Mr. Justinian Lane of the blog "TortDeform," produced by the Drum Major Institute, resorts to name calling and sophism in his comments about my study Jackpot Justice.  Please read his original commentary here.  Then read my point-by-point rebuttal below.

There is an old saying in trial litigation that when the law is on your side you pound the law, when the facts are on your side you pound the facts, and when neither is on your side you pound the table. The personal attacks by Mr. Justinian Lane on the “TortDeform” blog (click here) are the intellectual equivalent of pounding the table when you have nothing new or substantive to add.

But I will address two attempts by Mr. Lane at substantive criticism. First, Mr. Lane disputes that Tillinghast is able to apportion insurers’ overhead to their tort lines of insurance. He is wrong. Tillinghast’s unique experience and long history as a specialty consulting company for insurers give it inside knowledge and historical understanding that allows it to make this apportionment. That an outsider is not easily able to apportion these costs should not be surprising.

No company has a better understanding of the cost structure of insurance companies than Tillinghast. The parent company, Towers Perrin, has more than 70 years experience analyzing this industry. The company has unique insight and information that it draws on to make its calculations. Much of the data for Tillinghast’s estimates come from A. M. Best, which compiles composite financial data for the U.S. insurance industry. These data are considered the gold standard because they are subject to audit and are reviewed by state insurance regulatory agencies.

Tillinghast’s most recent edition, 2006 Update on U.S. Tort Cost Trends (click here), states: “Administrative expenses reflect expenses, other than defense costs, incurred by either the insurance company or self-insured entity in the administration of tort claims” (emphasis added). Elsewhere, Tillinghast notes: “We believe administrative expenses are a real cost of the tort system. Their inclusion undoubtedly increases the absolute levels of estimated tort costs, but has a negligible impact on recent tort cost trends and actually lessens the long-term trends in tort cost growth.”

The administrative expense portion of all insured tort costs has been holding steady at about 22.5 percent since 1980. Administrative expenses for self-insurers are 10 percent less than insurers -- the reason being that self-insurers are slightly more efficient in handling tort claims.

Contrary to Mr. Lane’s claims, “tort-related portion of CEO salaries” is not a meaningless term. Rather it is a real economic cost estimated by Tillinghast using the best available data and their knowledge and experience in the industry. In fact, I could have said “tort-related portion of insurance companies’ electric and water bills” too, and my statement would have been just as true since these are all included in the overhead estimate.

Second, Mr. Lane cites Judge Richard Posner’s review of my study Jackpot Justice, but he does not mention my point-by-point rebuttal that is available here. Judge Posner’s comments, while a serious attempt to refute the study on the merits of the report, were riddled with errors ranging from misreadings, false accusations, inaccurate citations, to untrue claims. It reveals what we believe to be a poor reading/comprehension of the report and a clear misrepresentation of the methodology. There are at least two dozen misrepresentations and factual errors in his review. Despite the claim made by Judge Posner, and approvingly echoed here by Mr. Lane, our results are not “fictitious.”

It is also worth knowing that in Paul H. Rubin’s excellent article titled “Public Choice and Tort Reform” (Public Choice, 2005, pp. 223-36), Mr. Rubin notes: “It is agreed by most law and economics scholars who study the tort system that it has serious problems (Landes & Posner are two exceptions).” It is important to know the personal opinions and backgrounds of reviewers before accepting their commentary as truth.

Lawrence J. McQuillan, Ph.D.
Co-author of Jackpot Justice
Pacific Research Institute
San Francisco