Facts or Fiction You Be The Judge:
ATRA v. ABA

Below are some frequently asked questions about tort litigation, product liability, punitive damages and medical liability.

This discussion is an excerpt from "Fact or Fiction: You Be the Judge," a paper published by the American Tort Reform Association (ATRA) in response to a document released by the American Bar Association (ABA). The ABA's answers below are quotations from their document entitled, "Facts about the American Civil Justice System." For a copy of the full report call ATRA at 202-682-1163.

FREQUENTLY ASKED QUESTION: Are state courts being overrun by personal injury (tort) cases?

ABA's Answer: No. Personal injury cases are part of the tort law caseload. Tort cases, excluding small claims matters, account for less than 2 percent of the total caseload (civil and criminal) in state courts. 1994 state court records show that 78 percent of all cases consist of traffic (and other ordinance violation), criminal, and juvenile cases. Personal injury cases account for 6.2 percent of the civil cases filed in the state courts. In fact, there are four times as many domestic disputes filed in state courts as personal injury tort claims.

ATRA's Response: There is no dispute that the U.S. judicial system is called upon to process an extraordinarily large volume of cases each year. While it is valuable to examine the entire civil caseload in policy analysis, the specific question focuses on the area of tort law. Significantly, the percentage of tort cases relative to the total number of state civil lawsuit filings has doubled from merely ten years ago. Is it a tenable argument that the appropriateness of the tort caseload should be dismissed until personal injury (tort) cases become 10%, 25%, or even 50% of the total civil caseload? Nonsense. Moreover, in assessing the burden that different types of cases impose on the civil justice system, one must recall that complex commercial litigation or a product liability case will demand far more time and resources from a court than a traffic case or routine divorces.

The real question is: do state courts handle personal injury (tort) cases in such a way as to fairly and effectively compensate injuries and deter wrongdoing in a timely manner?

In 1994, an estimated 815,225 new tort cases were filed. Most cases take between two to four years to resolve. In fact, more than half of the tort cases going to jury trial exceed the American Bar Association's disposition time standard which recommends that ALL civil cases be disposed of within two years. One in ten of the tort jury trial cases takes more than five years to reach a verdict. Too many cases take too much time in the state courts. The goal of the civil justice system is to provide timely compensation for injuries and deter wrongdoing. The current system is not performing those functions fairly or efficiently, and does not serve the interests of deserving claimants or defendants. The system can and must be improved.

FREQUENTLY ASKED QUESTION: What is causing the overload in our state and federal courts?

ABA's Answer: There has been a dramatic increase in criminal, domestic relations, and juvenile caseloads. since 1984, criminal filings have increased 35 percent in state courts and 28 percent in the federal courts. Between 1984 and 1994, juvenile caseloads in the states rose 59 percent and domestic relations caseloads in the states rose 65 percent. Our justice system needs more resources to 'keep up' with this increased demand. As a nation we commit less than one percent of our total annual combined federal, state and local government spending to judicial and legal services.

ATRA's Response The opposition puts the blame on the taxpayer. The increase in tort litigation is ignored and the taxpayers are asked to pay for more courtrooms and more judges. Instead of calling for innovative alternatives to litigation, balanced liability rules and taking steps to combat frivolous litigation, some ask the taxpayers to spend more money on judicial and legal services. Americans are already paying too much for an unfair litigation system. The RAND Institute for Civil Justice studied transaction costs and determined that about 43 cents on the dollar goes to the plaintiff. The other 57 cents goes to transaction costs, which include attorney fees paid by the plaintiff and the defendant and court filing costs.¹ Before calling on Americans to pay more to support a civil justice system that is already very expensive, the ABA should work to promote greater efficiency and balance in our legal system.

The overload on the court system is just a symptom of the true problem. We must seek balanced and fair rules and innovative and less time-consuming alternatives to litigation so that there is a level playing field for all parties to litigation.

FREQUENTLY ASKED QUESTION: Does litigation put America at a competitive disadvantage internationally?

ABA's Answer: No. The federal government's definitive study of competitiveness by the nonpartisan Congressional Office of Technology Assessment (OTA) found the critical factors hurting the U.S. in world markets to be capital costs, the quality of human resources, and lack of technology transfer and diffusion in small and medium sized companies, not the tort liability system. See Making Things Better: Competing in Manufacturing, Office of Technology Assessment, Pub. No. OTA-ITE-443, (1990).

