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.  

Posted on March 14, 2006 .