Tort reform boosts growth

Politicians have spent billions on so-called stimulus and bailouts, yet today’s unemployment rate is about two times greater than in January 2008. If state legislators want an effective solution — one that will actually create jobs — they should enact tort reforms, an area where many states need help.

In 2009, the 10 states with the worst tort climates had an average unemployment rate 33 percent greater than the 10 best tort states. The differences between these groups are striking. The worst tort climate is in New Jersey, followed by New York, Florida, Illinois, Pennsylvania, Missouri, Montana, Michigan, Connecticut and California. And the best tort climate is in Alaska, followed by Hawaii, North Carolina, South Dakota, North Dakota, Maine, Idaho, Virginia, Wisconsin and Iowa.

The newly released 2010 U.S. Tort Liability Index ranks all 50 states on the quality of their civil-justice tort climates. The ranking is based on each state’s monetary 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’s economy and population.

New York ranks 49th in the index, with the nation’s highest tort litigation risks. The state is waist-deep in lawyers, and New York juries regularly dole out the largest awards. The potential for jackpot verdicts makes filing a tort claim — no matter how frivolous — very attractive. Just recently, a New York resident filed a lawsuit against Starbucks for serving her hot tea “unreasonably hot.” Our lawsuit-happy culture works well for personal-injury lawyers, but the rest of us pay the price.

Total direct tort costs were $255 billion in 2008. According to the report “Jackpot Justice,” lawsuit abuse costs every American a hidden “tort tax” of about $2,000 a year in higher prices and insurance premiums, fewer new products, lower wages and benefits for working people, higher health-care costs and reduced access to care. And the current tort system is very inefficient at its intended purpose — less than 15 cents of every tort-cost dollar goes to compensate plaintiffs.

The threat of lawsuits encourages physicians to practice defensive medicine. This drives up health-care costs. Eliminating this costly threat would save the U.S. health-care system $191 billion each year and let 3.4 million Americans afford health insurance.

When deciding where to start a business, expand operations or relocate, entrepreneurs prefer states, and countries, with balanced tort systems that discourage abusive lawsuits. In 2006, job growth was 57 percent greater in the 10 states with the best tort climates than in the 10 worst states. Business leaders fear high tort costs and skewed courtrooms, and many states have responded.

The 2010 Index also ranks states based on the ability of their tort rules and reforms to contain tort costs and risks. Oklahoma has the best tort rules on the books, as a result of comprehensive reforms enacted in 2009, and Texas is second. On the other hand, Rhode Island and New York have the worst tort rules due to complete legislative indifference. But the benefits of reform are great.

Texas reformed its medical-liability laws in 2003 to reduce lawsuit abuse against physicians and hospitals. Since then, more than 18,000 additional doctors have applied for licenses to practice in the Lone Star State. Comprehensive medical-liability reforms can reduce a doctor’s annual insurance premium up to 74 percent, says the study Tort Law Tally.

If New York enacted just one tort reform, it would put nearly 87,000 people back to work, according to a report titled “Empire Disaster.” And 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.

America’s tort system is expensive and inefficient. Some states have responded with lawsuit reforms, but many have not and continue to pay the price. In these states, lawsuit reform should be the core of any realistic plan to create jobs.

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.

Scroll to Top