$886 a year.
That’s the average cost the tort system is expected to pass along to each American, after litigation awards and settlements reached a record $260 billion in 2004.
The estimate is part of an annual study by international consulting firm Tillinghast and Towers Perrin, which compiled 2004 tort statistics – the most recent national numbers available for the nation’s tort costs.
However, the Association of Trial Lawyers of America, a trade organization for attorneys that represent alleged victims in tort cases, says the study’s figures are erroneously bloated, and have gone as far to call the study “bogus.”
One argument against the study is that the tort litigation total incorporates questionable statistics, such as payouts for minor accidents, rent on office buildings and insurance company CEO salaries.
“What does that have to do with anything?” asked the association’s Vice President Darren Schanker. “This is just creative accounting. I think this is just a red herring they’re throwing out there.”
Still, the study has the support of the U.S. Chamber of Commerce.
“This is really the only credible study out there,” said Jenny Smith, a spokeswoman for the U.S. Institute for Legal Reform, an arm of the U.S. Chamber of Commerce.
The Tillinghast study seeks to measure not only the growing cost of tort litigation and its annual price tag for the average citizen, but also looks at the shifting nature of tort claims and how U.S. tort costs compare to other nations.
Tort litigation is defined as a lawsuit that alleges personal harm or injury to a person, property or reputation – and not breach of contract.
According to the study, tort costs grew by 5.9 percent in 2004, at a slightly faster pace than in 2003 when costs grew by 5.5 percent. Analysts predict that growth could increase to 6.5 percent during the next three years.
Tort litigation costs are passed to consumers in the form of higher insurance rates and product prices.
“That’s why it’s important to keep an eye on tort litigation and make reforms a priority,” said Jeff Weist, executive director the Colorado Civil Justice League, a tort reform advocacy group.
Colorado has one of the best reputations for tort reform, Weist said, adding that lawmakers began passing tort reform legislation in the 1980s and have tightened restrictions against tort claims in the years since, most recently in 2003 with legislation that caps tort damage awards at $300,000.
Colorado ranks seventh among the 50 states for passing tort reform legislation – behind Delaware, Virginia, Washington, Kansas, Iowa and Nebraska, according to the American Tort Reform Association.
The predicted growth is based on a change in the types of suits analysts are seeing, as well as potential growth areas.
“There’s definitely a shift in the types of suits we’re seeing,” said study author Russ Sutter. “We’re seeing a lot fewer of the person-to-person suits and more suits against the commercial industry.”
The number of personal auto lawsuits has been slowing for at least three years, Sutter said. He said that trend could continue if gasoline prices continue to rise and people drive less.
Medical malpractice suits, one of the largest areas for tort litigation in recent years, are also showing a slight slowdown, mostly because a number of states have instituted legislation reforms, Sutter said.
But it’s a new generation of tort suits that Sutter expects will fuel the growth of tort litigation.
“The growth of commercial lawsuits has just been erratic,” he said. “I think we’re going to see the number of commercial lawsuits surpass the personal suits pretty soon.”
Particularly concerning to Sutter are obesity suits, which have seen a dramatic increase during the last few of years. Public campaigns to increase awareness about the dangers of obesity may be translating into more lawsuits, Sutter said.
Hurricane Katrina also is expected to provide a large number of spin-off suits, with victims taking insurance and medical companies to court.
And, if that weren’t enough, Sutter said a number of suits against pharmaceutical company Merck, maker of the arthritis drug Vioxx, are scheduled for late 2006 and in 2007.
The pharmaceutical lawsuits are of particular concern because of the large claims at stake, Sutter said.
One of the first Vioxx cases resulted in a $253 million verdict against Merck.
“It’s hard to say exactly where these suits will come from,” Sutter said, “but it’ll probably be a hodgepodge of all of them. And, there are still a lot of unknowns.”
One encouraging aspect of the study is that the $260 billion tort total from 2004 represents a smaller percentage of the nation’s $12.3 trillion gross domestic product – down from 2.23 percent in 2003 to 2.22 percent in 2004.
However, tort litigation growth could push the ratio into the 3 percent range, Sutter said, and whether in the 2 percent of 3 percent range, it still puts American tort totals far above anywhere else.
Of the 14 other countries considered in the survey, Italy ranked second to the United States for tort percentage of GDP with 1.7 percent. Poland was the lowest with 0.6 percent.
“We really thought the gap between the U.S. and other countries was starting to close, but we’ve actually seen it widen a little bit,” Sutter said. “And that’s something else that could continue to grow.”
$886 a year.