Tillinghast Study Reports U.S. Tort Costs Jumped to $205B in 2001

February 12, 2003

The U.S. tort system cost $205 billion in 2001, or $721 per U.S. citizen, representing a 14.3 percent increase in tort costs since the year 2000, according to a study by Tillinghast- Towers Perin (Tillinghast) in U.S. Tort Costs: 2002 Update. At current levels, U.S. tort costs are equivalent to a 5 percent tax on wages.

Key findings from the study revealed that:

*When viewed as a method of compensating injured parties, the
U.S. tort system is highly inefficient, returning less than 50 cents on the dollar to people it is designed to help and returning only 22 cents to compensate for actual economic loss;

*As of 2001, U.S. tort costs accounted for slightly more than 2 percent of GDP, signaling the end of a 13-year decline in the ratio
of tort costs to GDP;

*While the cost of the U.S. tort system has increased one hundred fold over the last 50 years, GDP has grown by a factor of only 34;

*Medical malpractice costs have risen an average of 11.6 percent a
year since 1975 in contrast to an average annual increase of 9.4 percent for overall tort costs;

*The largest single factor in the rise of tort costs in 2001 was a significant reassessment of liabilities tied to asbestos claims. This accounted for $6 billion of the $26 billion increase over 2000 levels. Other contributing factors include: class action lawsuits and large claim awards; an increase in the number and size of shareholder lawsuits against Boards of Directors; an increase in medical cost inflation leading to higher costs of personal injury claims; and medical
malpractice lawsuits.

While it is almost impossible to accurately predict future increases in tort costs, Tillinghast estimates annual increases will be in the 7 percent to 11 percent range for the next several years. At this rate of increase, tort costs could equal $1000 per citizen by 2005.

Tillinghast expects the insurance industry to react to rising tort costs by placing further limits in policies as it did in the mid-1980s with the elimination of pollution coverage. The firm anticipates some insurers will withdraw completely from certain lines of business and markets, as is happening now in the medical malpractice market.

For copies of the report, email: robyn.hennessy@tillinghast.com.

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