A woman is awarded $2.7 million after spilling McDonald’s coffee in her lap. A Washington, D.C., judge sues a local dry cleaner for $54 million for losing his pants. A neighbor successfully sues two teenage girls handing out free cookies, claiming they triggered an anxiety attack when they knocked on her door.
These stories make the headlines, but each year tens of thousands of anonymous lawsuits choke our court systems — and we all pay the price. The Pacific Research Institute estimates that lawsuits cost our economy $865 billion a year in legal costs, higher insurance rates, higher medical costs and lost innovation in business. Bottom line: These lawsuits cost each of us more than $800 a year.
But, wait: Aren’t the vast majority of reckless lawsuits settled or dismissed? So no harm, right? Wrong!
The dry cleaner sued for $54 million eventually prevailed, but the years of litigation virtually put him out of business. Even dismissed lawsuits are expensive. In Pennsylvania, a 1995 lawsuit claiming that Doritos can cause serious injuries was in the courts for nine years before it was finally thrown out by the state Supreme Court.
All of us pay the price for this abuse, whether we realize it or not. Businesses forced to pay more for insurance and litigation have less to spend on innovation and job creation. And we pay a “tort tax” on everything we buy as rising insurance and litigation costs increase the price of goods and services.
Inviting abuse
It goes without saying that we need a strong court system to decide legitimate grievances. But the American court system virtually invites abuse by declining to punish people who misuse the system. Personal injury attorneys make billions suing government, our schools, hospitals, businesses and people without risk to their clients.
If the people suing lose, they don’t have to pay the legal fees and court costs for the people they sue. So in many ways, suing is risk free in America.
That is not the case in other countries. For example, to deter frivolous lawsuits, courts in Europe, Australia and Canada all utilize a version of “loser pays.” The United States is one of the few industrial nations where that doesn’t happen —but that may be changing.
The state of Alaska has a loser-pays system, and Texas Gov. Rick Perry recently signed a tort-reform law that includes a loser pays provision.
Under the new law, some litigants who lose will be required to pay the court costs and attorney fees of the other party in the case. In addition, judges will be able to dismiss clearly frivolous lawsuits sooner, and litigants who refuse a settlement will be required to pay their opponent’s legal costs if the ultimate jury award is less than the settlement they turned down.
This legislation builds on the state’s 2003 overhaul of its medical malpractice laws which ended venue shopping for friendly judges and established a $250,000 cap on noneconomic damages — arbitrary amounts handed out for emotional reasons commonly referred to as “pain and suffering.” Since then, malpractice insurance rates have fallen 27.5 percent, thousands of new doctors have flooded into the state and hospitals are spending less on legal costs and more on patient care.
The Texas tort-reform law is part of the state’s aggressive pro-growth, pro-jobs agenda — and it’s working. The U.S. Bureau of Labor Statistics reports that Texas added 732,000 private sector jobs over the past 10 years, more than seven times any other state. And for the seventh year in a row, Texas was ranked by CEO Magazine as the best state in the nation for business. Washington dropped four slots from 30th to 34th and was flagged as one of the states with the biggest five-year losses.
While the latest tort-reform law in Texas is far less sweeping than the original proposal, it’s a step in the right direction. As Gov. Perry noted, “Employers will spend less time in court and more time creating jobs.”
Don Brunell s president of the Association of Washington Business, Washington state’s chamber of commerce. Visit http://www.awb.org.
