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For Release — Wednesday, March 25, 1998

LAWSUIT LOTTERY: REPORT SAYS NEW YORK'S LAWSUIT INDUSTRY COSTS BILLIONS, DISTORTS JUSTICE

An Accident And A Dream

ALBANY, N.Y.— New York has become trapped in a "lawsuit lottery" system that erodes justice, encourages lawsuits against defendants with deep pockets regardless of fault, and works largely to benefit an army of trial lawyers, according to a new study by The Public Policy Institute of New York State. The report shows that:

  • The lawsuit industry is now costing New Yorkers $14 billion each year, or almost $800 per person.
  • It adds hundreds of millions of dollars every year to the property tax burden, because of runaway lawsuits against municipalities.
  • It imposes costs on consumers and businesses in hundreds of ways that are largely hidden from view — adding $600 to the cost of having a baby and $400 a year to the cost of insuring a car, for example.
  • In the last decade the number of lawyers in the state has jumped 40 percent, and the number of lawsuits is up 58 percent.
  • Some trial lawyers are fostering a lottery-like, get-rich-quick mentality to engender new lawsuits.
  • And of the $14 billion total cost, lawyers get an estimated $2.3 billion — while plaintiffs get only about half of the total the system costs.

The report urges New York to follow the lead of other industrial states by enacting reforms to limit the cost and range of lawsuits, and by "de-emphasizing the role of lawyers and returning the power of real choice to consumers."

The study is entitled 'An Accident and a Dream': How the Lawsuit Lottery is Distorting Justice, and Costing New Yorkers Billions of Dollars Every Year. It was released in printed form and published on the World Wide Web today by the Institute, which is the research affiliate of The Business Council of New York State, Inc.

All you need is an accident and a dream

The title of the report is taken from the slogan on a license plate frame marketed to trial lawyers — "All You Need Is an Accident and a Dream." The slogan echoes a long-time promotional slogan of the New York State Lottery, and thus, the report says, epitomizes an attitude that treats lawsuits "not as a means to real justice, but as a lottery-like game of chance."

"As consumers, drivers, taxpayers, and workers, New Yorkers are paying more and more every year to support a lawsuit industry that has quietly begun to dominate — and distort — our system of justice," the report warns. "New York needs a legal system that throws away mottoes about 'an accident and a dream' — a system that meets the needs of the people, not of the trial bar."

The study documents the high costs of the lawsuit industry in New York State. It shows how dramatic increases in tort lawsuits in New York have paralleled comparable increases in the number of lawyers — and in trial lawyers' aggressive efforts to advertise and market their services in particular, and litigiousness in general.

The study reviews the history of tort reform in New York State since the 1970s and outlines reforms that have been suggested in that time — and, in many other states, adopted. It also documents the impact of the lawsuit lottery on business innovation and competitiveness in New York State.

Tort law in New York State

New York State tort law is not a single statute but a hodge-podge of different statutes and judicial precedents — an elaborate, confusing framework that has grown out of individual jury decisions and case law, rather than guidelines developed by the Legislature.

"There is no comprehensive statute enacted by the Legislature to regulate the lawsuit industry, setting boundaries and limits for it of the kind that New York imposes on virtually every other industry, from auto repair shops to nursing homes," the report said. "Unless that changes, New York will never be able to stop the growth of liability costs."

The report cited a number of specific concerns about tort law in New York State:

  • In product liability law, the report said, "there is no clear-cut statutory framework, only a long string of court cases that have steadily expanded the ways in which manufacturers can be sued."
  • General contractors and owners of construction sites can be successfully sued by virtually any worker who suffers an injury on a building site — "even if the injury was the worker's own fault."
  • New York places "literally no limits on awards for such highly subjective injuries as emotional trauma, loss of companionship and pain and suffering."
  • Having "deep pockets" — a real or perceived high ability to pay — has more to do with getting sued than actually having done something wrong.

