Senate 1, Lawyers 0
Investor's Business Daily
Law: Tort reform got a big boost last week when the Senate approved a bill that would move large class-action lawsuits into the federal court system. As reforms go, it's a good first step, but not enough by a longshot.
President Bush vowed to make tort reform a top priority, and so far the Senate hasn't let him down. By a surprisingly wide 72-26 margin, it approved a reform measure that would make it harder for attorneys to "shop" for favorable state courts to hear their cases.
Some of these jurisdictions — dubbed "judicial hellholes" by one recent study — routinely hand out multi-million dollar awards to plaintiffs, often on the flimsiest of evidence.
If this sounds like a minor thing, it isn't.
In 2003, the most recent year for which there are data, tort costs gobbled up $245.7 billion, or 2.23%, of U.S. GDP, according to Tillinghast-Towers Perrin.
Both numbers are records and, as the chart shows, tort costs are growing much faster than the economy. Obviously, some of the money is deservedly levied against companies for faulty products, negligence or poor environmental stewardship.
Yet, the soaring growth of lawsuits acts as a tax that hinders job creation, capital formation and economic growth. For 2004, tort costs equaled nearly 30% of after-tax corporate profits — a heavy burden for shareholders to bear, and one that's getting heavier.
Put another way, litigation costs now total about $3,200 per year per family, according to the Institute for Legal Reform, because it's consumers, not businesses, who ultimately pay the litigation tax.
While we laud the Senate's action, we'd be remiss if we didn't also note that the bill just passed is the least important of three tort reform measures now before Congress. The other two — medical and asbestos liability reform — would have an even larger impact on the economy.
As mentioned, the overall cost of the tort system is nearly a quarter trillion. But the actual cost — including companies' canceling projects for fear of lawsuits or doctors' driven from the profession by exorbitant malpractice premiums — is much, much higher.
Keeping unscrupulous lawyers from venue-shopping is a good first step. But trial lawyers, it's been noted, have lavished hundreds of millions of dollars on politicians who oppose tort reform. Most of those are in the Democratic Party. (All 26 "nays" last week were Democrats.)
For would-be reformers, that's a big hurdle to clear. We hope Congress can find the gumption to finish the job it started by moving on to medical and asbestos liability reform. After all, nothing much is at stake — except the health of the economy. |
