Tort 'reformers' have frivolous case, economists say.

When tort "reformers" make their case for restricting consumer rights, one of their most-used sources of information is Tillinghast-Towers Perrin (TTP), a global consulting firm that publishes a yearly report on the costs of the tort system to the U.S. economy. The most recent study, U.S. Tort Costs: 2004 Update, puts the figure at $246 billion. TTP's numbers are frequently quoted in advertisements and publications that attack trial lawyers, such as the "shark bait" ad produced by America's Health Insurance Plans.

But a new, independent study of the TTP report finds that the firm's analysis is "one-sided," "misleading," and generally resting on shaky ground. The briefing paper, The Frivolous Case for Tort Law Change, is written by economists Lawrence Chimerine and Ross Eisenbrey and published by the Washington, D.C.-based Economic Policy Institute (EPI), a nonpartisan think tank. Chimerine is the managing director and chief economist at the Economic Strategy Institute in Washington; Eisenbrey is vice president and policy director of EPI.

TTP acknowledges that there are benefits to the tort system, including deterrence and compensation for pain and suffering. But its numbers are not an accurate assessment of the system's costs, according to the EPI report.

"To arrive at numbers large enough ... to scare the public about the size of what it erroneously calls a tort crisis, TTP has to characterize the entire tort insurance system as a cost to the economy. By contrast, TTP's estimate of the actual litigation costs of the system (attorney fees for plaintiffs and defendants' legal defense costs) is less than a third of the total: $82 billion, or 0.7 percent of gross domestic product," the study's authors write.

Chimerine said he became interested in the economics of the tort system because the economy's actual performance was very different from what tort "reformers" had predicted.

"Ten years earlier, I would probably have agreed with them, that the tort system was bad for the economy," he said. "But the way the economy actually performed was completely at odds with what they were saying. We've had a literal explosion of productivity, record high profits, corporate cash flow is skyrocketing--and that's almost all businesses, including the insurance industry. All of this is in complete contradiction to the doom and gloom they were claiming."

The EPI study details several flaws in the TTP analysis:

* It treats the transfer payments of the tort system as costs. Transfer payments, the EPI authors note, "shift money from the injurers or their insurers to the injured. They are not costs to society or the economy."

* Its cost data cannot be verified. TTP says its data and methodology are "proprietary" and refuses to disclose them. Some critics argue that its estimates are "based chiefly on the premiums written by insurance companies and paid by their insureds," not actual costs.

* In its definition of "tort costs," TTP includes costs that are outside the civil justice system, such as the insurance industry's administrative expenses. The study notes that "these costs--$54 billion in 2003--are vastly above and beyond the actual costs of handling claims or the legal costs of defending them."

* TTP wrongly claims that all Americans are forced to pay a "tort tax" to support the civil justice system. The authors call this notion "indefensible" and conclude, "Even if the concept of a 'tort tax' were valid, TTP's calculation of the 'tax' is, in any case, totally erroneous. Even the Bush administration's Council of Economic Advisors, which relies heavily and mistakenly on TTP's flawed estimates, has not accepted it."

"This is yet another call for policymakers to acknowledge reality," ATLA President Todd Smith said in a statement. "The 'tort tax' is the phony invention of the insurance industry, and those that repeat this nonsense--including President Bush--have either been snookered by it, or they're just willing to use any argument ... to undermine the rights of American families."

Chimerine said he hoped that the study would inject some much-needed objective information into the debate.

"My hope is that some people in Congress who oppose tort 'reform' will use these findings to support their argument," he said. "As for the majority, we've learned that they don't care what the evidence is; they will do what they want to with no regard to whether it is good or bad for the country. We saw that with the tax cuts and we see it here with tort 'reform.'"

The EPI study also looks at often-stated claims that the tort system has had negative effects on research and development, health costs, employment, productivity, and small businesses. Strikingly, the authors found that there is no evidence of these effects and that, in fact, the opposite is true: The tort system has led to better research and development, and its effects on productivity and job growth have been neutral or even positive. They conceded one type of job loss from the tort system--those from asbestos-related bankruptcies.

"Gross measures of the effects of the tort system appear to indicate that its effects have been positive rather than negative," the authors conclude, citing, for instance, a drop in highway deaths to the lowest level ever recorded, greater product safety, and other benefits.

The EPI authors sum up by saying, "The economic case made by critics for changing the U.S. tort law system can only be called frivolous."

Chimerine put it more bluntly: "The tort 'reformers" arguments about the economy are a smokescreen for what they really want to do. They cloak tort 'reform' in the language of 'job creation,' but it is, quite simply, an ideology that is consistent with their philosophy that when it comes to corporations, anything goes."

The Frivolous Case for Tort Law Change is available at www.epi.org/ content.cfm/bp157.