Economic consequences of tort liability suits

My thesis is that the large and growing number of costly tort liability claims in America is doing damage to the overall economy. Take the Bronx (my place of birth) as an example. This borough is now a an area of high crime and poor education, but it’s also typified by liberal treatment of defendants. It’s an area were insurance companies don’t want to sell libability insurance. If they do sell it, they charge a lot for premium.

For examples, I know of one medical malpractice case where the facts pointed to an obvious conclusion that the child had been abused by his mother. Nevertheless, the judge wanted a finding of liability against the hospital where he was born. Why? Because the hospital had insurance, and the child needed help. This sort of unjust verdict may be good for an abused child, but the overall practice is bad for the Bronx’s economy. Hospital costs will be higher. Businesses will go elsewhere.

What’s true of a borough is true of the country, though to a lesser degree. Much manufacturing can be moved to other countries. High tort liability costs are one factor in driving employment opportunites out of the United States, thus making us all poorer. High tort liability costs against public entities take money from other worthwhile governmental activities, such as educaiton, public safety, libraries, etc.

Um, you DO realize that in a tort case, the defendant is the one being sued? If, as you claim in your thesis, tort litigation is damaging the economy, then it would be due to the action of plaintiffs, not defendants. Or are you conflating criminal and civil law?

Do you have a cite for this?

You seem to be saying that liberal judges are responsible for economic downturns. I would say that your theory is belied by the fact that the current trend toward appointing conservative judges has failed to revive the economy.

This topic has been beaten to death here, unless you have some actual information, other than your anecdote, I don’t see what the point of even trying to have this debate is.

Where were you when I needed you? :wink: Maybe not precisely what you are on about but much of what you want discussed is in there…at least for a start.

Why not limit attorney fees?

blowero, you’re right. I meant liberal treatment of the plaintiff.

The point I want to get at is the impact of a great many tort suits on the overall economy. The Bronx is poor, and I believe generous tort awards are one cause of its poverty. the kinds of things I’m hoping to get some response on include:

– To what degree does too much tort liability harm the overall economy?

– Is the ecoomic burden of a certain amount of tort liability greater than the burden of a comparable amount of taxation?

– How big are the costs of defensive practice? That is, steps taken only to provide a defence, but not actually helpful to society?

– How much good do tort claims do, by punishing bad behavior and by doing justice?

Whack-a-Mole, sorry I didn’t support you in your thread. In fact, I would support most any steps to reduce tort claims. But, this thread is a bit different. I’m not arguing that plaintiff’s attorneys are overpaid or the claimants are collecting when they shouldn’t. I want to focus on the economic cost. I believe these claims create an invisible burden on all of society, which I’m hoping to illuminate.

Ok, well first of all, the only thing you can be focusing on here then is punitive damages. Pure compensatroy damages can’t be having a negative effect because all they do is put the plaintiff back to the way he should have been before the defendent injured him. Even if they do have a negative impact in some way, justice requires that people be compensated for their injuries, surely you wouldn’t dispute that?
From this RAND study we learn that punitive damages are only awarded in 4% of all civil jury cases.

From this DOJ site we learn some other interesting facts. [list=1]
[li]For State Cases:[/li][li]Only 3% of tort and contract cases go to trial[/li][li]In 51% of jury trials the defendant wins[/li][li]The median total award for plaintiff was $35,000[/li][li]Out of 15,600 cases, juries awarded punitive damages in 212 cases.[/li][li]The median punitive damage award to plaintiff winners was $50,000.[/li][li]In Federal Court for 1996-1997[/li][li]Plaintiffs only won in 45% of cases.[/li][li]In 86% of the tort trial cases in which the plaintiffs won, the jury or court awarded damages. The median award was $141,000.[/li][/list=1]
When you take into account the fact that many punitive damage awards are set aside or vacated on appeal, the overall economic impact of the tort system seems small. Obviously many cases settle before trial or indeed even before the case is filed, plus you have things like arbitration and ADR going on, so it is almost impossible to gather data on how much money is being traded around, but focusing on the tort system I think it is clear that the impact is small, and IMHO is over exagerated by the media.