One area where it has been claimed that American innovation and competitiveness is hurt by product liability is medical research and development. However, while as a nation the United States has an annual foreign trade deficit, the American health care products industry had a 1990 trade surplus of $3.2 billion, including a surplus with Japan of $115 million; and the total surplus was expected to grow annually at 70 percent.

And finally, a new international survey the 600-page World Competitiveness Yearbook published annually by the Switzerland-based International Institute for Management Development, which measures and compares the competitiveness of 46 countries found that the United States leads the world in competitiveness. The private research group looks at 230 criteria covering economic strength, technology, financial services, trade, government policies, management, infrastructure and educational skills. The U.S. ranked first in economic strength, new technology and financial services, and second in international trade. Similar in results to the OTA study, the Swiss study found the country's main weakness to be in people skill so education and training.

ATRA's Response While all Americans can take great pride in the fact that the United States is the world's leading economic superpower, it is interesting to note that the ABA cited a single study which failed to list litigation as a burden on competitiveness. A 1990 Congressional Office of Technology Assessment (OTA) study did not include litigation as a factor that hurts the United States competitively. See Making Things Better: Competing in Manufacturing, Office of Technology Assessment, Pub. No. OTA-ITE-443 (1990).

The ABA failed to point out, however, that more recent studies have highlighted the U.S. liability system as a competitiveness problem. For example, a study by the Japanese Government indicated that product liability problems are significant in the United States. See First Annual Report of the U.S.-Japan Working Group on the Structural Impediments Initiative (May 22, 1991). Another study done from the Harvard Business School found that innovation is the mainspring of competitiveness in global markets and that, in the U.S., "product liability is so extreme and uncertain as to retard innovation." See Professor Michael E. Porter, The Competitive Advantage of Nations (1990). A Conference Board survey found that 47 percent of U.S. companies have withdrawn products from the marketplace and 39 percent have decided not to introduce new product lines, because of product liability concerns. See The Conference Board, Inc., Product Liability: The Corporate Response (1987). Scores of business persons have testified before Congress and state legislatures that the U.S. civil justice system poses a competitiveness problem. On balance, it is clear that litigation puts America at a competitive disadvantage internationally.

FREQUENTLY ASKED QUESTION: Does the cost of product liability personal injury claims render American products non-competitive on the world market?

ABA's Answer: According to estimates from the Rand Institute for Civil Justice, the direct cost of product liability to American business represents less than one percent of added costs for most manufacturing firms, even in reputed 'high exposure' sectors. The total liability risk cost for American manufacturers constitutes less than one percent of sales revenue. See Peter Reuter, The Economic Consequences of Expanded Corporate Liability: An Exploratory Study, (RAND Institute for Civil Justice, November, 1988).

ATRA's Response Although a RAND Institute for Civil Justice study found that the direct costs of product liability to American business represent less than 1 percent for most manufacturing firms, this was a blend of products from pharmaceuticals to paper cups. See Peter Reuter, The Economic Consequences of Expanded Corporate Liability: An Exploratory Study (RAND Institute for Civil Justice, November, 1988). Product liability costs represent approximately 20 percent of the price of a ladder and 50 percent of a football helmet; for other products, it may be less than 1 percent, but margins of profit in business often are made or lost within that level. A Brookings Institution Symposium exploring the impact of U.S. liability laws on product safety and innovation found that the U.S. liability system is extreme and unique among industrialized nations, and inflicts costly burdens on American producers and consumers. For example, ten years ago the product liability system added costs of $70,000 to $100,000 [per light airplane] built and shipped² ; while the cost of U.S. automobiles increases by "hundreds of dollars per car sold." See Peter W. Huber and Robert E. Litan, The Liability Maze: The Impact of Liability on Safety and Innovation (Brookings Institution 1990) 18-19.

FREQUENTLY ASKED QUESTION: Are foreign manufacturers benefited in selling to American consumers by the fact that American manufacturers are subject to U.S. laws regarding product liability?

ABA's Answer: No. Foreign manufacturers who sell goods in the United States, such as Japanese automobile manufacturers, are subject to the same liability laws as are American manufacturers. Mercedes and Toyota are currently building manufacturing plants in the United States.

