A False Ad About 'Lawsuit Abuse'

Summary

The U.S. Chamber of Commerce is running a TV ad alleging that "lawsuit abuse" is costing "your family" $3,500 a year. That’s false. The figure is from a study that estimates the cost of all lawsuits, not just abusive ones.

Even the author of the study cited by the chamber says its ad is "misleading." The fact is his study makes no attempt to specify which lawsuits are legitimate and which can be considered abusive. Furthermore, the study specifically warns against drawing any conclusions about the costs and benefits of the judicial system and even acknowledges that the benefits could outweigh the costs. The chamber ignores this warning. It also fails to note that the same study estimates the cost of all lawsuits at the lowest level in 10 years.

Analysis

The chamber’s ad, which is running on national cable stations, says that "lawsuit abuse is forcing your family to pay $3,500 more each year for everyday goods and services." The figure is derived from an analysis done by Towers-Perrin Tillinghast, a management consulting firm. But lead author Russ Sutter told FactCheck.org that the ad makers are "misleading in how they characterize it."

Sutter pointed out that his study "looked at all torts; we don’t segregate between legitimate and illegitimate.” (Torts are civil wrongs, rather than criminal, which are the basis of most lawsuits. Plaintiffs who win their cases are often awarded monetary damages.) The chamber ignores the distinction between legitimate suits and abusive ones. The ad uses the term "lawsuit abuse" twice. It also shows a man shoving bills into a briefcase and says that "some trial lawyers are exploiting our courts, using frivolous lawsuits to make millions." That may be true, but the study does not attempt to estimate what fraction of all lawsuits are frivolous.

[TET ]

Chamber of Commerce Ad: "Lawsuit Climate 2007"

Narrator: You save each year for important things like retirement and college. But you probably didn’t know that lawsuit abuse is forcing your family to pay $3,500 more each year for everyday goods and services. Some trial lawyers are exploiting our courts, using frivolous lawsuits to make millions. Some would say that’s almost criminal. Lawsuit abuse is a national problem. See where your state ranks. [/TET]

Costs and Benefits

A bedrock principle of our system of justice is the fact that those who have suffered harm from somebody else’s carelessness or bad actions have redress through the courts. It is also one of the benefits that the analysis doesn’t attempt to quantify.

Instead, Tillinghast focuses solely on costs. The authors’ interpretation of costs is a combination of three specific factors: awards paid or expected to be paid to plaintiffs, defense costs, and expenses in the administration of claims.

In the explanation of the methodology the study’s authors acknowledge the possibility that benefits could be greater than their estimate of costs. They specifically avoid taking a position on this:

Tillinghast: The study examines only one side of the U.S. tort system: the costs. No attempt has been made to measure or quantify the benefits of the tort system, such as a systematic resolution of disputes, and the study makes no conclusion that the costs of the U.S. tort system outweigh the benefits, or vice versa.

Whose Family Pays What?

The Tillinghast study found that the total cost of torts in the U.S. for 2005 was $261 billion, which is $880 per person on average. The chamber seizes on this last number to extrapolate the figure that the average American family of four paid a "litigation tax" of more than $3,500 ($3,520 more specifically).

But the average household is actually 2.60 persons according to Census figures. Even the average family household is only 3.18 people. So even if the per-person figure had been fairly represented, the chamber’s $3,500 figure for "your family" would be an overstatement for most viewers of the ad.

Ignoring the Good News

The chamber also ignores several key findings from the study, all of which show that costs associated with tort lawsuits are actually slowing in growth. For instance:

U.S. tort costs grew by 0.5 % in 2005. This was much lower than the growth rate of 5.7 % in 2004, and was the smallest increase in tort costs since 1997.

The 0.5 percent rate of growth in tort costs in 2005 was less than overall economic growth of 6.3 percent. Since 1950, growth in tort costs has exceeded growth in GDP by an average of 2 to 3 percentage points.

Down This Road Before

The TowersPerrinTillinghast analysis is funded by the company. However, it is worth noting, the company is a self-described "leader in consulting to the insurance and financial services industry."

The company has calculated tort costs for about 20 years and has been doing so annually since 2001. The Chamber of Commerce is not the first group to get overzealous with these figures. The insurance industry group America’s Health Insurance Plans — which like the chamber would like to change the legal system to shield business interests from high damage awards — did so in 2005, as we reported here.

— By Justin Bank

Sources

Towers-Perrin Tillinghast, "2006 Update on Tort Costs Trends." 2006.