The costs of liability litigation in New York State

The lawsuit lottery drives up the prices of goods and services for every person, business, and local government in the state. "Total liability costs in New York as of 1996 added up to $14.3 billion," the report noted. "That's $787 per person — 28 percent above the national average." If these costs are considered a "tort tax," the burden would be:

  • A tax that exceeds all state and local sales taxes combined.
  • A tax that's more than double the total raised by all state business taxes.
  • Only slightly behind the state income tax — and more than quadruple the amount raised by all remaining New York State taxes combined, including state excise taxes on fuel, tobacco and alcohol, estates and gifts, and real estate transfers.

More lawyers, more lawsuits

An Accident and a Dream documents an apparently related series of trends in the lawsuit lottery: the increasing number of lawyers practicing in the state; the growing number of tort suits being filed; and increasingly visible efforts of trial lawyers to recruit plaintiffs through aggressive advertising campaigns.

Tort filings in New York jumped 58 percent between 1988 and 1996, from 53,104 to 84,089 cases, the report showed. This increase, the third highest in the nation, included a surge in motor vehicle-related claims — despite a sharp drop in the number of injury-causing traffic accidents (from 220,000 to 190,000), the presence of a no-fault auto insurance law that is designed specifically to minimize lawsuits, and a population that increased only slightly during the same period.

This lawsuit explosion is clogging the courts; the proportion of cases that are not disposed of within the timeframe needed to meet the state court system's standards jumped from 26 percent to 42 percent between 1988 and 1996.

"There is strong evidence that its growth is driven not by the needs of clients or the demands of justice, but by the growing numbers — and the growing appetite — of the state's trial lawyers," the report said.

"The number of lawyers actively practicing in New York grew by an astounding 40 percent in just the last 10 years — even as the state's total population barely grew at all. Compared to population, New York's cadre of lawyers is higher than all but two other states and is 66 percent above the national average."

This 30,000 increase in the number of lawyers occurred during a 10-year period when New York State suffered a net loss of 48,000 jobs, the report noted.

As is acknowledged by leading trial lawyers themselves, the growing competition in the field is pushing lawyers to seek clients with advertising campaigns that market their services in particular and litigiousness in general. Lawyers and "tort-brokering" services bark aggressive advertisements and slogans ("1-888-Lot O'Cash") from billboards and television commercials around the state.

How the lawsuit lottery's quest for the deepest pockets erodes justice

A central principle in the lawsuit lottery is suing defendants who can pay huge damage awards from "deep pockets" — defendants that are often chosen with little regard for their real culpability.

The report said that this changes the law of torts to the law of 'contorts': "a system focused less on justice than on finding a source of compensation for all injuries, regardless of fault. Along the way, in many areas of the law, negligence seems to have become almost irrelevant."

"This attitude corrodes the idea of justice; undermines incentives for safe products, safe operations and safe conduct; and drives up costs for everyone," the report concludes.

"As lawsuits are decided on the basis of who can afford to pay rather than on the basis of whose conduct has been faulty, respect for the idea of justice declines, and the legal-lottery mentality only becomes more pervasive....

"And if juries think that a big city or a big company or a well-insured defendant can 'afford' to pay a big damage award, they are forgetting that in the end everyone pays for such awards, through higher taxes, higher prices, higher insurance premiums."

Who benefits from increasing awards

The median jury award in a New York State tort case is $273,000 — but 25 percent of awards reported between 1990 and 1996 exceeded $1 million. (Information on amounts of awards is scanty, the report noted, in part because trial lawyers are not obliged to report this information — and seldom do reveal it.)

"As a means of compensating plaintiffs' lawyers, New York's liability system is a well-oiled cash machine," the report said. "But as a means of compensating victims, it is both unfair and inefficient." The report cited national studies showing that injured parties collect "less than half of all the money spent on liability protection under the current system."

In contrast, the report estimated that New York's trial lawyers are granted $2.3 billion a year from contingency fees that are often as high as 33 percent of the award. These fees are a major impetus behind the lawsuit lottery, the report concluded.

The impact on business: less innovation in a less competitive state

Businesses report that their willingness to innovate is stifled by liability fears — and that lawsuit lottery undermines New York State's ability to compete with less litigious states and countries.

The report cited surveys of small business owners in New York State who rated liability and legal costs as a "very serious" or even "extreme" problem for their firms. "More than 69 percent said a lawsuit of any kind would cause a significant disruption of their business. Nearly three out of four small respondents said liability concerns had forced them to raise costs of products and services."

