Excessive lawsuits are draining our economy, increasing costs for businesses and consumers. A new ILR study shows the economic impact of the U.S. tort system and found that the system’s price tag is steadily increasing. Tort Costs in America: An Empirical Analysis of Costs and Compensation of the U.S. Tort System found that the cost of the tort system totaled $443 billion in 2020—or 2.1% of the national gross domestic product and $3,621 per household.
Tort Costs in America also estimates every state’s tort cost as a percentage of state gross domestic product and per household cost. Among the states with the highest tort costs per household are New York ($5,408), Florida ($5,065), New Jersey ($5,059), California ($4,599), and Georgia ($4,157). Tort system costs in the most expensive states are up to 2.7 times more than in the least expensive states. For example, tort costs per household came to about $2,000 in states like Maine, New Hampshire, and South Dakota.
The report also found that the tort system is highly inefficient at delivering relief to claimants—only 53 cents of every dollar go to plaintiffs. The remaining 47 percent covers litigation costs and other expenses. The abuse of the class action system has been a key factor in making our tort system more expensive, partly because few people (who often don’t know they’re part of a lawsuit) take the time to submit a claim for money from a class action settlement. Another ILR report, Unfair, Inefficient, Unpredictable Class Action Flaws and the Road to Reform, found that a median of only 3.9% of people involved in a class action submit a claim.
On a practical level, consumers feel the pain of an expensive and inefficient tort system through higher prices on goods, services, and insurance, including car insurance. Businesses also get stuck with higher insurance costs, making it harder to expand or hire more people.
Tort Costs in America should signal to policymakers that the tort system urgently needs fixing. To help state legislators bring balance and fairness to their state’s lawsuit environment and bring down costs for everyone, ILR recently released 101 Ways: A User’s Guide to Promoting Fair and Effective Civil Justice. This compensative report highlights a series of commonsense reforms.
The Wall Street Journal recently wrote in an editorial on the report, “We’re hard-pressed to think of another industry whose existence costs the average American family more than $3,000 a year. Too bad there isn’t a way to sue the plaintiffs’ bar for a refund.”