Insurance Reform Not Tort Reform
Insurance Reform
Tort Crisis Overblown
Hard facts, data just don't support tort reform
Politicians Should Be Talking About Insurance Reform, Not Tort Reform Fourm Column
by William M. Shernoff
Lately, we have seen the greed of the insurance industry producing scandal after scandal. Perhaps now politicians will start talking about "insurance reform" rather than "tort reform," which bolsters insurance companies profits by chipping away at valuable constitutional rights.
Many of our politicians and tort reformers seem to have forgotten the Seventh Amendment. It was the only article of the Bill of Rights ratified unanimously by the states.
It reads, "In suits of common law, where the value and controversy shall exceed $20, the right to trial by jury shall be preserved, and no fact tried by a jury shall otherwise be reexamined in any court of the United States, than according to the rules of common law."
The insurance industry and its corporate and political friends have attacked the right to jury trial in civil cases by pushing for arbitration clauses, caps on damages and other so-called "tort reform" measures, all designed for their financial benefit.
Two decades ago, I represented the Southern California Physicians Council in a lawsuit against its malpractice insurance carrier for overcharging on premiums. The doctors were hit with a 327 percent increase in their malpractice premiums, and they were livid.
Insurance moguls know that, when policyholders are confronted with outrageous premium increases, they don't blame the insurance companies but instead point the finger at trial lawyers, huge verdicts or frivolous lawsuits. In this case, the doctors were so upset that they lobbied the Legislature to pass a law limiting pain and suffering damages to $250,000 in medical-malpractice cases.
This so-called tort-reform measure stripped from people who had been injured by medical negligence the ability to recover for their injuries.
This dramatic increase in the doctor's premiums later proved to be totally unfounded. The case was settled with the doctors getting back their money by way of a huge $50 million rebate on their premiums that was shared by 5,500 doctors. But the law they lobbied for, the cap on damages, remains on the books. This case is a perfect example of how the insurance industry can create an artificial crisis by way of huge premium increases in order to induce cries for tort-reform measures and turn their victims into foot soldiers for tort reform.
Tort reformers and their public-relations mills have coined phrases like "frivolous lawsuits" and "lawsuit abuse" to build support for their tort-reform measures. The public should know that all courts have mechanisms to deal with frivolous lawsuits or lawsuit abuse.
Judges don't need politicians to tell them which lawsuits are frivolous and when the court system is being abused. That has always been the function of the judiciary, and it should stay that way.
The judiciary also determines when damage awards are excessive. Our courts are never reluctant to reduce large awards at every judicial level. This historically has been the function of the judiciary in suits at common law.
When a legislature sets a cap on these damages, it is encroaching on a purely judicial function. Legislatures shouldn't be empowered to set a cap on tort damages any more than they are for other common law suits, like contract damages.>
A cornerstone of our democracy is that each branch of government has its distinct constitutional arena, and one should encroach on the others. Yet tort reformers have run to the Legislature to hold certain tort damages excessive by way of statutory caps. When this occurs, it seems to be an unconstitutional violation of the separation of powers. The issue, however, is rarely raised in tort-reform discourse.
If we need caps on anything, it should be on excessive profits of the insurance industry. Insurance has become a necessity of life, much like the public utilities whose profits are regulated to prevent price gouging. If insurance profits were regulated like public utilities, the cost of insurance would be cut in half, and cries for tort reform would disappear.
>Someday, the whole tort-reform movement will be exposed as a massive public relations effort to lessen accountability of the insurance industry and other corporations. Given WorldCom, Enron and Global Crossing, not to mention bid-rigging by the insurance industry's largest brokers, we clearly need more accountability, not less.
Free enterprise doesn't mean free to gouge consumers or free to trample on citizens' valuable rights.
William Shernoff is a senior partner at Shernoff Bidart & Darras in Los Angeles.
This article was published in the Los Angeles Daily Journal
December 06, 2004
Tort Crisis Overblown, Tillinghast Studies Faulty, Claims Think Tank
May 17, 2005
There is no credible evidence to link the tort system either to the economic ills its critics claim or to the benefits they argue would be produced by altering it, according to a new study by the Economic Policy Institute.
The EPI analysis by economist Lawrence Chimerine and attorney Ross Eisenbrey claims that the so-called tort litigation crisis is based on "wildly overstated cost estimates that have been widely cited by lawmakers and the media as support for calls for legal change."
The authors maintain that economic trends of the past 10-15 years are completely inconsistent with the claim that higher legal costs have hurt the economy. They find, to the contrary, that "draconian change to the tort system is more likely to hurt than help job creation."
The EPI report, The Frivolous Case for Tort Law Change, examines reports prepared by Tillinghast-Towers Perrin, a consulting firm whose clients include many of the world's largest insurance companies. TTP's reports are cited by President George Bush and his Council of Economic Advisors in arguing for tort reforms.
"The insurance consultants have spun a few high-profile but unrepresentative incidents into a horror story that is almost entirely unsupported by the facts," said Chimerine. "It is cobbled together out of gross exaggerations, shreds of fact plucked out of context, and 'secret' data that cannot be examined by anyone but them. The result is a mishmash that bears little resemblance to actual research."
Tillinghast, or TTP, argues that the country is in the midst of a tort litigation crisis that costs the economy nearly a quarter of a trillion dollars a year, but the EPI authors counter that TTP's argument is not supported by the available evidence and is, in fact, often contradicted by it.
For example, the EPI analysts claim:
Tort lawsuits have actually fallen significantly, despite continuing population growth.
