THE UNEMPLOYMENT rate in manufacturing is 10 percent, above the overall national level. If state lawmakers are serious about putting nearly 1.6 million people back to work in manufacturing, they should enact desperately needed lawsuit reforms.
The newly released U.S. Tort Liability Index: 2010 Report ranks each of the 50 states on the quality of its civil-justice tort climate. The ranking is based on each state’s tort losses, numbers of tort lawsuits and lawyers, number of huge jury awards, and presence of plaintiff-friendly “judicial hellholes.” The data were adjusted for the size of each state. The Index shows which states welcome manufacturers with open arms and which have closed fists.
In product-liability and commercial tort losses — of particular concern to businesses — Georgia, Hawaii, Louisiana, South Dakota, Tennessee, Texas, and Virginia have some of the lowest relative losses. In contrast, Connecticut, Illinois, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, Pennsylvania, and Vermont have some of the highest tort liability losses. Four of these states — Nevada, New Jersey, New York, and Pennsylvania — are particularly oppressive because they have high losses in all three business tort categories.
Many states with the worst tort climates for businesses linger at the bottom because their legislature has done nothing to fix the problem. The Index ranks each state’s tort rules for their ability to contain tort costs and risks. Illinois ranks 46th, Montana 34th, New York 49th, Pennsylvania 48th, and Vermont 38th. Weak tort rules make businesses easy targets for personal injury lawyers, leaving collateral damage in the form of lost jobs.
Summer Infant, the manufacturer of a baby monitor with video capabilities, was sued recently in Cook County (Illinois) Circuit Court after a neighbor with the same monitor reported the baby’s room was “completely visible” on the neighbor’s monitor. The lawsuit alleged that the monitors exposed families to “the prying eyes and perhaps ill intentions of neighbors and strangers.” There was a time when people would simply return the product. Today people file absurd lawsuits, forcing manufacturers to spend millions on legal defense rather than hiring new employees.
Manufacturers prefer to start, expand or relocate businesses in states with balanced tort systems that discourage abusive lawsuits. These decisions matter a great deal. In 2006, job growth was 57 percent greater in the 10 states with the best tort climates than in the 10 worst states. Manufacturers avoid states with sky-high tort costs and skewed courtrooms.
Nationally, excessive-liability costs resulted in lost sales of new, beneficial manufacturing products of more than $367 billion in 2006 alone, according to the study Jackpot Justice.
Abusive lawsuits cost every American a hidden “tort tax” of about $2,000 a year in higher prices and insurance premiums, fewer jobs and new products, and reduced access to health care. And the current system is very inefficient at fulfilling its intended purpose — less than 15 cents of every tort-cost dollar goes to compensate plaintiffs while attorneys get rich.
Lawmakers in abusive states should get serious and enact meaningful tort reforms to restore jobs and fix state budgets.
UC Berkeley economist Lisa Kimmel examined six common tort reforms adopted by states from 1970 to 1997 and found that instituting an additional tort reform increased total employment in a state by 1 percent (1.5 percent in manufacturing). In other words, one tort reform in New York would put more than 85,000 people back to work. If New York’s tort ranking improved 10 places — an optimistic but attainable goal — annual state income would increase by $17 billion and annual state tax revenue would jump by $1.04 billion.
An uncompetitive legal climate has spurred some states, such as Oklahoma in 2009, to enact meaningful reforms. If state politicians are serious about jump-starting the economy, they should act to reduce the massive tort burden. Commonsense reforms will bring back manufacturing jobs to workers who need them.