To Revive New York’s Economy, Attack Lawsuit Abuse – Pacific Research Institute

To Revive New York’s Economy, Attack Lawsuit Abuse

New York’s unemployment rate is hovering near 9% – the highest in more than a decade. Meanwhile, almost 12% of Empire State homeowners are late on their mortgages or in foreclosure. From 1997 through 2007, the number of jobs in New York increased only 8%, ranking the state 36th. During this period, the Empire State had a net domestic outflow of nearly 2 million people, the biggest exodus from any state. One important reason for the steady decline is the state’s failed civil liability system.

Tort law is intended to fairly compensate those who have been wrongly harmed. But according to “An Empire Disaster,” a report released this week by the Pacific Research Institute, lawsuit abuse is rampant in New York State. For too long, New York’s tort system has been exploited by personal-injury lawyers and plaintiffs looking for a big payday no matter how crazy the claim.

A Manhattan jury awarded $14.1 million to a woman who lay down on New York City subway tracks and was hit by a train during a failed suicide. Another New York City jury gave $9.3 million to a man who fell on subway tracks while inebriated and lost his left arm. Another drunk on the tracks was awarded $6 million. Earlier this year, a Brooklyn judge upheld a decision to grant an 11-year-old boy $1.03 million in damages for pain and suffering he experienced after fracturing his ankle playing soccer during gym class.

There was a time when such lawsuits would have been laughed out of court. New York takes them seriously, and costs escalate as a result. According to the U.S. Tort Liability Index, New York has the second-highest annual tort losses of any state, the fourth-worst tort-litigation risks, and the third-worst tort system in the country. Tort lawsuits cost the state’s economy more than $16 billion in 2006. In 2008, New York City alone spent more than half a billion dollars in tort payments.

Among business executives, tort risks are second in importance when deciding where to establish operations, according to a McKinsey & Co. report. New York’s “tort tax” is higher than that of most states, driving up costs, stunting economic growth and job creation, and making New York businesses less competitive globally. New York’s last tort reform, according to the American Tort Reform Association, was a full six years ago. The U.S. Tort Liability Index ranks the state’s tort rules a dismal 48th among the 50 states. Many other states have implemented meaningful reforms while New York is making lawsuit abuse worse.

An alliance between personal-injury lawyers and state legislators, grounded in delivering votes and campaign contributions, has killed attempts to enact common-sense reforms. Last year, lawyers doled out nearly $5 million to political activities, making them the sixth-largest contributor group in the state. The plaintiffs’ bar deploys its numbers and wealth through longstanding, well-organized political campaigns to block reform and create new rights to sue.

State lawmakers recently proposed at least 15 new “lawyer earmark” bills that would increase avenues for litigation. Legislators, beholden to deep-pocketed lawyers, remain indifferent to the plight of ordinary citizens and ignore the open-and-shut case for reform.

A good place to start would be to cap jury awards for impossible to quantify noneconomic damages for “mental distress” and “pain and suffering.” New York also needs structural reforms that target appeal bonds, class actions, labor law sections 240 and 241 regarding elevation-related accidents, and attorney/state contracts. Other key reform areas include juries, e-discovery, product liability, design liability, asbestos, “venue shopping” (gaming the system by filing suit in a friendly jurisdiction), frivolous lawsuits, and evidence and witness standards.

Lawsuit reform would jump-start the state’s economy and make it more competitive. According to the Pacific Research Institute’s report, if such reforms were put in place, New York would create at least 86,000 new jobs, increase state output $17 billion annually, boost state tax revenues by more than $1 billion a year, raise the income of every New Yorker by more than $2,600 a year, attract new customers and entrepreneurs to the state and cut insurance premiums up to 16% per annum.

Personal-injury lawyers will fight to preserve their exorbitant fees and privileged status. But multibillion-dollar benefits await ordinary citizens if they can take back Albany and elect pro-reform legislators and judges who support a balanced and efficient civil justice system. If voters fail to act, New Yorkers will continue to experience joblessness and economic stagnation – even after the recession ends.

McQuillan is director of business and economic studies at the Pacific Research Institute and author of “An Empire Disaster: Why New York’s Tort System Is Broken and How to Fix It.” Kriss is executive director of New Yorkers for Lawsuit Reform.

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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