The Myth of Tort Reform

Constantly looking for a scape goat, big business, big media and insurance companies have targeted trial lawyers and injured persons seeking compensation as villains who negatively effect the economy. Regardless of the propaganda that constantly spews from the Chamber of Commerce, there is a continuous outpouring of evidence that the cost of personal injury automobile insurance litigation and damage claims are lower now than they were twenty years ago. America’s legal system is designed to compensate those injured by wrongful acts of others including giant corporations and other powerful interests who are behind the propaganda of tort (civil wrong) reform. Despite known facts, business groups, big media and insurance companies advocate changes in America’s tort laws claiming the system negatively impacts the United States competitiveness and employment. However, this claim has never proven credible.

Tort costs have not slowed job growth. According to insurance industry consultant Towers Perrin, tort costs as a percent of the gross national product fell from 1986 through 2004. (Tillinghast-Towers Perrin 2006, 15.) Since 1987 the costs of litigating torts have dropped and stabilized. Nonetheless, the Bush Administration also jumped on the bandwagon either as a result being falsely informed or succumbing to the special interest big business community. One would expect the latter but the former is reminiscent of the Iraqi War.

Tort reform does not increase employment, contrary to the big business critics. Historically, there is no evidence that changes in tort litigation has lead to an increase of jobs. Dr. Mark Zandi, Chief Economist at the well respected Econometric Consulting Company, Moody’sEcomony.com, conducted a macroeconomic simulation of the effect of changes to the tort system. This simulation included the assumptions that changes to the tort system would be effective over the next four years, tort costs would increase at 3.3% per annum, that corporate tax liability would be reduced by an amount equal to the tort cost savings and that law firms income of personal transfer payments (jury verdicts), would be reduced accordingly. The results, using the assumptions as espoused by big business, did not provide any support for the Bush Administrations claim that a tort crisis exists and tort reform would generate employment growth.

Further, there is no evidence of significant effects on productivity through tort reform. The Economic Report of the President infers that tort costs harm the economy by diverting resources to non-productive uses as set forth in Executive Office of the President 2004, 207. However, the Economic Report presented no data or analysis to substantiate the claim. Moreover, the economics report is self contradictory inasmuch as it concludes higher tort costs do not lead to lower productivity. If this were true, countries with the highest tort costs should have the lowest productivity. However, no such relationship exists. In fact, studies revealed if there is an association between litigation costs and employment productivity, higher litigation costs would appear to lend creditability that higher productivity ensues. The Towers Perrin report ranked United States, Germany, Italy, Belgium and France with the highest productivity but also were noted as four of the five with the highest litigation costs.

Moreover, no evidence supports the claim tort litigation effects healthcare costs. The Towers Perrin study showed medical malpractice claims and tort litigation is so small a part of national healthcare expenditures the number is insignificant. The Congressional Budget Office concluded that “even a reduction of 25% to 30% of malpractice costs would lower healthcare costs by only about .04 to .05%” (Congressional Budget Office 2004, 6). To demonstrate the insignificance of this number, healthcare inflation in 2004 would have only been 7.8% instead of the 8.2%. In addition, health insurance companies constantly regulate recovery or reimbursement of medical bills paid for treatment, costs associated with victims of automobile collisions, medical malpractice and large corporation product liability claims.

Finally, there is absolutely no evidence of any significant effect on United States Corporate profits resulting from tort costs. If this were true, tort costs could be directly correlated to decreased corporate profits. However, despite Tower Perrin’s claim of mounting tort costs, U.S. Corporate profits increased at a double digit rate in each of the past four years and are now at an all time high. If there is any question in this regard, a simple review of public documents relating to the Fortune 500 and casualty insurance companies profit and loss statements would dispel even the slightest reference this claim was credible.

The nation is being hoodwinked by the United States Chamber of Commerce controlled by big business, big media and the insurance industry into believing those who are actually injured at the hands of companies who poison our climate, flood the market with defective products or insure individuals who are reckless in the operation of their vehicles should somehow be limited or precluded from compensation all at the expense of increasing corporate profit.

http://www.epi.org/content.cfm/bp174