The Litigation Crisis Myth: The Economics of Reform

Recently Justinian Lane, a Michigan technology consultant who does trial presentations, published an article in the Association of Trial Lawyers of America (ATLA), Trial magazine about the real economics of the “tort reform�? movement. Lane pointed out that in a thorough examination of the so-called “litigation crisis�? that business groups, politicians, and insurance companies are crying about, that economic arguments actually work in favor of preserving the justice system.

For example, while the American Tort Reform Association (ATRA) claims that lawsuits are slowing the economy, Lane points out that the reality is that last year, the CEOs of the Fortune 500 took home more than $1.5 billion, which is more than a 30 % increase in pay from 2004.[1] This begs the question, if corporations and businesses are so strapped for cash due to the money they are paying out for lawsuits, then how can they afford a 30% increase in pay for their CEOs? Fortunately, the American public is wising up to this corporate abuse of power because of cases like Enron, WorldCom, and Arthur Andersen.

It is important that we, as trial lawyers, continue to educate consumers and individuals about the REAL business climate in America. It is up to us to help individuals hold large corporations accountable for their actions. One example of how we can do this is through fighting for more disclosure by the corporations of how they are spending their money and why they are raising their rates and prices. In Colorado, the General Assembly recently passed, and the Governor recently signed, a law that requires insurance companies to disclose the factors that go into setting insurance rates. This information has to be filed yearly with the Colorado Division of Insurance. The bill also requires insurers to only set rates based on loss experience that happened within Colorado. In other words, a medical malpractice insurance company in Colorado cannot base their insurance rates on the number of malpractice claims made in California; and likewise, an auto insurance carrier cannot base their insurance rates on the number of claims paid out in Florida.

By providing this information to the public, we will be able to show the public that the work trial lawyers do on behalf of consumers, individuals and families, goes to make products more safe, professionals more careful, and businesses more accountable to their customers.

[1] Andrew Wheat, Stop Lawsuit Abuse — Or I’ll Sue, TEXAS OBSERVER, Oct. 25, 2002.