AAMGA Releases Pacific Research Institute Study on True Cost of America’s Justice System

Apr 2, 2007

The American Association of Managing General Agents (AAMGA), in conjunction with the American Justice Parternship, has released a recent Pacific Research Institute (PRI) study on the true cost of the American justice system, entitled “Jackpot Justice.”

Below is a copy of AAMGA’s overview on the report, accompanied by a link the PRI report.

If you have any questions or comments, please do not hesitate to contact this office.


New Tort Reform Study Released

The AAMGA is a member of the American Justice Partnership, which in conjunction with other national and state groups and organizations, works to advance fairness in the judicial system and tort reform. One of the other members of the entity is the Pacific Research Institute, which this week released a report on the cost of our justice system and a quantification of the practices of some members of the plaintiff’s bar. A copy of the Report can be viewed by clicking on this link: Pacific Research Study Report.

In summary, the report details how excess litigation in the U.S. hurts our national competitiveness and lowers American standards of living, and finds that with a staggering price tag of over 865 billion�dollars�per year, America’s tort system significantly impacts the cost of liability insurance, increases the cost of goods and services, lowers our standard of living, and makes it harder for U.S. companies to compete in the global marketplace.

Unlike previous studies, Jackpot Justice calculates both the direct and indirect costs of America’s legal system. These include not just the direct cost of annual damage awards, plaintiffs’ attorney fees, defense costs and administrative expenses from torts but also the indirect cost of the legal system’s impact on research and development spending, the cost of defensive medicine, the related rise in health care spending and reduced access to health care, and the loss of output resulting from deaths due to excess liability.

The PRI study calculated that the nation’s tort system imposes a yearly “tort tax” of 9,827 dollars for a family of four. Additionally it found that the U.S. spent 2.2 percent of its gross domestic product (GDP) on direct tort costs. Advanced economies around the world spend an average of 0.9 percent of GDP on direct tort costs. This means that the U.S. spends 1.3 percent of its annual GDP on excessive tort costs. So, compared to our economic competitors, 59 percent of direct tort costs, or 589 billion dollars�per year of social tort costs, is wasted on excessive tort costs.

Among the report’s critical findings:

Burden on the U.S. Economy

� The 865 billion�dollar�annual cost of America’s tort system is equivalent to the total yearly sales of the entire U.S. restaurant industry.

� Every day, the American economy takes a 2.4 billion dollar hit to sustain our out-of-control legal system.

Lost Jobs and Lost Retirement Savings

� More than 51,000 U.S. jobs have been lost due to asbestos-related bankruptcies alone. Employees at these bankrupted companies have lost 559 million dollars in pension benefits.

114,000 Needless Deaths; Increased Cost of Health Care

� An overly expensive liability system increases the cost of many risk-reducing products and services and health care services, making them less accessible, and in some cases unavailable to consumers. PRI estimates that more than 114,000 people would be alive and working today, but are not due to inefficiencies in the tort system over the last two decades.

� The practice of “defensive medicine” by litigation-fearing physicians increases American health care costs by 124 billion dollars per year and adds 3.4 million Americans to the rolls of the uninsured.

Suppresses Innovation

� American companies suffer over 367 billion dollars per year in lost product sales because spending on litigation curtails investment in research and development.

Loss of Shareholder Wealth

� Lawsuits against American corporations generate an annual loss of 684 billion dollars�in shareholder value. The authors point out that 50 percent of all U.S. shareholders are ordinary individuals.

Decline in U.S. Competitiveness

� U.S. tort costs far outstrip our economic competitors. According to another study cited by PRI, the U.S. spent 2.2 percent of its GDP on tort costs, compared to 0.7 percent for the United Kingdom, 0.8 percent for Japan, and 1.1 percent for Germany. Assuming that U.S. costs should be in line with our rivals, the authors project that America wastes 589 dollars billion per year on excessive social tort costs, equivalent to the total annual output of the state of Illinois.