The "Tort Tax" fallacy and other statistical lies.

Today the esteemed actuarial and consulting firm of Tillinghast, which is part of Towers and  Perrin, came out with it's annual report that purports to calculate the cost of litigation on American business, commerce and society. This annual report is broadly shared in the print and broadcast media, but more importantly is typically seized on to illustrate the "point" of run away torts, huge costs to business because of litigation and the drag it creates on the US economy. The report in full is available here on their web site if you care to read it.

I've always been  highly skeptical of the numbers tossed around in these annual summaries that break down costs by areas, such as asbestos, medical malpractice, commercial litigation, etc., but until this Monday's Wall Street Journal article by Liam Pleven I didn't have a starting point as to why the numbers seem so inflated.

In a too short article Mr. Pleven does an excellent job of bringing out some of the statistical nonsense that goes into the numbers that are computed as "costs" of tort activity. My two favorites are where  it is revealed that your typical $5000 auto claim for someone banging into your bumper in a parking lot is calculated as a "tort" cost, as are the salaries of the executives at the major casualty companies. Some estimates are that the numbers outlined in the Tillinghast study might be high by anywhere to 30% to 50% of the actual verdict and claims costs each year, bringing the impact closer to $130 billion dollars, while at the same time taking no account for actually deserving and meritorious claims and verdicts that have zero to do with Tort System abuse that is typical alleged by the supporters of the Tillinghast numbers.

My point is this, and i'm speaking as a life long Republican here, Tort Reform is one of the biggest intellectual frauds ever foisted on the American public in that the numbers typically used to justify the removal of the common citizens access to the courts are almost universally flawed. How Republican congressman, Senators and Governors can be so consistently duped by the supposed hard numbers justifying these tort reform schemes is beyond me, but it also points out, as the article clearly states, that there is a void in the acquisition of true numbers on the cost. It's one thing for me to complain about the other sides inflated figure, but I sure wish the trial lawyers and others would invest some real money and intellectual talent into developing a metric for publishing their own annual study as well.

The moral is, if the number seems too good, or bad, to be true, it probably is and it is incumbent upon us to learn how they are arrived at, or we will continue to see "tort reform" continue to be pushed on us each and every year.  

Comments

[B H Evans]

I worked for a major aircraft company for many years and numbers were thrown around all the time to prove an enormouse amount of things from just pure speculation to pipe dreams and actual work in progress. The most favorite saying I ever heard in all those years was "figures don't lie but liars can figure"

[The Settlement Channel]

I couldn't have said it better myself. Thats my whole point in this post, is that how can you have a meaningful debate about tort reform, when you have numbers that are so badly distorted, but yet widely reported?

[Shawn Henry]

TORT REFORM ---Move to modernize tort laws.
i really dnt understand y there is such a big fuss on tort reforms.i wanted to know more about tort reforms and came acrossthis site which has got enough information on tort reform.Check it out
http://www.dickweekley.com

[The Settlement Channel]

I don't usually keep poorly written spam generated posts from sploggers on the site, but I thought this would be a nice example to our regular readers of what the face of Tort reform looks like. Not that Mr. Weekley isn't a decent fellow with a sincere agenda, but that Tort reformers are actively blogging, splogging and trying to saturate the public conscience with the mythical need for tort reform, when what we really need is insurance reform. This year, 2006, in the aftermath of the single worse year for hurricane claims and disasters in over 75 years the casualty companies in the US are reporting stellar, and in some cases, record profits. While i'm sure Mr. Weekley and his bike business were held up for insane premium increases over the years, his energy is misguided. Tort reform is the creation of casualty and reinsurance markets who want capped liability so they can actuarially price their products with a guaranteed profit. Nothing more, nothing less. That they have duped manufacturers like Mr Weekley is unfortunate, but it is up to the opponents of tort reform to continue to expose this shame for what it is.