Florida Offers Case Study In Worthy Legal Reform

Legal reform is needed across the country, especially given today’s sluggish economy and job market. Florida is a case study in its importance.
When the Jeb Bush administration began in 1999, Florida’s legal climate was hurting the state’s economy. Spiraling litigation costs were quashing job creation, and lawsuit abuse was cutting wages and benefits for working people, who often are unaware of these costs because they are buried in the price of everything they buy.

Bernie Marcus, cofounder of The Home Depot, has noted that every product they sell has a dollar amount built into it for liability and legal costs. These hidden costs are convenient camouflage for the predatory lawyers whose lawsuit abuse drives up prices.

In Florida- a state that has consistently been ranked the worst legal climate in the nation – lawsuit costs are being passed on in the form of higher prices to consumers and health-care patients. Excessive lawsuits cost every Floridian nearly $2,000 a year, according to the Pacific Research Institute. Thankfully, there are beacons of hope.

Meaningful reform was achieved in several areas over the past few years. The state adopted a cap on appeal bonds to preserve due-process rights. Florida also established a 12-year statute of repose for product-liability cases.

Punitive damages were capped at three times the compensatory award or $500,000, whichever is determined to be greater. This conforms to the original intent of tort law, which is to compensate, not to punish. In that spirit, it also prohibited punitive damages in asbestos lawsuits. Florida also capped non-economic damages in medical-malpractice cases.

In 2006, Florida repealed the doctrine of joint and several liability, so that defendants are now responsible for paying damages only in proportion to their degree of fault. That ends the practice, favored by personal-injury lawyers, of adding “solvent bystanders” as defendants in lawsuits only because these defendants have deep pockets to pay big awards regardless of their degree of responsibility, if any.

This loophole in the law was particularly harmful to small-business owners perceived to have deep pockets, and it is a victory for Florida that this extortive doctrine has been repealed.

Because of these reforms, Florida’s tort rules now rank sixth-best in the nation, according to the newly released “U.S. Tort Liability Index: 2008 Report.” That report also shows that lowering tort costs will take time. Florida’s absolute tort costs were $13 billion in 2006, ranking third highest in the U.S.

Clearly, Florida’s tort costs are still too high, but they are certain to fall as the reforms take hold. As costs fall, substantial benefits will accrue. Legislators in other states should take note that these benefits include more jobs.

University of California economist Lisa Kimmel examined six common legal reforms adopted by states between 1970 and 1997. Her analysis showed that an additional legal reform increased employment in manufacturing 1.5 percent, construction 1.4 percent – 1 percent overall. To put this into perspective, an additional legal reform in Florida would create more than 82,000 jobs.

Legal reform also increases innovation. Excessive liability costs in many industries have caused companies to spend resources on lawsuits and lawyers – resources that could otherwise have gone to research and development. Fear of lawsuits also causes companies to withdraw or withhold beneficial products from U.S. markets.

Florida has proven to the entire country that, despite opposition from the trial bar, legal reform can be achieved. But the payoffs take time and only emerge if the reforms are fully implemented and defended from attack. Other states should keep that reality in mind as they advance reforms of their own. The job benefits alone are worth the fight.

Lawrence J. McQuillan, Ph.D., is director of business and economic studies at the Pacific Research Institute and coauthor of the U.S. Tort Liability Index. Carlos Muhletaler is executive director for Florida Stop Lawsuit Abuse, a non-partisan grassroots organization.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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