Tort inflation is a term that describes the rising costs associated with tort litigation, including higher damage awards, expanded liability theories, and the overall financial burden on businesses and the legal system. This troubling expansion has significant implications for the economy, legal landscape, and consumer prices. According to our research, Tort Costs in America, the tort system’s costs surged to $443 billion in 2020, resulting in an average cost of $3,621 per household. This concerning trend highlights the rising economic burden of tort-related expenses.
One primary driver of tort inflation is the broadening scope of liability in tort cases. Courts are increasingly willing to entertain expansive theories of liability, which can lead to higher damages and more frequent litigation. These theories can hold businesses liable for a wide range of harms, even when their products or actions are lawful and compliant with existing regulations. Such broad interpretations of liability increase the risk and cost of litigation for businesses.
Another significant factor contributing to tort inflation is the increasing trend of nuclear verdicts, or jury awards exceeding $10 million. Nuclear verdicts are most common in personal injury cases, where there are no objective limits on noneconomic damages like pain and suffering. Our research, Nuclear Verdicts: An Update on Trends, Causes, and Solutions, found that the median award was $21 million between 2013 and 2022.
Third-party litigation funding (TPLF), an additional driver of tort inflation, involves outside investors financing lawsuits in return for a share of the settlement or judgment. These funders are mainly driven by the potential for financial gain, which can result in extended litigation and increased costs, as they may prioritize their profits over the plaintiffs’ best interests. This practice leads to a higher number and cost of tort cases, contributing to tort inflation. A notable instance is Burford Capital’s contentious case with Sysco Corp., where Burford leveraged its funding agreement to control the litigation, focusing on its financial interests rather than those of the actual plaintiffs.
Deceptive Advertising by trial lawyers is another significant factor contributing to tort inflation. These advertisements often present a skewed view of the civil justice system, suggesting that multi-million or even billion-dollar verdicts are common. Sometimes, they misuse government logos or alarming phrases to frighten people into joining lawsuits. The more individuals who join a lawsuit, the larger the potential financial gain for the trial lawyers. Fortunately, some states are recognizing this issue and have begun to implement or consider reforms to curb these misleading practices. States like Florida, Kansas, and Texas have passed laws to address deceptive lawsuit ads, aiming to protect the public from being misled.
Plaintiffs’ attorneys often use various strategies in the courtroom to sway juror opinions and increase damage awards. One such strategy is the “reptile theory,” which seeks to evoke a sense of fear in jurors, steering their focus away from the actual evidence. This tactic encourages jurors to “send a message” to protect their community, resulting in inflated, sometimes nuclear, verdicts. Another method is jury anchoring, where attorneys propose an excessively high amount for damages or use a calculation method that leads to an exorbitant verdict. These courtroom tactics, along with continuous lawsuit advertising, create a false perception among the public that multi-million-dollar verdicts are common, thereby contributing to the rise and frequency of nuclear verdicts.
Unnecessary regulatory burdens can also contribute to tort inflation. For example, regulations and statutes with expansive private rights of action can create new grounds for litigation and increase compliance costs for businesses. Such regulations can hinder innovation, raise premiums, and have other unintended effects. Government micromanagement can lead to increased litigation as businesses navigate complex and often conflicting regulatory requirements. As federal agencies pursue aggressive policy changes through regulation, the Chamber is leveraging its litigation expertise to address these threats.
Tort inflation presents a significant challenge for businesses, the legal system, and consumers. The rising costs associated with tort litigation can lead to higher prices for goods and services, increased insurance premiums, and a more litigious society. Addressing tort inflation requires a multifaceted approach, including defending statutory caps on damages, opposing expansive liability theories, imposing safeguards in third-party litigation funding, ensuring the reliability of expert testimony, and opposing government micromanagement. By addressing the root causes of tort inflation, we can create a more predictable and fairer legal environment that benefits businesses, consumers, and the economy.