When George W. Bush takes aim at the failings of the tort system, he likes to point out what he says are its huge economic costs. On Feb. 18, as he signed the Class Action Fairness Act into law, the President cited a favorite statistic: "Junk lawsuits have driven the total cost of America's tort system to more than $240 billion a year -- greater than any other major industrialized nation."
It's an attention-getting figure. But like every other number that's tossed around in this debate, it's misleading. Bush's source for his recent comment is Tillinghast-Towers Perrin, an actuarial consultant to the insurance industry. In a 2004 study on tort-system costs, Tillinghast tallied everything from no-fault fender-bender claims to the salaries of insurance company CEOs to calculate that the tort system as a whole is a $246 billion enterprise. Junk lawsuits weren't even mentioned. "There's no way to split the number between junk lawsuits and legitimate lawsuits," says Russ Sutter, the primary author of the report Bush cited. "We've seen examples on both sides of the debate misstating numbers."
That might be because there aren't any good numbers to go on. As policymakers weigh profound changes to the nation's legal system, they're working largely in the dark. No one collects and aggregates data from all of the nation's 15,500-plus courtrooms. The result is a war of anecdotes waged by ideologues of all stripes -- and an arms race to produce the killer statistic that will attract the media, sell the public, and shape policy.
Take the average size of medical-malpractice payouts. The Physician Insurers Assn. pegs it at some $350,000, based on information supplied by about half its members, representing 25% of the market. But the Consumer Federation of America, using claims data collected by the National Association of Insurance Commissioners (NAIC) from all 50 states, counters that the average payment is closer to $107,500. It's even lower -- $30,000 -- when the Federation factors in the 70% of medical-malpractice claims that are dropped or dismissed and result in no indemnity payment.
Medical-malpractice insurers also use their own claims data to show an increase in the number of million-dollar-plus awards. But they can't say for certain whether the trend is the result of growing economic damages -- to compensate for higher average wages and escalating medical costs -- or the consequence of ballooning pain-and-suffering awards. If it's the former, a congressional proposal to cap pain-and-suffering payouts could be misguided. A September study by the NAIC concluded that existing medical-malpractice insurance data are useless for determining the makeup of payouts or the reason behind rising claims.
As for jury awards, are they really getting bigger? The Justice Dept.'s Bureau of Justice Statistics says median awards in civil torts have actually decreased, from $65,000 in 1992 to $37,000 in 2001, the most recent year for which the agency has numbers. But the bureau sampled data from only 45 of the nation's 3,100 counties. The study gives a fairly accurate picture of trial outcomes in urban courts, BJS statistician Thomas Cohen says, but "does it give a picture of trials in rural or semi-rural jurisdictions? No." And all measures of jury verdicts miss big awards that are cut down on appeal.
Another missing piece: More companies have begun to self-insure or rely on indemnity plans established by state governments -- meaning they don't report claims or payouts to anyone. Consultant Tillinghast estimates that about 30% of commercial tort costs are covered by the self-insured alone, up from 6% three decades ago. No one knows in aggregate how those plans are faring.
When lawmakers debate changes to other major institutions, such as Social Security or the tax code, they rely on blue-ribbon panels and bipartisan task forces. The tort-reform polemic, in contrast, has been based on factoids and statistics drummed up by vested interests. Calling for a government study might sound like typical Washington stall tactics, but with each side accusing the other of lying, a study could turn down the heat -- and allow a real debate.
By Lorraine Woellert in Washington