The Questionable Cost of Tort Reform

A major analysis by the consumer coalition, Americans for Insurance Reform (AIR), finds that a recent claim about the cost of litigation in this country is highly exaggerated and misleading. The estimate, $254.7 billion, was determined by the insurance consulting firm, Towers Perrin, now called Towers Watson.

AIR says the estimate is based on unverifiable and flawed work and is completely inappropriate in evaluating the U.S. tort system. Those who would like to limit the rights of consumers and their access to the civil justice system, frequently exaggerate the cost of the tort system to mislead taxpayers to believe they are paying the inflated cost of litigation in the form of a tort tax or litigation tax. The Towers Perrin report does not provide support for such a contention or for the tort reform agenda pursued by corporations to keep Americans from cutting into their profits in the courtroom.

The criticism of the Towers Perrin report is called “Grade F” For Fantastically Inflated “Tort Cost” Report, and is co-written by actuary J. Robert Hunter, Director of the Insurance for the Consumer Federation of America and Joanne Doroshow, with the Center for Justice & Democracy. She believes that the Towers Perrin report gives no credence to any belief that the tort costs are out of line, in particular, medical malpractice costs. Doroshow points to the fact that Towers Perrin only examined insurance losses, whether or not a lawsuit was filed, plus insurers’ guesses about what future losses could be, plus the bloated overhead of salaries, bonuses, lobbying costs and jet planes. And the actuary does not examine jury verdicts, settlements, court costs or lawyers’ fees. And it tends to exaggerate- for example, it counts as “tort” cost the transfer of money from a wrongdoer to a victim, such as $500 to fix a car door dent.

Even with all of the misreporting, the Towers Perrin report still shows that tort system costs are growing slower than medical inflation and that medical malpractice trends are completely stable. The bottom line is that U.S. tort costs are less today when compared to GDP, than they were in 1983. And without litigation we would not have safer products and saved lives that result when the civil justice system is allowed to work in the way it was intended.

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