Jacking up the cost of torts

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So what exactly is $865.37 billion? It’s the total annual sales of the U.S. restaurant industry. It’s also the combined annual output of all six New England states. And it equates to $9,827 per U.S. family of four every year.
It’s also how much the Pacific Research Institute says tort litigation costs the country annually. The total is three times higher than any other tort study has reported.
But some legal practitioners and organizations say the costs have been exaggerated in an effort to reduce businesses’ liability.
“They’ve outdone themselves,” said Chris Mather, vice president of communications for Americans for Justice. “This doesn’t pass the laugh test. These conclusions are laughable. It’s a misinformation campaign seeking to evade accountability to enhance the bottom line and increase profits. These people will do or say anything — this is just the latest example.”
PRI compares the percentage of the country’s Gross Domestic Product used by the tort litigation system with that of other countries. According to the institute, the United States spends 2.2 percent of GDP on direct tort costs. Other countries spend an average of 0.9 percent of GDP on direct costs.
But the problem is larger, according to PRI. Its study shows that only 22 cents of every tort-cost dollar goes to injured parties to compensate for economic losses.
“The U.S. tort system returns less than 50 cents of every tort-cost dollar to injured claimants, those it was designed to help,” the study says. “Fourteen cents … pay for the defense costs of first-party insured. Nineteen cents pay for plaintiffs or claimants attorney fees. And 21 cents go to administrative costs.”
It all makes sense to Regis University business professor Catharyn Baird. She said tort litigation costs are high because people overcompensate for expected legal costs, perform more safety studies or provide more work to make sure they’re covered legally.
Juries also fail to make the comparison between their verdicts and the overall costs, she said.
“One of the exercises I do in class is to ask people the value of a human life,” Baird said. “And I give them the range people are given in cases. There is always a problem doing that — there’s a tendency to over-value a human life — as cold as that seems — and much higher damages are awarded.”
Baird also said that companies are too inclined to settle lawsuits to save money. But litigation is the only way to avoid frivolous suits, she said. Settlements actually increase the number of lawsuits, and the costs rise comparably, she said.
“There are always levels of unnecessary suits,” Baird said. “In 25 years of being an attorney, I’ve watched Americans shift responsibility for stupid acts to someone else. There’s a cost for stupidity — and other people are asked to bear it.”
Baird cites warning labels as an example of something companies do to try to protect themselves against stupidity. She said lawnmowers shouldn’t be required to have a warning that users should keep their hands away from the blade — people should know that already.
Bernie Marcus, co-founder of Home Depot, was quoted in the PRI study as saying that a dollar amount is built into the cost of every product the home improvement retailer sells to pay for liability and legal costs.

Case studies

Baird’s students study cases that seem frivolous.
In the case where a woman sued McDonald’s after spilling hot coffee in her lap — hot enough to melt her nylons to her leg — the company’s arrogance hurt them, Baird said.
“When the plaintiff’s attorney asked how much coffee sales were in a single day — people aren’t used to dealing with that kind of money, millions of dollars. So that’s what they awarded her,” she said.
The case was eventually settled for about $200,000, Baird said. But the initial award was what people remembered.
“And now people think they can spill coffee in their lap and win money,” she said. “That’s a much different ballgame.”
Claimant attorney Peter Goldstein described the PRI findings as “baloney.”
“There’s no cost, if you honestly factor in the pros and cons,” he said. “People are going to get hurt and you have to take steps to make things safer. You have to prevent a certain number of auto collisions, a certain number of products breaking down. It’s not an issue of costs. It’s an issue of who do we want to pay for injuries and medical care.”
The study overestimates the costs of litigation, Goldstein said. Only about 3 percent of court cases during the last decade have bee tort cases, which he said isn’t exactly a crisis.

Awards dropping

Judgments in civil litigation also have declined during the last decade.
According to the Center for Justice and Democracy, the median damage award declined 56 percent, from $64,000 in 1992 to $28,000 in 2001, the most recent year studied by the Department of Justice.
Medical malpractice cases are the ones that generate large sums of money, according to the center. The median award for a medical malpractice case was $431,000 in 2001 — and “the annual average payment for a medical malpractice verdict has not exceeded $1 million real dollars since the beginning of the NPDB (National Practitioner Data Bank),” according to the Public Citizen’s analysis of the bank.
But organizations devoted to tort reform applaud the PRI study.
“Of course, the overwhelming majority of judges in America do a great job of keeping bad lawsuits from getting very far,” said Sherman Joyce, president of American Tort Reform Association. “But as the public learns about the staggering price we all pay for runaway litigation, particularly in the jurisdictions ATRA calls ‘judicial hellholes,’ the more difficult it will be for our courts to retain the integrity and credibility they need to properly function as the crucial third branch of government. That should concern every American.”