Overall Impact: The United States Economy

The cost of the U.S. tort system for 1994 was $152 billion. Over the past ten years, it has increased 125%.

Between 1930 and 1994 U.S. tort costs have grown almost four times faster than the rate of growth of the U.S. economy.

The U.S. tort system is the most expensive in the industrialized world. U.S. tort costs are 2.2% of Gross Domestic Product (GDP), substantially higher than that of other developed countries studied and two and a half times the average of those studied.

The U.S. tort system returns less than 50 cents on the dollar and less than 25 cents for actual economic loss to claimants.

Tillinghaust-Towers Perrin. Tort Costs Trends: An International Perspective, (New York, New York, 1995)

Productivity & Employment: Positive Changes To The Tort System

A recent study revealed that when states pass tort reform, productivity and employment increase. These increases range from 7 or 8% for productivity to 11 and 12% for employment. If a state enacted more than one reform, increases ranged from 10 to 20% for productivity and employment.

When states pass laws that increase liability such as comparative negligence or prejudgment interest, there is a significant decrease in productivity and employment.

Campbell, Thomas J. The Causes and Effects of Liability Reform: Some Empirical Evidence. National Bureau of Economic Research, Inc. Working Paper # 4989, 1995.

Before federal legislation was enacted, production of single-engine aircraft had fallen 95% from the previous highs of the late 1970's. Plants were forced to close and over 100,000 jobs were lost.

General Aviation Manufacturers Association. A Report to the President and Congress, The Results of the General Aviation Revitalization Act (1996).

In 1986 Cessna Aircraft Company discontinued production of the single engine aircraft. Prior to the passage of General Aviation Revitalization Act (GARA), the CEO of Cessna pledged that if Congress enacted product liability legislation to protect the general aviation industry, Cessna would resume manufacturing small aircraft. Since the passage of GARA, Cessna has invested $55 million in facilities and equipment. It currently employs 650 people and plans to double that number in 1998.

Prior to the passage of GARA, Unison Industries held back from introducing a state of the art digital ignition system which it had developed in 1986. With the passage of GARA, the safer digital ignition system is now available to pilots and their passengers.

The Committee on Commerce, Science, and Transportation. Product Liability Reform Act of 1997. Report 105-32 pg. 41. June 19, 1997.

According to the General Aviation Manufactures Association, since the passage of GARA, over 9,000 new jobs have been created. A total of 25,000 new jobs are predicted in the next five years.

Empirical Evidence in the States

Alabama: Economy Impacted

The business climate has been adversely impacted by punitive damage awards and settlements. Between 1980-1985 punitive damage awards increased 440 times the rate of job growth.

The state spends twice as much per capita, $395, on direct tort costs as it does for the State General Fund Expenditure (all state expenditures excluding education), $182.

According to the Corporation for Enterprise Development, compared to other states, Alabama ranks nearly at the bottom for business vitality.

Ward, Keith J. Associates. A study to address relationships between economic development and the need for tort reform. (March 15, 1993).

Illinois: Economic Improvement Due To Tort Reform

In 1995, the Illinois Legislature passed HB 20, the Civil Justice Reform Amendments. Since its enactment, the number of civil suits filed in the nine largest court jurisdictions has declined by 30%. This law saved $150 million for taxpayers.

Due to the passage of this bill, Cook County has experienced 63% reduction in product liability suits, a 39.6% reduction in medical malpractice suits and a 26.7% reduction in premises liability suits. The only category that did not reveal a less than 15% decline was suits involving motor vehicle injuries. In these particular cases, the decline was 13.5%.

Illinois Civil Justice League. 1995 Tort Reform is Saving Illinois Citizens Millions. News Release, March 27, 1997.

Important Note: On December 18, 1997 the Illinois Supreme Court declared the Civil Justice Reform Amendments of 1995 unconstitutional in Best v. Taylor Machine Works, Inc. This case exemplifies the alarming trend of state courts disregarding legislative enactments in the area of tort law. It remains ATRA's belief that creating state tort law and policy is a proper function for state legislatures. Moreover, this unwarranted decision does not diminish the positive economic impact noted above.

Massachusetts: A Case Study

According to a recent report, Massachusetts tort costs totaled $4.1 billion, or 2.6% of gross state product in 1992.

Massachusetts tort costs will rise to an estimated $5.1 billion in 1995. This amounts to a tort cost of $833 for every Massachusetts resident.

The Beacon Hill Institute at Suffolk University. The Economics of Civil Justice Reform in Massachusetts. May 1997

Annual Survey: 50 Legislative Climates

Site Selection, a resource tool used by businesses to assess states with viable business climates, views tort reform as a determining factor when businesses are deciding upon location. According to the 1995 edition, recently enacted legislation in Illinois, Texas, and North Dakota make these states attractive to businesses.

International Development Research Council. Site Selection: The Global Magazine of Business Strategy. October 1995.

Economic Impact on Product Manufacturers

Sunstar, a company that manufacturers health spas, invented a warning device that would set off an alarm anytime the cover of one of its products was opened. Because the product was a safety device, Sunstar could find only one insurance company that was willing to write a policy. The cost of the policy would have increased the company's annual premium from $10,000 to $100,000. Sunstar subsequently decided not to market the safety device.

A Letter to Representative Ron Packard, August 8, 1991

According to a spokesperson of a major manufacturer of protective sporting goods equipment, material suppliers are reluctant to sell to her company due to the fear of liability exposure. This company was able to develop a new baseball product but was unable to obtain a material supplier.

The Committee on Commerce, Science, and Transportation. Product Liability Reform Act of 1997. Report 105-32 pg. 7. June 19, 1997.

Research and Medical Products Kept off the Market

According to the Society for the Advancement of Women's Health Research, the number of companies that perform research on contraceptive devices has declined from 13 to 2, due to the fear of liability.

Liability concerns are keeping beneficial products such as Bendectin, the only anti-nausea medication ever approved by the FDA for use during pregnancy, off the market.

The Committee on Commerce, Science, and Transportation. Product Liability Reform Act of 1997. Report 105-32 pg. 7. June 19, 1997.

According to Science magazine, liability concerns led to at least two companies delaying research on an AIDS vaccine while another company abandoned a promising approach all together.

Science Magazine. "Is Liability Slowing AIDS Vaccines?" April 10,1992 pgs 168-69.

Biomaterial suppliers have become reluctant to provide their products to medical device manufacturers due to low returns and high risks. One supplier spent $8 million annually to defend itself in cases involving temporomandibular joint (TMJ) implants even though that supplier had no role in the design, manufacture or sale of the device. Sales by all suppliers of TMJ implant manufacturers totaled $418,000 while sales of this same raw material to all other markets totaled $282 million.

The Committee on Commerce, Science, and Transportation. Product Liability Reform Act of 1997. Report 105-32 pg. 13. June 19, 1997.