Lawmakers to consider ‘loser pays’ tort bill

Boston Business Journal (Boston, MA), February 6, 2009
Atlanta Business Journal (Atlanta, GA), February 6, 2009

Georgia soon could become only the second state to venture into a brand of tort reform known as “loser pays.”

Under a bill introduced in the Senate on Feb. 4, if a legal suit is dismissed at the earliest possible stage, the plaintiff would have to pick up the prevailing defendant’s costs. The legislation is designed to prevent so-called frivolous lawsuits.

Only Alaska has a loser pays law on its books.

“Georgia’s courts are crowded with nuisance lawsuits, but unfortunately, they are often cheaper to settle than to litigate,” Gov. Sonny Perdue told business and political leaders last month at the Georgia Chamber of Commerce’s Eggs and Issues breakfast.

“Current law provides almost no deterrent for frivolous lawsuits, and that must change.”

The concept of loser pays has been around for years. It was part of former U.S. House Speaker Newt Gingrich’s “Contract with America,” the Republican platform that vaulted the GOP into control of Congress in 1994 for the first time in 40 years.

But the concept never materialized into federal law. Gingrich resigned from Congress in 1998 and returned to Georgia and, in 2006, Democrats recaptured majorities in the House of Representatives and Senate.

Although loser pays has yet to be widely embraced at the state level, Georgia and many other states do have an “offer-of-judgment” law that can have a similar impact.

A Perdue-backed tort reform bill passed by the General Assembly in 2005 allows defendants in a lawsuit to make settlement offers early in the legal process. If the plaintiff rejects the offer and later fails to win a settlement at least 25 percent larger than that offer, that party has to pay all legal costs.

That’s reason enough, opponents say, why there’s no pressing need for Georgia lawmakers to pass a loser pays bill.

“[It] fails to do much … that isn’t already covered by Georgia law,” the Georgia Trial Lawyers Association wrote in a news release issued Feb. 3.

But George Israel, president of the Georgia Chamber of Commerce, said loser pays is part of a second round of tort reform that is needed because the 2005 law hasn’t reversed a perception that Georgia’s civil litigation system is not business-friendly.

The first round of tort reform was extensive. Enacted during the first session after Republicans took complete control of the General Assembly, the package included caps on non-economic damages in medical malpractice lawsuits, expanded liability protection for emergency room physicians and stricter requirements for qualifying of expert witnesses, along with the offer-of-judgment provision.

In the wake of the law, MAG Mutual Insurance Co. dropped its medical malpractice premiums by 10 percent, citing the savings produced by tort reform as a factor, along with a $10 million policyholder dividend and the company’s new zero percent financing plan for installment payments.

Still, Georgia’s civil litigation climate receives a mediocre rating in the latest index from the Pacific Research Institute (PRI), a California-based think tank that advocates free-market approaches to public policy.

PRI’s 2008 U.S. Tort Liability Index, which examines tort laws and civil litigation costs, ranked Georgia 27th among the 50 states.

Georgia also placed in the middle of the pack in the Southeast, well below North Carolina, South Carolina and Tennessee, but higher than Alabama and Florida.

Israel said he is convinced that a meaningful loser-pays provision in Georgia would improve the state’s standing.

“We’re interested in a needle moving that shows Georgia has a good civil justice litigation climate for business,” he said.

But opponents say the move would virtually shut off the legal system to all but the wealthiest would-be plaintiffs, even those with legitimate cases.

Atlanta lawyer Darren Penn, chairman of the trial lawyers association’s Civil Justice Political Action Committee, said the provision would discourage not only individuals but small businesses from going to court for fear of being forced to pay exorbitant court costs.

“The very rich can afford legal fees,” said Penn, of the law firm Harris Penn & Lowry LLP. “But your traditional ‘mom-and-pop’ businesses and regular middle-class Georgians could be bankrupted by the steep fees corporate defense attorneys charge.”

Supporters of the loser pays concept argue that much of Europe, including the United Kingdom, operates under that system.

To avoid the financial concerns associated with a loser-pays approach, the English system lets plaintiffs buy litigation insurance to cover costs if the other side prevails.

Israel said he sees no reason why that approach couldn’t be used in conjunction with a loser-pays system in this country.

“If you created a market for that, I think insurance companies would be interested,” he said.

A second tort reform bill introduced Feb. 4 would expand product liability protections for Georgia businesses.

Reach Williams at [email protected].

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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