Study: Costs of U.S. tort system increases to $252 billion

Chris Rizo Nov. 19, 2008, 3:46pm

Lisa Rickard

WASHINGTON (Legal Newsline)-The souring U.S. economy is likely to bring a flurry of lawsuit filings, a report says.

The cost of torts, which includes defense costs, grew 2.1 percent, or $5.1 billion, in 2007 to $252 billion, the global professional services firm Towers Perrin said, noting that the U.S. tort system cost $835 per person, and is likely to rise even more this year.

The Stamford, Conn.-based firm said the increase in the nation's tort costs followed a 5.6 percent decline in 2006.

Responsible for the uptick are, among other factors, the national subprime mortgage fallout and the global financial crisis.

"The current global economic climate could very well lead to a surge in tort activity here in the U.S," said Russ Sutter, a Towers Perrin principal and author of the report.

The report also found that insured asbestos losses increased approximately $1.2 billion in 2007, which is lower than the comparable increases in 2004, 2005 and 2006.

Given the nation's economic footing, Towers Perrin said it expects mortgage brokers, appraisers and investment banks to become even larger targets of plaintiffs' attorneys this year and beyond.

The "implosion and resulting government involvement" in financial firms such as Bear Stearns, Lehman Brothers, Fannie Mae and American International Group will "undoubtedly" lead to further litigation this year.

U.S. tort claims could increase 4 percent this year and an additional 5 percent in 2009 and 2010, the report said. Towers Perrin said since 1950, growth in tort costs has exceeded growth in Gross Domestic Product by an average of approximately two percentage points.

"The rapid increase in the price of gasoline in 2008, and resulting decrease in miles driven, may lead to a lower increase in personal tort costs than in 2007. In addition, trends in medical malpractice tort costs appear to be remaining benign. Offsetting these factors somewhat, there has been a significant decline in the value of U.S. equities in 2008," the report said. "This will likely lead to higher litigation activity in directors and officers liability claims."

Lisa Rickard, president of the U.S. Chamber of Commerce's Institute for Legal Reform, said the trial bar's efforts have ramped up in the economic downturn. She said the lawsuit industry is booming.

"As our economy continues to shed jobs, plaintiffs' lawyers are gearing up to lobby the next Congress for even more ways to sue," Rickard said, noting that a recent poll indicates that 79 percent of voters say they think the U.S. economy would further suffer if Congress creates more opportunities to sue businesses and individuals.

"The American people understand that we cannot sue our way out of this economic crisis," she said in a statement.

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