Of course, this doesn’t even take into account the economic benefits of tort liability in terms of decreasing the number and severity of injurious accidents. Would be tort-reformers rarely mention that, for obvious reasons. Instead, they prefer to focus on anecdotal Stella-award-winning lawsuits, with little to no evidence that such suits ever really occurred.

I think blaming the fate of the Bronx on the tort situation is simplistic, in addition to being practically implausible, as suggested by Rhum runner. Other than the company town losing its factory, sudden and prolonged economic depression must be the result of many things. In the case of the Bronx, I think a better one-cause argument could be made for the siting of lots of housing projects there than for tort law. Although it’s possible that businesses could be disincented by high costs of insurance, I think that the high costs probably follow the economic distress, rather than cause it.

I was under the impression that governments were generally protected from lawsuits. Can any lawyers speak to this?

I think the logic that punitive damages help by scaring evil actors into behaving is compelling. I don’t know of any hard evidence on this, though. The questions about costs require a lot of data to answer intelligently, and I don’t know if anyone has that data.

Cool stuff. If they published the mean award, we could calculate the total and compare with the size of the economy, or just the net profit of Pfizer, and show whether this is an appreciable portion of the economy… though there are those insurance and legal costs incurred by defendants as well.

I listened to part of a talk the other day which discussed limiting liabilty for insurance companies. The speaker claimed that this was a predictable move by the insurance companies. Apparently, for the past 40 years, without exception, every time there is a downturn in the economy the insurance companies try to limit tort rewards. Insurance companies apparently make a lot of money off the market, using premiums to invest. Whenever the market takes a nosedive, the insurance companies need to make up the shortfall somewhere. Invariably, that somewhere is raising premiums and attempting to limit payouts. Apparently, the only difference between the insurance claims of 4 years ago and the insurance claims of today are the fact that the companies are loosing money on the market.

December, so far you have presented one anecdotal situation with no way for us to determine if it actually happened the way you say it did. And you’re using that to try to make a case against tort law, without making any suggestion as to how you would like tort law to be changed. You’re not giving us anything to debate.

Great points, RR, which cut right to what I hope to debate. First of all, there are non-economnic damages other than punitive damamges. In automobile liability these are referred to as “pain and suffering.” I believe it’s common for an award to be three times the economic damages, i.e., medical costs, loss of wages, extra help needed, etc. Also, even though punitive damages are relatively small, the threat of punitive damages has a significant effect FBOFW. Also, even the economic damages may fall unfairly on the party with the “deep pockets.”

However, these are not the point I was getting at. As blowero pointed out, I have not made a case against tort law or described how I want it changed. I didn’t intend to. Nor do I wish to debate its justice. My assertion is that tort law has a cost to society, as well as a benefit. If the cost has gotten far above the benefit, then there is a case to reform it in some way. But, here I would like to focus on the overall cost and benefit, regardless of justice or how it might be modified.

BTW nogginhead, public housing in the Bronx is only in certain areas. The Bronx is fairly large. There are many sections that are far from any public housing. But, one does not see much industry in any part of the Bronx.

Pencil Pusher, the speaker you listened to was presenting baloney. He may have been attacking insurance companies to avoid facing the real problems. Do you recall who the speaker was?

I realise you guys are discussing the US, but similar tort cases abound in Ireland and the the cost is estimated, from here

That cite is 4-5 years out of date and the claims have been growing steadily so the level will be above even this.

As Irelands GNP stands at about £65 Billion, this is nearly £2 Billion in claims each year (in a country of about 4 million people). No idea how this compares to the US, but it sounds damn high to me.
(Just my $.02)


  1. Demonstrate that there is a problem. Nobody was able to do so in Whack-a-Mole’s thread.

  2. Demonstrate that this ‘crisis’ is indeed not a manufactured one by insurance companies. Your “baloney” comment is bereft of substance.

Lacking that, there’s nothing to debate. Move along, folks.

It was the Cleveland City Club Forum. This site has a webcast of the program

Thank you for the cite, Pencil Pusher. If you go to the web site for the Center for Justice & Democracy, you will see they are essentially an anti-tort reform organization. I would assume that most of their donations come from lawyers who benefit from tort suits. In any event, their web site is straightforward; they do have an axe to grind.