ATRA's Response Yes, foreign manufacturers have an advantage. Most American-made products are sold in the United States; some are exported. For that reason, the cost of products made in the U.S. must factor in the United States system of litigation, which is considerably more expensive than systems in other parts of the world. Foreign manufacturers are subject to U.S. product liability laws for products sold in the U.S., but since they sell most of their products abroad, their product liability costs per unit are less than those of U.S. manufacturers. Furthermore, foreign manufacturers often do not have very old products, i.e., 20-50 years old, in the U.S., so their product liability costs do not have to encompass what insurers call the "long tail" of liability. This gives foreign companies a competitive edge in the U.S. market.

Moreover, enforcing a judgement against a foreign manufacturer overseas can be quite difficult. According to congressional testimony by Professor Aaron Twerski, foreign countries are unwilling to enter into treaties to enforce American judgements overseas because of
"contempt for our unregulated judgements." S. Rep. No. 103-203, 103rd cong., 1st Sess. 13 (1993). American businesses are the clear loser here.

FREQUENTLY ASKED QUESTION: Are punitive damage awards common in product liability cases?

ABA's Answer: No, in the 25 years between 1965 and 1990, just 355 punitive damage awards were made in product liability cases. Excluding the asbestos cases, which made up some 25 percent of the total, there were on average only 11 such awards made each year. See Michael Rustad, Roscoe Pound Foundation, Demystifying Punitive Damages in Products Liability Cases: a Survey of a Quarter Century of Trial Verdicts, 23 (Lee Hays Romano, ed.) (1991).

A recently released RAND study of jury verdicts between 1985 and 1994 in 15 state court jurisdictions found that punitive damages are 'rarely awarded.' Most punitive damages were awarded in intentional tort and business cases. These cases account for more than 80% of all punitive damage awards. In contrast, product liability lawsuits accounted for only five percent of all punitive damage awards in the study. See Trends in Jury Verdicts since 1985, Erik Moller (RAND Institute for Civil Justice, 1996).

ATRA's Response The ABA overlooked a very important statement by Professor Rustad regarding the data in his study. He said in his report: "The actual number of punitive damage awards in products liability litigation is unknown and, possibly, unknowable because no comprehensive [reporting] system exists."

The United States Supreme Court has said that punitive damages have "run wild" in this country. Pacific Mutual Life Insurance Co. v. Haslip, 499 U.S. 1, 18 (1991). Furthermore, the Court has indicated that the issue is not how many times punitive damages are awarded, but whether the award satisfies basic requirements of due process. As Justice Kennedy has observed:

When a punitive damages award reflects bias, passion, or prejudice on the part of the jury, rather than a rational concern for deterrence and retribution, the Constitution has been violated, no matter what the absolute or relative size of the award.

TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443, 467 (1993) (Kennedy, J., concurring).

Punitive damages are asked for in almost all product liability actions. They are used as a powerful lever for large settlements. While plaintiffs' lawyers have argued punitive damages are "not a problem," defense lawyers contend that they cause an unfair "Russian roulette" in obtaining higher settlements. For that reason, the effect of punitive damages on settlements, innovation, and the availability of goods and services cannot be measured simply by the number of awards that may have been rendered, even if we did know the actual number of punitive damage awards.

Additional Questions on Punitive Damages

We have taken the liberty of including additional information about punitive damage awards, because of rapid changes in the law, and to demonstrate that this issue is relevant with respect to all civil litigation and not just product liability.

Question: In what kinds of cases are punitive damages awarded?

Response: Punitive damages are awarded in a wide variety of cases. A 1995 U.S. Department of Justice survey of civil jury cases and verdicts in the Nation's 75 largest counties found that 46 percent of the awards and 63 percent of the dollars involved contract cases with no physical injury. Bureau of Justice Statistics Special Report, Civil Justice Survey of State Courts, 1992 (July 1995), p.8. A survey by the American Bar Foundation of punitive damage jury verdicts in 22 jurisdictions in 1988- 90 found that "most punitive damage awards occur in cases involving either physical or financial harm." However, contrary to popular opinion, "[h]igher punitive damage rates are found in financial harm cases [than in claims of physical harm] . . . ." Overall, the survey found that in 11 of the 22 jurisdictions, 50 percent or more of the punitive damage awards were made in cases involving financial harm. In another seven jurisdictions, 50 percent or more of the punitive damage awards came in cases involving either financial harm or property damage claims. Daniels, Stephen, Testimony Before the Committee on Commerce, Science, and Transportation, United States Senate, April 4, 1995, pp. 18-20.

Question: How frequently are punitive damages awarded in civil cases?

Response: Recent studies show that punitive damages are awarded on average in 6 to 8 percent of successful plaintiff civil jury cases, with a wide variation in the percentage based on the nature of the cause of action. See, e.g., Bureau of Justice Statistics Special Report, Civil Justice Survey of State Courts, 1992 (July 1995), p. 8; Daniels, Stephen, Testimony Before the Committee on Commerce, Science, and Transportation, United States Senate, April 4, 1995, p. 16.

Question: How frequently do people file claims for punitive damages?

Response: Recent studies have shown dramatic increases in claims filed in the jurisdictions examined. In Harris County, Texas, between 1981-86 and 1987-92, the average number of claims seeking punitive damages rose from 20.8 percent to 30.4 percent. In Dallas County, Texas, the number rose from 33.3 percent to 43.2 percent. Launie, J.J. et al, The Economic Impact of Punitive Damages in Texas: Carpet-Bombing the State's Prosperity, Texas Public Policy Foundation (1994), p. 16. In Bullock, Lowndes and Barbour counties, three rural jurisdictions in Alabama, during the 1993-94 fiscal year, the proportion of tort cases including a claim for punitive damages was 95.6, 78.8 and 72.1 percent, respectively. Priest, George L., Testimony Before the Committee on the Judiciary, United States Senate, April 4, 1995, p. 4.

Question: How have the number and size of punitive damage verdicts by juries changed over the years?

Response: The Washington Legal Foundation conducted a study of punitive damage awards against businesses affirmed on appeal for the States of California, Texas, New York, Illinois and Florida, states which contain approximately 36 percent of the U.S. population. It found that in 1968-71, there were 91 such punitive damage verdicts (involving cases that were thereafter affirmed on appeal) totaling $6,994,000. Twenty years later, in 1988-91, there were 433 punitive damages cases with verdicts totaling $790,247,000. These figures do not include cases where a jury verdict was not appealed or where the case was settled before the appeal process was completed. Turner, Stephen M., et al., Punitive Damages Explosion: Fact or Fiction?, Washington Legal Foundation (1992), Attachment B. In Alabama, from January 1989 through July 19, 1996, there were 234 trial court punitive damage verdicts in non-wrongful death cases in excess of $100,000. The total amount awarded was $776,016,900. The total amount of punitive damage verdicts and their averages in 1989 and 1990 was insubstantial compared to amounts awarded in 1994, 1995 and 1996. Affidavit of George L. Priest filed in Scott v. New York Life Insurance Company Case No. CV 95-2269 (Circuit Court of Jefferson County, Alabama), pp. 16, 19-20. A RAND Institute for Civil Justice analysis of punitive damage awards in 15 states concluded: "By all measures, punitive damage award amounts increased dramatically between 1985-1989 and 1990-1994." Erik Moller, Trends in Civil Jury Verdicts since 1985, RAND Institute for Civil Justice (1996), p. 40.

FREQUENTLY ASKED QUESTION: Do medical malpractice suits add a lot to the cost of health care?

ABA's Answer: No. The direct total cost of the malpractice system is less than one percent of total health care expenditures. A September 1993 study by the Office of Technology Assessment (OTA) estimated that malpractice premiums, together with the insurance costs of self-insured hospitals, account for less than one percent of total health care spending. See U.S. CongreskonquerorgRrnrc.htmls, Office of Technology Assessment, Impact of Legal Reforms on Medical Malpractice Costs, (September 1993 at p. 5). These premiums compensate persons injured by malpractice and cover all legal expenses.

