Tough Economy Raises Outlook For Tort Reform
www.businessinsurance.com Mark A. Hofmann July 4 & 11, 2011
Supporters cite legislative success in Texas, other states
WASHINGTON—Promoting tort reform as a means to foster economic growth may be a winning strategy to win passage of such measures, tort reform advocates say.
They point to Texas, where Gov. Rick Perry—a possible Republican presidential contender—signed a comprehensive tort reform measure aimed at reducing “frivolous” lawsuits. Among other things, the law includes a modified “loser pays” provision in cases where certain settlement offers are rejected (see box).“This important legislation will help make Texas that much more attractive to employers seeking to expand or relocate from countries all over the world by allowing them to spend less time in court and more time creating jobs,” Gov. Perry said Memorial Day as he signed the bill into law.
Texas has some company in advancing tort reform during recent legislative sessions, but there also have been roadblocks and efforts to promote tort reform on the national level have yet to advance, experts say.
The reforms enacted by Texas are perhaps the most significant state actions, according to reform advocates. “The reforms are important in a number of ways,” said a spokeswoman for Houston-based lobbying group Texans for Lawsuit Reform.
“We believe that this is the most significant tort reform legislation to pass in Texas since the asbestos litigation reforms in 2005 and the medical liability reforms in 2003,” the spokeswoman said. “This bill was bitterly opposed by the Texas Trial Lawyers Assn. until the last minutes of deliberation in the Senate.”
A national tort reform leader agreed.
“We were thrilled to see Texas advance reform,” said Lisa Rickard, president of the Washington-based U.S. Chamber Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce. “They’ve been moving down that path for years.”
“The entire country is focused on the subject of job creation and jobs,” said Ms. Rickard. The issue of litigation is a drag regardless of the size of business. “The issue that America needs more jobs, not more lawsuits, has been our mantra—it’s true and it certainly resonates with people,” she said.
Sherman Joyce, president of the American Tort Reform Assn. in Washington, said he does not “think there’s any question that Gov. Perry feels” that tort reform will spur economic growth. “I think the record in Texas is pretty conclusive.”
“A lot of Gov. Perry’s fellow governors are beginning to pick up that mantle,” said Mr. Joyce, who cited Wisconsin’s Scott Walker as a governor who has “really embraced reform as part of an economic package.”
A consumer advocate sees the Texas reforms very differently.
“This is not about frivolous lawsuits; it’s about blocking legitimate lawsuits. So if you or your child is injured as a result of corporate wrongdoing and even if you have a strong case, you probably won’t ever bring that case because of the economic devastation you might face if you lose,” said Joanne Doroshow, executive director of the Center for Justice & Democracy in New York. “All this is doing is immunizing bad corporate behavior in Texas.”
Ms. Doroshow dismissed the argument that such changes are necessary for economic growth. “In order to make that argument, you have to accept the notion that the system is full of frivolous lawsuits, and it’s not. There’s absolutely no evidence of that.”
But while Texas received considerable attention for its reform, it was not the only state to enact changes to its civil justice system.
In fact, 2011 “by contrast to recent years, has been a very successful year for us,” said ATRA’s Mr. Joyce, citing Alabama, Arizona, Oklahoma, South Carolina, Tennessee and Wisconsin.
For example, according to an analysis prepared by ATRA, Oklahoma enacted laws that tightened rules for class actions and capped noneconomic damages under some circumstances, among other things.
And last week, Pennsylvania Gov. Tom Corbett signed a bill that limits the financial responsibility of defendants in multidefendant civil suits generally to only each defendant’s share of a judgment.
ILR’s Ms. Rickard called state activity a “very proactive trend” that acknowledges “the benefits that legal reform” can bring.
But Mr. Joyce noted that there were disappointments as well, such as in Montana where three tort reform measures dealing with prejudgment interest, appeal bonds and the use of outside counsel by the state attorney general were vetoed.
Looking ahead, Ms. Rickard and Mr. Joyce cited efforts to allow the lawsuit-lending industry to expand as a serious emerging issue. Lawsuit lenders advance money to plaintiffs in return for a portion of any settlement. If there is no award, the unsuccessful plaintiff can be charged a “lending fee” that resembles interest.
“We’re very pleased that we’ve already achieved a very high level of positive activity in the state legislatures,” said Mr. Joyce. “The litigation finance question is probably the most significant new issue out there.”
Ms. Rickard said “this practice will do nothing but drive up settlement amounts.”
“Introducing a third actor into a two-part play changes all of the dynamics,” said Mr. Joyce.
One place where the dynamics usually work against tort reform is Capitol Hill. Ms. Rickard said she was “hopeful” that the most recent version of the Lawsuit Abuse Reduction Act would get through the House of Representatives and was glad to see that medical liability reform was being considered by that body as well.
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