Tort reform important to U.S. future
By Lou Dobbs
(CNN) -- The members of the 109th Congress will have to deal with several complex issues if the Bush administration has its way. The president has been steadily advancing his political agenda since his re-election, pushing some major and controversial reform proposals to the top of the congressional docket.
An overhaul of Social Security appears to be the Bush administration's top priority this year. The president this week, however, stepped up his rhetoric on the urgent need for tort reform, pressuring Congress to pass legislation that would limit jury awards for medical malpractice.
The idea of tort reform is important to the future of this country because of the enormous burden that tort litigation costs place on the economy. It's estimated that costs of the U.S. tort system exceed $200 billion a year, and at 2 percent of our nation's gross domestic product, that's more than double the average in much of Western Europe, Canada and Japan.
And unless some changes are made to our current system, costs could rise as much as 8 percent over the next few years, bringing tort costs up to $1,000 per person. But simply putting a $250,000 limit on medical malpractice awards for pain and suffering, as proposed by this administration, is not the answer to this growing problem.
Several factors are responsible for limiting the liability of defendants in foreign countries, which have tort systems that our lawmakers should study before passing any real reform. First, civil jury trials are extremely rare outside the United States, where judges make decisions rather than potentially sympathetic juries. Foreign judges typically award less money to winning plaintiffs than juries.
That's a trend that holds true in the United States as well. According to the Justice Department's Bureau of Justice Statistics, the median jury verdict for the plaintiff winner in state courts was $37,000 in 2001. But in civil trial cases that were decided by judges that year, the median verdict was nearly 25 percent lower. Judges in those cases also awarded punitive damages less frequently, and smaller awards when granting punitive damages. European courts do not allow punitive damages.
Plaintiffs in most European courts must also pay the legal costs for the defendant if they lose the case. This loser-pays system, which is in effect in nearly every common-law jurisdiction outside the United States, cuts down on many cases without merit by forcing a claimant to hesitate before filing a questionable lawsuit.
European courts also don't allow contingency fees for lawyers, reducing speculative litigation that can result in a large jackpot. If we're going to limit damage awards, why wouldn't we limit the amount of money an attorney can make in seeking those damages, oftentimes a third to 40 percent of those awards?
Walter K. Olson, senior fellow at the Manhattan Institute's Center for Legal Policy, says being sued is one of the costs of doing business in the United States. "In most other ways, the United States has a great business climate," he says. "This is one of the exceptions."
Some of the lowest litigation rates in the world are in places like Switzerland, Scandinavia and the Netherlands, Olson says. "It's not enough to make their business climate great necessarily, but in this area people are less afraid of doing business. They are less afraid of what the legal system can do to them."
Most civil cases are settled out of court. In fact, only 3 percent of tort cases actually make it to trial, and those settlements are fairly reasonable in most cases. The main cause of rising medical costs and insurance rates are the extreme cases involving large class-action suits. Cases like asbestos settlements, which are responsible for the largest tort settlements and the most expensive litigation in U.S. history, are the biggest single reason tort costs have risen so much in recent years.
Companies have paid out an estimated $70 billion on more than 700,000 asbestos personal injury claims through the end of 2002, according to the RAND Institute for Civil Justice. Yet people with mesothelioma, an incurable cancer linked to asbestos, have received about 20 percent of those dollars paid, while people with nonmalignant conditions have received 60 percent. These asbestos settlements have contributed to the bankruptcies of about 70 companies and the loss of at least 50,000 jobs.
But the fact remains, we still have to balance the interests of corporate America, particularly U.S. multinationals, with those of the hardworking men and women in our middle class. To that end, this issue should require a lot more thought than urgency.