ATRA's Response: The ABA answers that question "no," based on a single study completed by the OTA in 1993 that estimated the direct cost of malpractice premiums at approximately one percent of total health care expenditures. First, it should be up to the reader of the report to decide whether one percent of total health care expenditures--$9 billion a year--is "a lot" or not. Second, as the OTA itself acknowledged in their study, and as many other studies by a variety of other authors such as the General Accounting Office and two Stanford University Professors point out, the OTA estimate is incomplete because it includes only money spent for malpractice insurance premiums by doctors and hospitals (including the money spent by self-insured hospitals to self-insure). The GAO study notes that the OTA estimate "represent(s) only a portion of all hospital and physician medical liability costs, generally those associated with malpractice insurance premiums," and that estimates of malpractice premiums--taken by themselves--understate the total effect of medical liability costs on national health care expenditures." Medical Liability: Impact on Hospital and Physician Costs Extends Beyond Insurance, GAO/AIMD-95-169 (September 1995).

A complete picture of the costs must include not only the cost of malpractice insurance for doctors and hospitals, but also the liability insurance costs paid by non-physician/non-hospital providers, medical product producers, blood banks, the biotechnology sector, managed care and any other member of the medical community. These costs -- ignored by the ABA -- may well eclipse the liability exposure of doctors and hospitals, given the escalating frequency and magnitude of claims against these sectors.

Another major component of cost that must be added to the calculus is the cost of defensive medicine. The OTA methodology failed to generate an estimate for this factor, but other studies have. Most recently, a study out of Stanford University based on a large Medicare database estimated the cost of defensive medicine to be approximately $50 billion annually. Daniel Kessler, J. D. Ph.D., and Mark McClellan, M.D., Do Doctors Practice Defensive Medicine?, Quarterly Journal of Economics (May 1996). In addition, the ABA estimate fails to include liability-related administrative costs or the cost of punitive damages, which typically are not covered by insurance and are paid directly by the health care provider.

FREQUENTLY ASKED QUESTION: What is pushing health care costs up?

ABA's Answer: An October 1992 study by the Congressional Budget Office concluded that health care spending is propelled upward by high-cost technological and medical breakthroughs, not by medical malpractice suits, and that malpractice insurance premiums account for less than one penny of each dollar spent annually on the nation's health care. See Congressional Budget Office, Economic Implications of Rising Health Care Costs (October 1992) p. 27.

ATRA's Response: The single sentence which aims to say "not medical liability" demeans any true attempt to address such a complex issue. The sentence dismissed any role attributed to medical liability and insurance costs. Similarly, questions about "defensive" medicine and its costs are dismissed.

The ABA's answer to this question relies on an outdated Congressional Budget Office (CBO) opinion, and clearly is calculated to mislead. Professional liability costs are but one component in the aggregate of provider expenses built into the cost of health care, and it is true they often are not the largest component. However, stabilizing liability expenses must be an integral part of the overall effort to contain the escalation of health care costs.

When professional liability costs are limited by reasonable ceilings on noneconomic damages or other tort reforms, their contribution to the upward pressure on health care spending is eliminated. Often such tort reform is a highly significant part of the solution in stabilizing patient costs overall, but sometimes professional liability decreases are outweighed by escalating
technology costs or other factors. In either case, there is no question that costs would have been higher overall if the tort reform had not been done.

The ABA relies on a 1992 CBO opinion, but omits reference to the October 1995 CBO finding that federal health care liability reform would significantly reduce projected increases in the federal government's healthcare spending. The CBO scored $200 million in Medicare cuts due to physician's malpractice premium savings alone over the next seven years. This is a very conservative estimate because it does not take into account hospital experience or savings that would be realized by the federal government itself in malpractice cases where it is the defendant under the Federal Tort Claims Act.

A recent actuarial study of the national and international tort trends confirms that liability costs continue to apply upward pressure to the cost of healthcare. Analyzing costs from the period 1990-94, it found that medical liability costs had increased 48%, or roughly 10% a year -- well in excess of the rate of inflation, which averaged 3 to 4 percent over the same period. [Tort Cost Trends: An International Perspective, Tillinghast Towers Perrin, 1995.]

¹Hensler, Deborah et al.,"Trends in Tort Litigation, The Story Behind the Statistics," Rand Institute for Civil Justice (1987).(Return)

²We note that these data predate passage of the General Aviation Revitalization Act, 49 U.S.C.A. 40101 (West 1996). According to the General Aviation Manufactures Association, passage of this statute has led directly to the creation of at least 9,000 new jobs and truly "revitalized" the industry. (Return)