There are many inaccuracies and much spin in what you quoted from them. CJ&D said,

In fact, [ol][]Insurance companies support tort reform all the time.[]Support for tort reform also comes from groups other than insurance companies. At the moment the group giving the most prominance to tort reform is the doctors, who recently went on strike for a day here in New Jersey.[]Most liability reserves are invested in bonds, not in stocks. []Although the stock market is way down, the bond market is way up, due to the drop in interest rates. Overall, this is not a bad point in time relative to insurance company investments.[]It is true that insurance companies seek to raise rates when they’re losing money. In fact, the law requires them to do so. The basic rating law requires that rates be not inadequate, not redundant, and not unfairly discriminatory. []Insurance companies are losing money today because rates are too low to pay the claims. Also, many companies underestimated prior years’ claims, so they have to recognize those older losses now.[/ol]

And you have cites to back all of this up of course?

As well as figures to show that tort payouts have gone up unduly over the last 10 years?

Thank you.

december, squeegee has asked you to back up your “thesis” (a rather grandiose name for “unsupported guess”) that “the large and growing number of costly tort liability claims in America is doing damage to the overall economy”. You have provided absolutely zero evidence of this so far: in fact, the only claim of any substance you’ve made is that insurance companies, and one group of doctors, don’t like tort liability lawsuits. Well, duh.

As squeegee says, unless you can provide some evidence to back up your position, there’s no debate here.

And if we’re going to “debate” “theses” presented on the basis of no evidence, I move that we should discuss my “thesis”, namely that “december is merely an annoying computer program to generate illogical and dishonest attempts at argument.” (Actually, that insight isn’t really mine, but is originally due to another poster whose name I don’t remember.) Some of the more important points of my “thesis” that I think we should focus the discussion on are:

  1. What language is he written in?
  2. Is he a cross-platform application?
  3. What role, if any, did Microsoft play in his development?

“Debate” away.

The tort system is in part reponsible for safer cars, purer foods and drugs, and better warnings. Once we know that the companies that gave us unsafe cars, contaminated food and drugs, and products with inadequate warnings will never go back to their old, dangerous ways, we can begin to question whether the tort system has outlived its usefulness. But, companies like Ford continue to show us that they will make a dangerous product if they can. The Pinto wasn’t their last defective product. Companies like American Home Products (now Wyeth) are happy to sell us products with disproportionately severe adverse effects, and they are happy to conceal this from the FDA. They made millions off of Pondimin and Redux, and they still haven’t compensated eveyone they’ve damaged. All sorts of outrageous conduct continues to happen under our present system.

It is commonly perceived that our present system is overly litigous and a great way for plaintiffs to make money. Yet, companies continue to risk that their bad behavior will benefit them more than they will ultimately pay in damages. Every step we take to limit redress reinforces their decisions to risk our health for their profits. As long as companies prefer their profits over the damage that they cause, we’ll need the tort system. And, they’ll continue to try to limit victims’ ability to seek redress.

I agree. This is the positive economic impact of tort suits.

Yes, I think it would be a mistake to end tort suits. However, like all economic activities, tort suits have costs and benfits. Here are two hypothetical questions.

  1. Assume you own widget factories in the Bronx ( a high tort liability area) and in Boise, Idaho (a low tort liability area). Due to the recession, you must close one of the plants. Which one will you shut down?

  2. Same question, except that the two plants are now in the United States and in Kuala Lumpur. Which one will you close?

<tapping foot>

Waiting for any cites. Hello?

Oh, yeah, I just love the part where December notices that CJ&D is an anti-tort reform site, so therefore they must be in the pocket of trial lawyers (the web site says not, but who knows?). It appears to never occur to him that some folks honestly think the current proposals for tort reform are either not needed or simply a bad idea. In other words, December’s stance seems be that anyone who is against tort reform is showing clear bias toward trial lawyers. Anyone who is pro tort reform is on the correct side. Welcome to DecemberWorld! :rolleyes: