Sunday, May 11, 2008

Tort Reform: The Mississippi Miracle

Tort reform has long been touted as a way to help reduce rising healthcare costs in the United States. Opponents belittle the effects of tort reform and claim that the right to bring almost unlimited lawsuits actually helps society by making products safer.

“Tort” is a legal term for a wrongful act that causes an injury to a person, their property, or their reputation. If a tort is committed, the injured person may be entitled to compensation. To obtain compensation, it is frequently necessary to file a lawsuit. The lawyers who represent plaintiffs in these lawsuits often work on a contingency basis, which means that they are paid a percentage of the money that the jury awards if they win the case.

Tort cases are a major source of income for personal injury lawyers. Consequently, the trial lawyers lobbying groups are major opponents of tort reform. Trial lawyers are second only to unions in providing contributions to the Democratic Party.

In 2004, the trial lawyers lost a major battle in Mississippi. Before 2004, Mississippi was a state known for frivolous lawsuits. Lawyers came from all around the country to file class action suits in Mississippi. Insurance companies were fleeing the state and those that remained were raising premiums or refusing to write policies. The US Chamber of Commerce rated Mississippi 50th in every judicial category. The state was referred to as “the jackpot justice capitol of America” and a “judicial hellhole.”

In 2004, Mississippi passed a tort reform package that resulted in a drastic change in the state’s legal landscape. After five years of political warfare, Mississippi’s legislature passed venue reform, which prevents lawyers from shopping for sympathetic courts, and limits on subjective and non-economic damages, such as pain and suffering. During the same period that tort reform was being passed, Mississippians also elected more judges that limited class action (multiple plaintiff) lawsuits and out-of-state plaintiffs.

The result was dramatic and rapid. Prior to the reform, medical malpractice rates had risen by 20-25%. Many doctors stopped practicing or moved out of state. Some areas were left without obstetricians within 100 miles. Since the reform, rates have not risen at all, and have even decreased by 30-45%. The number of medical malpractice suits has fallen by 90%.

Mississippi’s business-friendly climate has also attracted investment and jobs to the state. Approximately 60,000 new jobs have been created in the four years since the tort reform was passed compared to 30,000 jobs lost in four years before reform. Textron has invested $35 million and Kingsford Charcoal $20 million in the state. Winchester Ammunition returned to the state with a $3.5 million payroll. FedEx built a $1 billion dollar facility. Toyota even built a $1.2 billion, 200,000-worker plant. The Toyota plant is contingent on tort reform remaining the law of the land in Mississippi.

Overall, Mississippi is better off than before tort reform. Unemployment is down to 6% from a high of 9% prior to reform. In 2007, Mississippi’s per capita income growth was 6.7%. This places Mississippi third out of the fifty states.

Tort reform is a proven economic winner. Tragically, due to Democratic election victories in 2006, many states are repealing business-friendly laws and passing new laws, such as a patient bill of rights, that give people additional rights to sue. More lawsuits would have the effect of increasing costs to consumers and contributing to stagnant economic growth.

Tort reform is not about eliminating the right to sue. It is about eliminating outrageous damage awards and frivolous lawsuits. Tort reform does not prevent the recovery of legitimate damages, but it does prevent people from winning a legal lottery over a minor wrong. Tort reform prevents lawyers from looting a company of its hard-earned profits for a minor mistake or technicality.

The US legal system is estimated to cost each American family about $7,000 annually. One Mississippi CEO reported that his company saved $70,000 monthly on its legal bills after the passage of the reforms. Tort costs are spread through society by higher prices for consumer goods, higher insurance premiums, and more expensive health care. Tort reform in more states and at the federal level would save American families thousands of dollars and help to spur economic growth.

“Mississippi’s Tort Reform Triumph,” Wall Street Journal, May 10-11, 2008

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