Question

The U.S. tort liability system is criticized for rising cost. Two factors that drive costs are social inflation and abuses in class action lawsuits. Please discuss how each factor drives costs (discussion requires 2-3 sentences for each factor).

Answer 1

1.social inflation

The tort cost explosion was not ignited by any single event, but rather by a series of factors over time. American society has developed a culture of fault. The predominant thinking is that when any accident happens, some human or corporate error must be to blame and somebody must make amends, preferably someone with deep pockets. The image of corporate America has been so taished by scandals over recent years that the average American may be more amenable – even eager – to hand down giant awards against big business. Meanwhile, some plaintiffs’ attoeys have become adept at crafting litigation strategies to overcome tort controls and maximize awards, including steering litigation to plaintiff-friendly jurisdictions and seeking out those with the ability to pay large damage awards – large corporations and their insurers – regardless of where the actual blame lies.

2.abuses in class action lawsuits

A study of tort liability costs for small businesses indicates that litigation costs small businesses in America over $105 billion per year. These small businesses bear 81% of business tort liability costs but take in only 22% of revenue.

Because small businesses do not often have significant resources to defend themselves in drawn-out, costly litigation, being named in a frivolous lawsuit could mean a small business must close its doors for good. One in three small business owners have been sued or threatened with a lawsuit, according to a national opinion survey of voters by Penn Schoen Berland and Public Opinion Strategies.

Perceptions of the fairness and reasonableness of a state's liability system can influence business decisions about where to conduct, expand, or constrict operations or sales. According to the U.S. Chamber Institute for Legal Reform's 2019 Lawsuit Climate Survey, 89% of respondents felt that a state's litigation environment is likely to impact important business decisions at their companies.

The effects of lawsuit abuse extend beyond America's borders. High liability costs make U.S. businesses less competitive internationally. One study found that liability costs in the U.S. decrease manufacturing cost competitiveness by at least 3.2%. These factors have the potential to discourage foreign direct investment by making the U.S. less attractive to foreign capital.

The U.S. has one of the most robust legal systems in the world. However, America's tort system suffers from structural flaws and inefficient or unbalanced laws—both at the national and state levels—and American consumers are paying the price. Policymakers must take note and enact commonsense reforms to improve America's lawsuit climate.