Restrictive legislation doesn't always equate to lower costs

Colorado is the perfect example of the disconnect between tort reform legislation, tort costs and business climate.

The state has the eighth highest tort costs nationwide, but is considered to have the best tort reform laws, according to a Pacific Research Institute study that claims states with high personal injury costs from litigation are bad for business.

But critics claim the study is merely an example of "what independent analysts have said all along: tort reform does not work" to attract business or to lower the costs of doing business in a state.

PRI annually ranks states based on tort costs, litigation risks and tort rules. Florida has the highest tort costs and litigation risks, but is sixth among states for tort reform legislation. North Dakota had the lowest costs and risks, but was 20th in legislation.

"PRI's own rankings show there is no correlation between tort reform and costs," said Jon Heber, CEO of American Association for Justice, a trial bar association.

The PRI study merged the rankings and divided states into four groups. Despite having the tightest tort laws in the country, Colorado ranked only as "salvageable." The study examined 13 variables for monetary tort losses and litigation risks to determine tort liability costs, and 28 variables dealing with state laws about personal injury litigation.

PRI says that the methodology -- combining the effectiveness of the laws and the costs of the lawsuits -- shows how businesses could lose money because of personal injury litigation. The study purports to show that businesses flee states with high tort costs and litigation for the greener pastures of low tort costs and tight personal injury laws.

"Enormous resources are wasted today on the unnecessary and unproductive redistribution of wealth that occurs with excessive tort litigation," said co-author Hovannes Abramyan, a PRI public policy fellow. "Meaningful tort reform translates into a better legal environment in which to invest human, physical and financial capital -- the ingredients for economic growth."

During 2006, job growth was 57 percent greater in the 10 states with the best tort systems than in the 10 states with the worst tort systems, the study said. Labor earning growth was more than 5 percent greater and gross state product grew 25 percent faster in the 10 best states than in the 10 worst.

"In the competition for jobs and capital investment among the states, those states that suffer from high tort costs and litigiousness will continue to lose jobs and businesses to states with superior tort systems," said Lawrence McQuillan, director of business and economic studies at PRI and one of the study's co- authors.

But Heber points out that the states listed by PRI as "damaged" by personal injury litigation are the wealthiest. The worst states have an average gross state product of $36,617, while the best states have a GSP of $35,934.

"Even biased, junk research shows tort reform is simply a scheme by powerful corporations to avoid accountability in the courtroom and to stack the deck against everyday Americans," he said.

Others claim that the study debunks itself, using "input" from a state's tort laws and "output" from a state's actual costs and risks from litigation.

"Tort reform has nothing to do with the economy in a state," said personal injury attorney Ken Jaray. "No one is moving out of Colorado because of our judicial system; people are still moving in. The business climate has very little to do with our judicial system."

Colorado limits non-economic damages. The current ceiling is $366,250, but a judge can raise that to $732,500.

The PRI rankings showcase the fact that insurance companies do not lower premiums based on tort reform, Jaray said.

"It's how we can have high costs and tight tort laws," he said. "The insurance don't reduce the premiums, because they want to maximize their profits. And it leaves Colorado citizens -- who the law is supposed to protect -- at a limit when they are injured."

Copyright 2008 Dolan Media Newswires
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