Torts

“Tort” is the technical name for a lawsuit that demands redress for a wrongful act. Torts are based on specific liability (e.g., manufacturing or selling defective products or negligence resulting in injury).

The American system takes too long to settle serious claims while encouraging speculative class action suits brought by lawyers on behalf of individuals who may not have even noticed any injury and often do not know they are plaintiffs until after a decision is reached. The American Bar Association and Britain’s Royal Commission on Criminal Justice concur that juries frequently do not understand the evidence put before them or ignore it out of sympathy for an appealing plaintiff. The system does compensate real victims with real injuries but one also hears of ludicrous cases such as one in which Ford settled a class action suit claiming that the Bronco II was prone to rollovers by mailing safety stickers to the owners and paying four million dollars to the lawyers. On average, each litigation dollar in the US returns 22¢ to compensate for actual loss, 24¢ for non-economic costs (including punitive damages), 33¢ in legal costs, and 21¢ in administrative costs (McQuillan et. al. 2007).

Liability concerns led two companies to delay and one to abandon promising research on AIDS vaccines (Science 1992). Risk of litigation led twenty of twenty-five US manufacturers to stop making vaccines of any type, resulting in shortages (Wood n.d.). Thirteen of fifteen companies stopped research on contraception for fear of litigation. The same fear kept the only FDA-approved anti-nausea drug for use during pregnancy off the market. Litigation has had similar effects on many other industries in the US. Foregone R&D due to excessive liability results in lost sales of new products every year of over $367 billion (Committee on Commerce, Science, and Transportation, 1997).

Less anecdotally, Pacific Research Institute estimates that the US tort system costs the economy about $7000 per family per year. Each auto insurance policy includes $250-300 per year to cover the cost of litigation. Doctors can pay $1000-4000 per day in malpractice insurance, a cost they must pass on to patients or taxpayers that increases health care costs by $124 billion per year, in turn forcing 3.4 million Americans to drop health insurance even before the misnamed Patient Protection and Affordable Care Act was passed in 2010. The threat of lawsuits drives doctors to engage in unnecessary defensive medicine, further increasing medical costs. Some 175,000 suits per year against publicly held companies cost the economy about $685 billion annually in reduced share value (McQuillan et. al. 2007). Torts are a drag on the economy, reduce competitiveness, employment, and productivity, and drive up the price of virtually every product and service in the US.

Voters can raise the issue of tort reform, vote for candidates who promise to implement it, and hold the winners to their promise. A comprehensive strategy to correct abuses in the tort system has eight components. First, as some states now do, limit awards for pain and suffering, but not for actual economic loss.

Second, limit juries to deciding whether to award damages, leaving judges to determine the amount. This parallels the criminal trial system in which juries determine guilt, judges determine punishment, and appeals correct errors.

Third, implement “loser pays,” in effect in almost every common-law country other than the US and in the US for sexual harassment complaints.

Fourth, require attorneys to have the active prior consent of each individual they claim to represent. That is, prevent attorneys creating an imagined “class” of unknown size and anonymous membership made up of people who do not even know that someone claiming to represent them is requesting damages they never noticed they had suffered. Suits filed in the name of stockholders without their knowledge against companies in which they have invested, often resulting in decisions long after the period one must retain tax records are especially egregious.

Fifth, tighten standards and impose pretrial hearings to screen out junk science and ersatz experts. Other industries could follow the lead of Medical Justice,¹ a membership organization that provides defendants with the resources to countersue, in effect creating a “loser pays” system within existing law that deters frivolous lawsuits.

Sixth, companies and professionals such as doctors could educate customers and patients by adding a line item to bills showing how much of the total is due to the costs of litigation.

Seventh, companies could boycott states where litigation costs are excessive, as some doctors already are doing. Medical malpractice suits led doctors to flee Mississippi, leaving many residents over 100 miles from the nearest doctor. When the CEOs of several Fortune 500 companies demanded tort reform before they would relocate to Mississippi, the governor and a coalition of doctors, business groups, taxpayers, and unions put tort reform through the legislature over trial lawyer opposition.

Eighth is the 2005 Class Action Fairness Act that reduces forum shopping for overly sympathetic courts to hear their cases, but that as noted above harms businesses and the economy. The law makes it easier to move class action suits involving aggregate damages greater than $5 million to federal courts. However, tort lawyers are attempting to overturn or subvert it.

Any of these reforms (Bernstein 1997) would improve the tort system in the United States. Combined, they would provide a rational tort system similar to other common law countries that would increase productivity and employment significantly (Campbell 1995) while still fully protecting the victims of negligence, intentional harm, and defective products resulting in real injury.