NCPA - National Center for Policy Analysis


February 23, 2010

America's litigation-friendly legal system continues to impose a heavy burden on our economy, says James C. Copland, policy director for the Manhattan Institute's Center for Legal Policy.

  • The annual direct cost of American tort litigation -- excluding much securities litigation, punitive damages, and the multibillion-dollar settlement reached between the tobacco companies and the states in 1998 -- exceeds $250 billion, almost 2 percent of gross domestic product.
  • The indirect costs of excessive litigiousness (for example, the unnecessary tests and procedures characterizing the practice of "defensive" medicine, or the loss of the fruits of research never undertaken on account of the risk of abusive lawsuits) are probably much greater than the direct costs themselves. 

Of course, tort litigation does do some good, and it does deter some bad behavior.  The problem is that it also deters a lot of good behavior, says Copland: 

  • Indeed, the legal system does such a poor job of distinguishing between good and bad behavior that the high cost of litigation is effectively a "tort tax" paid by every American.
  • The share of America's economy devoted to lawsuits is far higher than that of other developed nations such as Germany and Japan; yet America is hardly safer as a result. 

Thanks to large contributions, both to the Democratic Party and to individual legislators, lawyers have not only blocked most federal efforts at tort reform but are also working to coax goodies from Congress that pad their bottom line, says Copeland.  Such efforts include: 

  • Lengthening statutes of limitations in employment law to make it easier to file discrimination suits.
  • Spurring securities litigation by allowing suits to be filed against the vendors of corporations accused of fraud.
  • Cutting contingent-fee lawyers a tax break worth over a billion dollars.
  • Gutting arbitration contracts designed to encourage resolution of disputes that are too expensive to take to trial.
  • Allowing state juries to override federal regulations. 

Source: James R. Copland, "A Report on the Litigation Lobby, 2010,", February 12, 2010. 

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