‘Tort threat’ is a tri-state jobs-killer

New Jersey and New York are the worst states in America when it comes to the “tort threat” — the bur den imposed by personal-injury lawsuits and related litigation. And Connecticut’s not far behind.

Tri-state lawmakers looking for economic stimulus ought to take another look at tort reform.

The US Tort Liability Index: 2010 Report ranks New York a dismal 49th in the quality of its civil-justice tort climate, with New Jersey dead last and Connecticut at No. 42. The rankings are based on such factors as total tort awards and number of huge jury awards, as well as the number of tort lawsuits and lawyers — and the incidence of “judicial hellholes” that routinely and outrageously favor plaintiffs. (All measured relative to the state’s economy and population.)

The whole tri-state area is getting worse: New York and New Jersey each fell one place from the last Tort Liability report, two years ago, while Connecticut dropped four notches. New Jersey and New York combined for 20 of the nation’s 101 largest jury-verdict awards in 2008.

New Jersey has the highest relative tort caseload, while New York has the most lawyers per dollar of state output. Each state is home to a “judicial hellhole” as designated by the American Tort Reform Foundation (Atlantic County, in the Garden State, and all five boroughs of New York City).

New York’s tort laws are among the worst in the nation when it comes to limits on who can sue, how much they can sue for and similar rules that can contain tort costs and risks. (Among 29 such limits tracked in the Tort Liability Index, the Empire State ranks dead last in 19.) Connecticut is nearly as bad, joining New York in the Index’s “sinner” category. New Jersey, with more serious limits, makes it into the “salvageable” category.

It’s important to realize that everyone pays for the “tort threat.” Making businesses easy targets for personal-injury lawyers is a serious jobs-killer.

When deciding where to start a business, expand operations or relocate, entrepreneurs prefer states with 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.

Let’s be clear: What businesses fear isn’t just big courtroom losses if they genuinely help cause an injury — it’s also that unfair laws will let someone drag them into skewed courtrooms even when they’re clearly not the wrongdoer.

Fear of lawsuits also causes companies to withdraw or withhold beneficial inventions. That’s why Volkswagen decided not to market its new “green machine” — a 46 mpg three-wheel vehicle for only $17,000 — in the US.

But the cost isn’t just lost jobs and new products; it means higher prices and insurance premiums, lower wages and benefits for working people and higher taxes to pay for court costs. This adds up to more than $2,000 a year for the average American.

And the current system is very inefficient at its intended purpose — less than 15 cents of every tort-cost dollar actually goes to the plaintiffs whose injury is supposedly being compensated.

Reducing the “tort threat” is a proven jobs-creator. Examining six common reforms adopted by states from 1970 to 1997, UC Berkeley economist Lisa Kimmel found that, for each one instituted, total employment in a state rose by 1 percent.

That suggests that Albany could put 85,000 New Yorkers back to work by passing just one significant tort reform — say, limiting the amounts that juries can award for “pain and suffering” in personal-injury cases, or ensuring that a party who bears only partial responsibility from an accident can’t be held liable for all the damage done.

Indeed, my research for “Empire Disaster,” a report published last year by New Yorkers for Lawsuit Reform, indicated that reforms improving New York’s tort ranking by 10 places — an optimistic but obtainable goal — would see state income rise by $17 billion a year, while state tax revenue would jump by $1.04 billion annually.

Yes, Assembly Speaker Sheldon Silver is of counsel with tort mega-firm Weitz & Luxenberg — and that’s only the biggest obstacle to legal reform in New York. But the fact remains: Common-sense reforms would bring needed jobs to the tri-state region.

Lawrence J. McQuillan, director of business and economic studies at the Pacific Research Institute, is co-author of the third edition of the “US Tort Liability Index,” just released by PRI.

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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