According to the National Center for State Courts, there was a four percent drop in cases from 1993 to 2002 in the 35 states that include 77 percent of the population. Rising insurance premiums are not a result of increased tort litigation. Rather they are caused by a combination of economic factors: the collapse of the stock market; record low long-term interest rates; the recession and rising medical costs. Indeed, premiums are now declining because these economic factors have shifted in the past year or two.
Most of the $246 billion price-tag that TTP puts on the tort system is made up of components that have little or nothing to do with the legal system or are indefensible guesswork, according to the EPI analysts. For example, they say that about half of the total is made up of legitimate payments by a wrongdoer of the victim's costs, such as medical bills, which have little or no economic impact. It also includes billions of dollars in insurance industry costs, such as insurance company administrative and overhead expenses, which add up to almost 22 percent of the total.
Much of the total cost TTP alleges is unverifiable, because it is based on data and methodology that it insists on keeping secret.
Experts who doubt the company's claims, including former Texas Insurance Commissioner Robert Hunter, have criticized TTP's estimates as being at least twice as high as honest estimates would be because so much of the TTP total is made up of items "not even vaguely related to the legal system."
EPI says that even TTP acknowledges that many of the "costs" it adds in are guesswork - not actual payments to plaintiffs, lawyers, and others, but "incurred costs" that include estimates of claims not yet reported or filed.
The chief economist at Economy.com, Mark Zandi, in a simulation he ran using the Economy.com macroeconomic model, found that, using TTP's own numbers, changes to the legal system that were effective enough to reduce the costs they ascribe to the tort system by 10 percent would lower, not raise, employment.
"TTP has succeeded in alarming the public and the media by making a manageable situation seem like a crisis," said Eisenbrey. "Their numbers to not stand up to analysis and neither do the promises about the economy that the administration has based on them."
The co-author of the EPI study, Dr. Lawrence Chimerine, is president of Radnor International Consulting Inc. and former chairman, chief executive, and chief economist of Chase Econometrics and the WEFA Group.
Ross Eisenbrey, the other author, is vice president and policy director of the Economic Policy Institute.
The Economic Policy Institute is an independent, nonprofit, nonpartisan research institute - or "think tank" - based in Washington, D.C.
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Hard facts, data just don't support tort reform
by Gordon W. (Skip) Netzorg
Kevin Somerville, the author of the article above this one, has bought into the rhetoric of "tort reform" advocates who blame the legal system for everything from economic decline to skyrocketing insurance premium costs.
With A.M. Best reporting record-setting profits for insurers in 2004, Somerville's misplaced focus creates a blurred view of reality.
Somerville offers no facts to substantiate his claims and no solutions to the real problems facing small businesses today. In fact, his assertions are contradicted by reliable research and by the small-business community itself.
Let's let the facts speak for themselves:
- Nationwide, the number of civil trials dropped by 47 percent between 1992 and 2001. The number of tort (personal injury) cases decreased by 31.8 percent during the same period. ("Civil Trial Cases and Verdicts in Large Counties, 2001," Bureau of Justice Statistics, U.S. Department of Justice, 2004)
- Tort (personal injury) filings by individuals are steadily decreasing while contract cases are greatly increasing. Tort filings have declined 5 percent since 1993. Contract filings, which are more likely to involve businesses than tort cases, rose by 21 percent over the same period. ("Examining the Work of State Courts, 2003," National Center for State Courts, 2004)
- Businesses are suing each other at a record pace, and are responsible for far more litigation in this country than personal injury suits. Business cases account for 47 percent of all punitive damage awards (to punish for near criminal behavior). In contrast, only 4.4 percent and 2 percent of punitive damage awards are due to product liability and medical malpractice cases, respectively. (Rand Institute for Civil Justice, 1996)
- Businesses comprise a substantial percentage (44 percent) of all contract plaintiffs. ("Civil Trial Cases and Verdicts in Large Counties, 2001," Bureau of Justice Statistics, U.S. Department of Justice, 2004)
- Colorado court dockets are crowded with contract, not personal injury, litigation. (See chart)
- The typical injured person "does not even consider the notion of seeking compensation from some other person or entity." Only 10 percent ever file a claim, which includes informal demands and insurance claims. Only 2 percent file a lawsuit. "... these statistics are at odds with any notion that we live in an overly litigious society." (Rand Institute for Civil Justice, 1996)>
And what are the concerns of small businesses in America today?
The May 12 issue of Business Week magazine highlighted them with its headline story on small-business concerns, which stated, "A new survey points to the future of Social Security as a major concern. Tort reform, on the other hand, elicits only yawns."
It continues "...One of the survey's more surprising results revealed that tort reform is not a major priority ... While reform proponents in Washington frequently cite the impact of lawsuits on small businesses, and big business lobbies have made their own push, 67 percent of those surveyed said they do not believe, or were not sure, whether tort reform would benefit companies of their size. 'Small-business owners don't have a very active interest in legal issues, apparently.'"
Small businesses are being price-gouged by the profiteering insurance industry. Major insurance companies themselves have admitted that "tort reform" will not lower insurance premiums. (GE Medical Protective, Oct. 30, 2003)
The civil justice system serves crucial functions that, if weakened in any significant respect, would devastate our country. Our legal system and citizen juries decide who should be accountable. They protect us all from injury and disease, whether or not we ever go to court.
Those who file frivolous suits should be sanctioned as Colorado law presently directs. Those who file meritorious claims should receive justice; otherwise, too often their losses will be borne by taxpayers through higher Medicaid and welfare costs.
Our legal system ensures that citizens and small businesses get a fair shake—even against the wealthiest and most powerful corporations.
Gordon W. (Skip) Netzorg is an attorney and president of the Colorado Trial Lawyers' Association. Reach him at gnetzorg@nmkb.com.