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Research Backs the Dangers of Lawsuit Tax Michael Arnold Glueck and Robert J. Cihak, The Medicine Men This is the column I've longed to write. Most of us have known intuitively that excessive lawsuits hurt individuals, families, schools, mom and pop businesses, corporations, and the country in the aggregate. For 15 years I was a member of the board of directors of an Orange County, Calif., citizens group that alerted the electorate about the dangers of the "lawsuit tax" or "tort tax." Many editors and readers, in agreement with our premise, would often ask if there was additional hard data that proved our point. Now it is available from a number of responsible researchers and sources including the Association of American Physicians and Surgeons (AAPS) in a recent April release. An overly expensive liability system increases the cost of risk-reducing goods and services. If comprehensive tort reform had been adopted in the states, more than 77,000 additional people would be alive and contributing to the work force, conclude researchers Lawrence J. McQuillan and Hovannes Abramyan, in a study released by the Pacific Research Institute. The static cost of litigation (damage awards, plaintiffs' and defendants' lawyers fees, and administrative costs) amount to $328 billion per year, an estimate much higher than previous estimates from a Tillinghast-Towers-Perrin study.
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An AAPS release in April 2004 noted that the insurance consultant predicted tort costs could increase twice as fast as the economy, going from $200 billion in 2001 to $298 billion by 2005. But there is even more. Litigation changes behavior and these dynamic costs amount to some $537 billion per year, researchers conclude. These include defensive medicine ($124 billion), job productivity losses from reduced access to medical care ($39 billion), the impact of forgone research and development, and lost sales of new products. The loss to the U.S. economy of $865 billion ($328 plus $537 billion) per year constitutes an annual "tort tax" of $9,827 on the average family of four (Wall Street Journal 3/27/07). The tort tax is 27 times more than the federal government spends on homeland security and 30 times what the National Institutes of Health dedicate to research on deadly diseases. America¹s tort costs amount to 2.2 percent of the GDP, compared to 0.7 percent for the U.K., 0.8 percent for Japan, and 1.1 percent for Germany.
In addition, lawsuits against American corporations generate an annual loss of $684 billion in shareholder value. Half of all U.S. shareholders are individuals of modest means. As an example of how litigation changes behavior there is solid scientific evidence that "Asbestos Fireproofing Might Have Prevented the World Trade Center Collapse," and many lives could have been saved (January 18, 2007, Steven Milloy, Junkscience.com). As a result of scare tactics by environmentalists and the constant threat of lawsuits, asbestos fireproofing was used only up to the 38th floor of the first WTC tower and not at all in the second. Continuing asbestos delirium eventually resulted in much of the asbestos eventually being ripped out of the first tower. More than 51,000 U.S. jobs have been lost because of asbestos litigation-related bankruptcies alone. Employees at these bankrupted companies lost $559 million in pension benefits. Trial lawyers love to run ads and stories in the dozens of Orange County, Calif., throw-away glossy magazines to perpetuate the myth that they are the knights in shining armor that save the poor and defenseless from the beasts in the forest. In truth, by the time they take their 40 percent off the gross amount of an award, plus expenses, precious little goes to the truly injured. The unholy trinity of punitive damages, class action suits where the lawyers form the class by advertising, and contingent-fees make the abuses possible. In fairness, there is no argument that many lawsuits are legitimate, justified and should be filed. However, there needs to be a more efficient system to screen out the weeds of greed and thereby allocate a more reasonable percentage of monetary awards to the truly harmed. Eliminate or cap punitive damages, limit the formation of classes and limit contingent fees and we would go a long way towards solving the problem. The hard data is now available. It's time to change the rules of legal engagement and combat. Editor's Note: Michael Arnold Glueck, M.D., wrote this week's commentary. Contact Glueck and Cihak by e-mail.
Michael Arnold Glueck, M.D., comments on medical-legal issues and is a visiting fellow in Economics and Citizenship at the International Trade Education Foundation of the Washington International Trade Council. Robert J. Cihak, M.D., is a senior fellow and board member of the Discovery Institute and a past president of the Association of American Physicians and Surgeons.
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