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LEGAL REFORM

CIVIL JUSTICE REFORM

(Current as of July 2003)

THE ISSUE IS: Reform of the nation's civil justice system.

IT'S IMPORTANT BECAUSE: Civil liability in the United States is more costly than anywhere else in the world. At a price tag of nearly $180 billion-or 1.8% of the country's GDP-the current system costs the American people more than double the average cost in other industrialized nations.

American businesses face enormous legal costs in today's current civil liability system. For instance, an estimated 18 million civil lawsuits are filed against U.S. companies each year, costing over $80 billion in direct litigation costs each year. Such costs significantly impede American companies' ability to compete with their counterparts in other countries. For example, many small businesses are simply unable to withstand the legal fees from personal injury lawsuits and must cease operations. Also, the current civil justice system is inefficient in compensating victims with fees for attorneys, expert witnesses, and others often consuming more than half of the amounts awarded to injured plaintiffs.

The problem stems from the fact that the courts have rewritten the law of torts so completely on a case-by-case basis over the past forty or more years that little is left of the original fault-based liability system. This is particularly true in the product liability area, which has developed into a system of liability without fault. To a large extent, it is also true of tort law in general. No one change has been of great consequence, but the cumulative effect of all of those changes has had a significant adverse influence on the cost of all goods and services, including the cost of insurance.

Contingent fees for attorneys and punitive damage awards are also areas of concern. Some believe that contingent fees result in more lawsuits of questionable validity and the pursuit of excessive damage awards. There is little downside for attorneys who aggressively pursue lawsuits driven by contingent fees. While there have been some proposals to restrict claims for non-economic loss (i.e., pain and suffering) in return for the provision of economic loss benefits in automobile accidents and medical malpractice cases, most state reform efforts have been directed at reducing the excesses of the tort law system without making fundamental changes. Such proposed state reform includes: (1) the elimination of joint and several liability in comparative negligence states; (2) elimination of, or restrictions on, punitive damages; (3) elimination or modification of the collateral source rule; (4) control of contingent fee contracts; (5) limitations on non-economic loss recovery; (6) elimination of prejudgment interest; (7) prevention of actions which give third-parties the standing to sue liability insurers for alleged unfair claims practices; (8) product liability reforms; and (9) correction of class action and RICO abuses.

NAMIC POSITION: NAMIC supports civil justice reform efforts that promote a rational, equitable, and affordable legal system. Because an individual state cannot prohibit other states from imposing punitive damages on its citizens, federal reform legislation is desirable. Reform efforts should be directed at reducing the excesses of the tort law system to reduce insurance costs and should be clearly consistent with the best interests of insurance consumers, both as premium payers and potential tort victims. NAMIC believes individuals who have been wronged should be fairly compensated against at-fault businesses and individuals. However, equitable guidelines for such awards are necessary to ensure the system is not abused.

NAMIC also believes courts should not expand tort law such that personal liability exposures increase without thought to the economic impact on consumers of the decisions-particularly with regard to consumer insurance costs. NAMIC is particularly interested in reasonable reforms that will enable its members to keep personal lines insurance affordable. Such reforms include: limits on punitive damages, particularly in the format of so-called "bad faith" suits against insurers; elimination of the doctrine of joint and several liability; elimination of duplicate recovery of medical expenses (collateral source reform); "loser pays" provisions to promote responsible attorney behavior regarding tort claims or defenses; and increased use of alternative dispute resolution mechanisms to avoid costly jury trials.