The lawsuit lottery in New York State makes businesses especially wary of the dangers of innovation, the report noted.

"When targeted by liability suits, many companies have had to reduce innovation —including innovations that could have improved safety," the report said. "Such behavior is both predictable and understandable when product improvements can be cited as evidence that older products were defective, as is the case in New York State."

The report cited a 1990 survey in which 54 percent of respondent firms previously involved in a product liability lawsuit said they had chosen not to introduce some new product because of liability concerns. Of firms never involved in a lawsuit, 26 percent had chosen not to introduce a new product due to liability concerns.

The problem is especially dire in the pharmaceutical industry, An Accident and a Dream noted. The number of firms producing vaccines for serious childhood diseases has plummeted, and only a few firms are studying new approaches to contraception. The report noted that the National Academy of Sciences has recommended that pharmaceutical firms be shielded from costs of product liability lawsuits.

The impact on the rest of society

Businesses do not bear the negative consequences of the lawsuit lottery alone:

  • Liability costs and fears increase municipalities' reluctance to open new parks and to expand recreational offerings for fear of lawsuits.
  • Local charities report lower gifts-in-kind of equipment — because philanthropy-minded business donors are unwilling to risk being sued by an eventual user of the donated equipment.
  • Colleges fear they will be held liable for attacks in foreign countries on their students who are participating in study-abroad programs.
  • Employers fear being sued over job references — whether they give them or not. Some employers discontinued the practice of giving references after being sued by former employees. Others have been sued for not giving references after other employers have hired undesirable employees.
  • Local taxes "are pushed higher when the state's prevailing liability standards are combined with a prevailing view among jurors that local governments can easily afford big damage awards," the report said.

Suggested reforms

Reforms cited by the report as worthy of consideration include:

  • Fundamental product liability reforms, including: a statute of repose to limit to 10 years the time in which a manufacturer can be sued for allegedly defective products or maintenance; a state-of-the-art defense to create a presumption that a product is reasonably safe if its design conforms with the state of the art in that industry at the time of manufacture; a prohibition on using changes in instructional wording or manufacturing technique as evidence that a product is defective; and a prohibition on liability for injuries caused by defects the manufacturer could not have known about.
  • Adoption of early recovery guidelines to encourage parties to settle cases before going to trial, in part by reducing fees paid to attorneys who reject settlement offers.
  • Creation of an AutoChoice program to allow consumers to choose personal protection insurance under which they would waive their chance to win pain and suffering damages and make themselves immune to such claims by other motorists. New York drivers who chose this option would save an average $417 a year in motor vehicle insurance.
  • Putting caps on contingency fees in some cases, "putting more money in the pockets of plaintiffs," the report said. This has already been done in federal tort actions, in several other states, and, in New York State, in medical malpractice cases.

The projected impact of tort reform

If New York enacted reforms that did nothing but put its "tort tax" burden on par with the national average, the report noted, New Yorkers would save roughly $800 million a year, or roughly 6 percent, in liability premiums and self-insurance payments.

"Matching California's tort tax level, which was 1.98 percent of gross state product as of 1996, would cut premiums and self-insurance payments in New York by 8 percent, or nearly $1.3 billion a year."

The report notes that New York has undertaken tort reform in the past — despite having one of the nation's largest concentration of lawyers, in both absolute and relative terms, and despite aggressive opposition to those reforms from trial lawyers. The report cited the no-fault auto-insurance law and medical malpractice reforms in the 1970s and some steps towards more general changes in liability laws.

Despite opposition from the trial bar, New York State should renew its quest for serious tort reforms, the report said. Many meaningful reforms have been tried in other states — including key industrial competitors of New York such as Ohio, Illinois, California and Texas. Indeed, some of the most important reforms were suggested more than 10 years ago in New York — by the bi-partisan Advisory Commission on Liability Insurance, chaired by former Court of Appeals Judge Hugh R. Jones.

The Business Council is New York's largest broad-based business group, representing over 3,000 member companies large and small across the state. Based in Albany, it lobbies for a better business climate, and offers cost-cutting services to its members.

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