PMA Bulletin -- May 22, 2013

Study: Liability Costs Weaken Our Global Competitive Stance

American businesses have the highest liability costs in the world by a mile, according to a study from the Institute for Legal Reform (ILR). The good news is that the results of a poll, also commissioned by ILR show, people blame the excess costs on the ones who benefit the most from an out-of-control legal system- the lawyers.

“Our manufacturers have made strides in so many technological areas making manufacturing more efficient and safer than ever before, ” said David N. Taylor, Executive Director of the PMA. “For us to really bring American manufacturing back to where it should be, however, we have to make changes in the policies that hold us back. We hear from manufacturers throughout the commonwealth that lawsuit abuse reform is one of the key changes.”

The study by NERA Economic Consulting, for the ILR, compared liability costs as a percentage of GDP by evaluating the cost of general liability insurance sold to companies in Canada, Eurozone countries, and the U.S. as a percentage of its economy, the U.S. legal system costs over 150 percent more than the Eurozone average, and over 50 percent more than the United Kingdom.

Critics will say you can’t compare the markets. But, it turns out you can.

“The costs really cover the same liability across the free market system,” said Mary Terzino, a consultant to ILR who worked on the study. “And in the study, we adjusted for differences in Europe, like higher social spending.”

Higher social spending only raised Eurozone costs by a third, not nearly enough to account for the 260% difference in liability costs. Liability costs are also lower in Canada, which has approximately the same level of social spending as the U.S., the study showed.

The two factors most closely associated with higher liability costs are the number of lawyers and whether the country has a common-law system. Researchers at NERA found the two factors combined explained 70% of the difference in liability costs. The three most expensive jurisdictions were the U.S., U.K. and Canada, all of which use the English system of common law.

The national opinion poll by the ILR shows that voters overwhelmingly view the civil legal system negatively. They see it as more abuse-prone than a decade ago, and are concerned that it primarily benefits lawyers.

Only 14% of those who were part of a class action lawsuit report having received something of meaningful value, such as a cashed check or redeemed coupon, as a result of the lawsuit.  In contrast, four-in-five voters that had been involved in a civil lawsuit said that lawyers benefit the most from class action lawsuits. 

In 2011, Pennsylvania did change joint and several liability laws to make a party’s payment of damages correspond with percentage of fault in an injury case. Many more needed reforms await action.

One needed change is found in legislation currently in the Pennsylvania House which would reform an asbestos litigation system that currently allows trial lawyers to double dip on their fees by targeting businesses that had little or nothing to do with the original exposure. House Bill 1150, sponsored by Representative Bryan Cutler (R-100) would establish lines of communication between previously established asbestos trusts and the civil court system. If an award is distributed from the trust, that settlement is not currently reported to the civil court system, resulting in double-dipping for plaintiffs and their attorneys. If HB 1150 becomes law, this could no longer happen resulting in a system that protects victims, businesses, and the integrity of the system.

Legislation awaits action by the full Senate that would allow health care and medical professionals to acknowledge mistakes or adverse outcomes without the admission being used as evidence in a tort action. Senate Bill 379, sponsored by Senator Pat Vance (R-31) permits medical professionals to express empathy for and take ownership of an unforeseen outcome without the risk of retaliatory litigation based solely on statements made at the time of an apology. The bill does not relieve doctors, hospitals or nursing homes of liability, nor does it prevent a patient or family from filing a lawsuit. However, study after study shows lower rates of civil action when an act of sympathy occurs – resulting in lower insurance and health care costs.

View the study.

Other lawsuit abuse reforms are needed:

  • -Ending venue shopping where lawyers target jurisdictions for cases--most often Philadelphia -- for judges and juries more sympathetic to plaintiffs;
  • -Protecting sellers who had nothing to do with the design or manufacture of a product;
  • -Reforming product liability by establishing a time limit, a statute of repose, for when an action can be brought against the maker of a product;
  • -and Capping non-economic damages in injury suits. 
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