Report says tort reform savings can stimulate economy

By Michael P. Tremoglie | Nov 1, 2011

By improving its legal environment, Pennsylvania could create between 33,000 and 90,000 new jobs, according to a report by the U.S. Chamber of Commerce Institute for Legal Reform (ILR).

The new jobs would come about by saving up to $1.4 billion in expenses that businesses now pay in tort costs, the report says.

“In today's tough economic climate, Pennsylvanians are looking for ways to create more jobs while dealing with tight budgets,” said Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform. “This new report shows that improving Pennsylvania's legal environment can deliver significant economic benefits.”

The Pennsylvania Record is owned by the ILR.

The report, Creating Conditions for Economic Growth: The Role of the Legal Environment, was conducted by NERA Economic Consulting for ILR. Using a first-of-its-kind econometric model, the report establishes a legal environment benchmark to identify excessive tort costs. It was authored by Paul Hinton and David McKnight.

“The correlation between tort cost and job creation (is that) the cost of the tort system is the equivalent of a tax. You can expect a decrease in tort costs like a decrease in taxes,” said McKnight. “Many of the torts are product liability lawsuits, employment disputes, and employer negligence.”

By merely improving its legal environment to the level of the report’s benchmark, Pennsylvania could reduce tort costs by 14.3% ($1.4 billion) and potentially increase employment by between .57% and 1.53%, which translates to 33,000-90,000 new jobs.

A variety of factors were used in the study to determine a state's legal environment. One was the perceived fairness of the legal system.

Harris Interactive was the source for the fairness and reasonableness of the state’s liability climate.

“It is a survey of about 10 or 12 different questions,” said McKnight. “It is purely a perception survey.”

Other factors included the concentration of lawyers in the state, the number of tort cases filed per year, and the number of major verdicts in the state.

New Jersey is another state that could reap windfalls in increased business activity if it were to implement some tort reform, the report says.

According to the study, reducing tort activity in New Jersey would reduce litigation spending up to $1.7 billion. This would create between 35,000 and 94,000 jobs, it says.

The report used data on liability insurance and losses reported by Towers Watson in its annual U.S. torts cost report to look at activity and litigation spending in each state.

“Our members are concerned about a number of things, number one being the number of out-of-state plaintiffs,” Marcus Rayner, executive director of the New Jersey Legal Reform Association, was quoted as saying. “Currently in New Jersey, 93 percent of the plaintiffs suing our pharmaceutical companies, for example, in mass tort suits are from out of state.”

Illinois also could reduce tort costs by 23.3% ($2.4 billion) by improving its legal environment to the level of the report’s benchmark. This would potentially increase employment by between .92% and 2.50% - essentially adding 54,000-147,000 new jobs by addressing reforms in the way torts are handled there the state, the report states.

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