The nation paid $205 billion to defend and pay liability claims in 2001, $25 billion more than the previous year and a 50-year record, a new study has found.
This cost is $721 per U.S. citizen and represents a 14.3 percent increase in tort costs since 2000, according to U.S. Tort Costs: 2002 Update, the report by Tillinghast-Towers Perrin, a consulting firm that serves the financial services industry. Tillinghast released its report Feb. 11.
The firm estimated that annual increases in these costs would be in the 7-11 percent range for several years. "At this rate of increase, tort costs could equal $1,000 per citizen by 2005," Tillinghast said in a news release.
"At current levels, U.S. tort costs are equivalent to a 5 percent tax on wages," the release added.
The study tracks the cost of the U.S. tort system from 1950 to 2001 and compares the growth of tort costs with increases in various U.S. economic indicators.
"When viewed as a method of compensating injured parties, the U.S. tort system is highly inefficient, returning less than 50 cents on the dollar to people it is designed to help and returning only 22 cents to compensate for actual economic loss," the release said.
Tillinghast said its study showed that:
- As of 2001, U.S. tort costs accounted for slightly more than 2 percent of Gross Domestic Product, signaling the end of a 13-year decline in the ratio of tort costs to GDP.
- While the cost of the U.S. tort system has increased one-hundred fold over the last 50 years, GDP has grown by a factor of only 34.
- Medical malpractice costs have risen an average of 11.6 percent a year since 1975, in contrast to an average annual increase of 9.4 percent for overall tort costs.
- The largest single factor in the rise of tort costs in 2001 was a significant reassessment of liabilities tied to asbestos claims. This accounted for $6 billion of the $26 billion increase over 2000 levels. Other contributing factors include: class action lawsuits and large claim awards; an increase in the number and size of shareholder lawsuits against boards of directors; an increase in medical cost inflation leading to higher costs of personal injury claims; and medical malpractice lawsuits.
Tort reform is a long-time Business Council priority. A landmark 1998 study by The Council's research affiliate, The Public Policy Institute, concluded that 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.
The study, An Accident and a Dream, showed that lawsuit abuse in New York State was costing New Yorkers $14 billion a year in higher costs of goods and services and higher local taxes.
Earlier this month, Senate Majority Leader Joseph Bruno, citing The Institute's research, outlined a vision of sweeping tort reform that he said could save New Yorkers billions of dollars and ease city and state budget gaps. He cited a number of specific reforms, including:
- Repeal of joint and several liability, under which a defendant can be forced to pay all damages awarded-even if the defendant's liability is only 1 percent.
- Creation of a $250,000 cap on non-economic damages.
- A limitation on lawyers' contingency fees.
- Elimination of "vicarious" liability, under which lessors and other blameless third parties can be held liable and are often sued because they have deep pockets.
- An extension of the Court of Claims' jurisdiction to include claims against municipalities.
U.S. Tort Costs: 2002 Update is an update of previous studies published by Tillinghast in 1985, 1992, 1995, and February 2002.