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Tort reform would bring much-needed jobs to state - Pacific Research Institute

Tort reform would bring much-needed jobs to state

Montana may be called the Treasure State, but its economy continues to struggle, with an unemployment rate of 7.1 percent. If lawmakers want to put people back to work, without costing taxpayers another penny for “stimulus,” they can enact desperately needed lawsuit reforms.

In the newly released U.S.TortLiabilityIndex:2010Report, Montana ranks a dismal 44th out of the 50 states in the quality of its civil-justice tort climate. 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.

Montana was 46th in the previous 2008 edition, so it has shown almost no improvement. It has the sixth-highest monetary tort losses out of the 50 states, and it ranks 32nd in tort litigation risks. It has the 10th-largest tort caseload in the nation, clogging courthouses and costing taxpayers, who are stuck paying the court costs. The state Legislature has done little to fix the problem.

The Indexreveals that Montana’s tort rules on the books rank 34th in their ability to contain tort costs and risks. The state ranks 50th, dead last, in 14 of the 29 areas tracked. Montana emerges as a “sinner” state because of its weak tort rules in the face of high tort costs and litigation risks. In this state, businesses are easy targets for personal injury lawyers, costing jobs in the process.

When deciding where to start a business, expand operations, or relocate, entrepreneurs prefer states 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 are leery of Montana because of its sky-high tort costs and skewed courtrooms.

Fear of lawsuits also causes companies to withdraw or withhold beneficial products. Volkswagen planned to sell a 46- mpg three-wheel vehicle. This “green machine” would have cost only $17,000, but VW decided not to market it in the United States because of lawsuit fears.

Total direct tort costs were $255 billion in 2008. 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, lower wages and benefits for working people, reduced access to health care, and higher taxes to pay for court costs.

And the current system is very inefficient at its intended purpose — less than 15 cents of every tort-cost dollar goes to compensate plaintiffs.

Montana’s lawmakers should get serious and enact meaningful lawsuit reforms, which would be the best jobs bill.

University of California-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. In other words, one tort reform in Montana would put more than 4,200 people back to work.

An uncompetitive legal climate has spurred some states, such as Oklahoma in 2009, to enact meaningful reforms. If Montana politicians are serious about jump-starting the economy, they should act to reduce the state’s massive tort burden.

Common sense reforms would bring needed jobs to the Treasure State.

Lawrence J. McQuillan is director of Business and Economic Studies at the California-based Pacific Research Institute. He is co-author with Hovannes Abramyan of the third edition of the U.S. Tort Liability Index, just released by PRI. Contact him at LMcQuillan@pacificresearch.org.

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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