Texas Civil Justice League

NEWS

03/27/2007
Lawsuit Abuse Costs America $865 Billion

The U.S. legal system imposes on the nation a staggering cost of more than $865 billion annually through lawsuit abuse, according to a study released today by the Pacific Research Institute (PRI) of San Francisco, Calif.

The cost is 27 times more than the federal government spends on homeland security, 30 times what the National Institutes of Health dedicates to finding cures for deadly diseases, and 13 times the amount the U.S. Department of Education spends to help educate America’s children.

The authors of “Jackpot Justice: The True Cost of America’s Tort System” calculated that the nation’s tort system imposes a yearly “tort tax” of $9,827 for a family of four and raises health care spending in the United States by $124 billion.

“For years, the Texas Civil Justice League has warned about the negative economic impact of lawsuit abuse both in our state and across the country,” George S. Christian, TCJL president, said. “Personal injury lawyers always know to the dollar how much they cash in from lottery-sized verdicts. It’s about time someone added up how much the trial bar’s excesses cost America.”

The PRI study provides the most comprehensive examination ever of United States tort costs. "Jackpot Justice" calculates for the first time both the direct and indirect costs of America’s legal system. In addition to the direct cost of annual damage awards, plaintiffs’ attorney fees, defense costs and administrative expenses from torts, the PRI study calculates the indirect cost of the legal system’s impact on research and development spending, the cost of defensive medicine, the related rise in health care spending and reduced access to health care, and the loss of output resulting from deaths due to excess liability.

“America’s legal system doesn’t just transfer wealth from companies to personal injury lawyers,” Dr. Lawrence J. McQuillan, director of PRI Business and Economic Studies, said. “It also changes behavior in economically unproductive ways. Any true estimate of the economic cost of our tort system must include these dynamic, negative-spillover costs.”

“Texas has been a leader in lawsuit reform, and with good reason. America’s legal system is costing billions, raising the cost of health care, inhibiting innovation, lowering our standard of living, and making it harder for companies to compete in the global marketplace,” Christian added.

Among the report’s findings:

Burden on the U.S. Economy

• The $865 billion annual cost of America’s tort system is equivalent to the total yearly sales of the entire United States restaurant industry.
• Every day, the American economy takes a $2.4 billion hit to sustain an out-of-control legal system.

Lost Jobs and Lost Retirement Savings

• More than 51,000 U.S. jobs have been lost due to asbestos-related bankruptcies alone. Employees at these bankrupted companies have lost $559 million in pension benefits. 114,000 Needless Deaths; Increased Cost of Health Care
• An overly expensive liability system increases the cost of many risk-reducing products and services and health care services, making them less accessible and, in some cases, unavailable to consumers. PRI estimates that more than 114,000 people would be alive and working today, but their deaths are attributed to inefficiencies in the tort system over the last two decades.
• The practice of “defensive medicine” by litigation-fearing physicians increases American health care costs by $124 billion per year and adds 3.4 million Americans to the rolls of the uninsured.

Suppresses Innovation

• American companies suffer more than $367 billion per year in lost product sales because spending on litigation curtails investment in research and development.

Loss of Shareholder Wealth

• Lawsuits against American corporations generate an annual loss of $684 billion in shareholder value. Who are American shareholders? Not only Bill Gates and Warren Buffet, but 50 percent of all United States shareholders are ordinary individuals. Decline in U.S. Competitiveness
• United States tort costs far outstrip its economic competitors. According to another study cited by PRI, the nation spent 2.2 percent of its GDP on tort costs, compared to 0.7 percent for the United Kingdom, 0.8 percent for Japan, and 1.1 percent for Germany. Assuming that United States costs should be in line with its rivals, the authors project that the country wastes $589 billion per year on excessive social tort costs, equivalent to the total annual output of the state of Illinois.

“Jackpot Justice: The True Cost of America’s Tort System,” authored by Lawrence J. McQuillan, Hovannes Abramyan, and Anthony P. Archie, can be downloaded or viewed at American Justice Partnership.