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New Report Pegs Cost of U.S. Tort System

At 27 Times Federal Spending on Homeland Security

$124 Billion in Additional Health Care Spending Alone

$589 Billion Identified as "Excessive" and Wasted Costs

 

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March 27, 2007America’s out-of-control legal system imposes a staggering economic cost of over $865 billion every year according to a new scholarly study released today by the Pacific Research Institute (PRI), a free-market think tank based in San Francisco, California.  This figure is 27 times more than the federal government spends on homeland security, 30 times what the National Institutes for Health dedicate to finding cures for deadly diseases, and 13 times the amount the 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 U.S. by $124 billion. 

 

“For years, CFA has warned about the negative economic impact of our lawsuit-happy culture, both at the state level and across the country,” said Dan Pero, CFA President.  “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 are costing America.”

 

The new PRI study provides the most comprehensive examination ever of U.S. tort costs.  According to the study’s lead author, Dr. Lawrence J. McQuillan, unlike previous studies, Jackpot Justice calculates both the direct and indirect costs of America’s legal system. 

 

These include not just the direct cost of annual damage awards, plaintiffs’ attorney fees, defense costs and administrative expenses from torts but also 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,” said Dr. McQuillan.  “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.”

 

Among the report’s critical 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 U.S. restaurant industry.
  • Every day, the American economy takes a $2.4 billion hit to sustain our 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 are not due 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 over $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 just Bill Gates and Warren Buffet. 50% of all US shareholders are ordinary individuals.

 Decline in U.S. Competitiveness

  • U.S. tort costs far outstrip our economic competitors.  According to another study cited by PRI, the U.S. 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.  If you assume U.S. costs should be in line with our rivals, the authors project that America wastes $589 billion per year on excessive social tort costs, equivalent to the total annual output of Illinois.

“America’s tort system is costing us billions, raising the cost of health care, inhibiting innovation, lowering our standard of living, and making it harder for U.S. companies to compete in the global marketplace,” said Pero.  “It’s time our political leaders at the state level wake up and realize that America can no longer afford to be a nation of the lawyers, by the lawyers and for the lawyers.” 

 

Jackpot Justice: The True Cost of America’s Tort System, authored by Lawrence J. McQuillan, Hovannes Abramyan, and Anthony P. Archie, can be downloaded by clicking here.

 

For Comments:

 

Dan Pero, President

Center for America

517-214-4254 (cell)

Dpero@CFA-mail.org

www.centerforamerica.org

 

About PRI For 27 years, the Pacific Research Institute (PRI) has championed freedom, opportunity, and individual responsibility through free-market policy solutions. PRI is a non-profit, non-partisan organization. For more information please visit the PRI web site at www.pacificresearch.org

 

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The Center for America mission is to educate, motivate and empower the public to support state liability reforms to end lawsuit abuse.    www.centerforamerica.org Original material © 2007 Center for America, 600 South Walnut, Lansing, MI  48933.  Dan Pero, President. 

 

Video Interview with Dr. Lawrence McQuillan

 

CFA Audio Interview

 

Podcast Interview with Dr. Lawrence McQuillan

 

Dr. Lawrence McQuillan Bio

Anthony Archie Bio

Hovannes Abramyan Bio