerous Catch-Phrase (Part 2) Analyzing

Tort Reform A Dangerous Catch-Phrase (Part 2) Analyzing Economic Growth

In promoting tort reform, one of the most consistent arguments put forward by lobbyists and politicians is that the "broken" tort system allows for innumerable "frivolous" lawsuits cost corporations money and in turn costs us in terms of higher prices and slower economic growth. In Part 1, we talked about how the cost to us of lawsuits was less than a tenth of what we paid for corporate profits, not to mention the significant amount of money going to the CEOs of corporations ($ 5.4 billion in the salaries of the Fortune 500 CEOs, or about $10 million per CEO, not including perks, bonuses, stock options, etc.). Now we will consider whether frivolous lawsuits slow economic growth.

An Oft-Repeated Mantra


You don't have to look far to find the argument that frivolous lawsuits slow economic growth. It can be seen in the Wall Street Journal, the New York Times, the Detroit News, and on every single tort-reform lobbying group page. One commonly-cited statistic comes from "University of California-Berkeley economist Lisa Kimmel," in which tort reforms increase employment in manufacturing by 1.5 percent, construction by 1.4 percent and by 1 percent overall, based on tort reforms enacted by some states in the period between 1970 and 1997.

Another aspect of this argument is related to health insurance and health care rates. They point out that every year 1 in 8 doctors is hit with a medical malpractice lawsuit (not, of course, pointing out that the vast majority of these suits are dropped, settled for chump change, or won by the doctor, and not pointing out that it is often the same one in 8 year after year), which causes doctors to practice "defensive medicine," which costs according to their estimates $124 billion per year and forces 3.4 million Americans to go without insurance.

A Look at the Sources

First, let's take a look at the source for the slowing of economic growth by a so-called "broken" tort system. "University of California-Berkeley economist Lisa Kimmel" was actually PhD-candidate Lisa Kimmel, and the source of the information was her dissertation. Calling her a UC-Berkeley economist implies that she is a professor, when she is actually a student. Being a student does not necessarily diminish the credibility of her research, but we should make sure we understand who is doing the research. In addition, her figures are quoted out of context, and understanding her work is crucial to understanding the meaning of the figures.

The same Lisa Kimmel as wrote the dissertation critiqued the political movement for tort reform, saying, in a 1999 letter to the New York Times, that, "To date, no well-accepted empirical evidence shows that [tort] reforms either increased employment or reduced insurance rates." Her dissertation is the first attempt to put together such evidence, and she did, indeed, find that there was a correlation between tort reform and increased economic growth. She puts the results in context in her summary of research, saying that if "tort reform has reduced the costs of doing business by allowing firms to externalize social costs, then additional jobs will be paid for with higher accident rates and greater health hazards."

What are examples of externalized social costs? Consider the somekeyword deaths due to contaminated product, and the somekeyword as examples of externalized pharmaceutical injury costs, and the infant deaths caused by Graco and Simplicity cribs as an example of externalized costs caused by somekeyword.

In addition, a 2004 report on the subject by the Congressional Budget Office said that in the research, said "caps on damage awards reduced the number of lawsuits filed, the value of awards, and insurance costs." In addition, the majority of studies "suggested that those caps led to increases in insurers' profitability for both medical malpractice and general liability insurance. (Evidence on whether premiums were affected was mixed.)" In other words, tort reform yields big profits for insurance companies and may not reduce your insurance premiums, or those of your doctors.

Insurance Costs

Attributing the increasing insurance rates to lawsuits is highly dubious. Considering the relationship between costs paid and insurance rates reveals that there is only the loosest possible connection between the two. Look at Colorado, which pays the 7th highest rate for health insurance in the country as a result of 60 % increases over the past 5 years. Yet Coloradans are ranked 42nd among the states for per-capita health care spending.

In terms of the effect of somekeyword, we can look at a recent report by the Manhattan Institute for Policy Research, which shows that overall, medical malpractice insurance premiums are double the rate of medical malpractice awards. In other words, the so-called costs of the tort system are in actuality the costs of the insurance company, including $18 billion in annual profits, $300 million in salaries and $650 million in stock options for CEOs, and a total of $600 billion in "retained surplus," money that the insurance company just holds onto as investment capital.

The Kicker

Now, are you ready for the real evidence that "frivolous" lawsuits do not cost Americans nearly as much as tort reform advocates say? The lawsuit cost they list is for ALL lawsuits. Tort reform advocates represent the number as if every single one of those lawsuits is for frivolous lawsuits, but in actuality, it includes the entire cost of all lawsuits filed, be they legitimate or not. No one has actually tried to sort out the cost of legitimate vs. frivolous lawsuits. Why not? Because the evidence would show that tort reform is unnecessary (unless you're an insurance company looking to increase profits).

The Tort System Works

In a recent study published by the Law School of the University of Missouri-Columbia entitled in the Iowa Law Review, the rate of settlement and the settlement amount for medical malpractice claims were shown to be tied tied very closely to the merits of the claim.

The study compiled data from a dozen previous studies over two decades, and found that weak claims received payment in only 10-20% of the cases, while strong cases received payment in 85-90% of the claims. In addition, the average settlement amount for weak cases was much less, about $14,000 in most studies, whereas the strong cases received settlements in excess of $170,000 dollars. In other words, a claim without merit (aka a "frivolous" lawsuit) against a doctor will cost, on average, $1400, meaning that, if a doctor receives a frivolous claim once every eight years and pays the national average for medical malpractice insurance (About $10000 per year, according to an Americans for Insurance Reform statistic), that doctor will pay $79,600 more in premiums than he or she would pay for the lawsuit. Talk about somekeyword.

In part 3 we will consider whether an "unfriendly" tort climate causes doctors and businesses to flee to states with more friendly climates, and, finally, in part 4, we will consider better options for correcting the perceived breaks in the tort system.

If you have been hurt by the negligence of someone else, you have the right to compensation, and you should not allow the tort-reform propaganda deter you from exercising your right, and the law firm of somekeyword is prepared to represent you.

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