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last updated on March 1, 2006

LEGAL REFORM

CIVIL JUSTICE REFORM

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 $246 billion-or $845 per person-annually, 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. 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.

In the first session of the 109th Congress, Rep. Lamar Smith (R-TX), along with 57 cosponsors, introduced H.R. 420, the Lawsuit Abuse Reduction Act (LARA). LARA would amend Rule 11 of the Federal Rules of Civil Procedure by imposing sanctions on attorneys, law firms, or parties who file frivolous lawsuits.

LARA would also:

• Abolish the "safe harbor" provision that allows parties and their attorneys to avoid sanctions by withdrawing a suit within 21 days after a motion for sanctions has been filed.
• Permit monetary sanctions, including reimbursement of reasonable attorney's fees and litigation costs in connection with frivolous lawsuits.
• Restore the opportunity for sanctions for abuses of the discovery process (the process by which lawyers on each side of a case request information from the other side prior to trial).
• Extend Rule 11's provisions preventing frivolous lawsuits to apply to state cases in which a state judge finds the case affects interstate commerce by threatening jobs and economic losses to other states.

On May 25th, the House Judiciary Committee favorably reported out H.R. 420 by a vote of 19-11.

On October 27, the full House of Representatives voted 228-184 in favor of LARA. The bill has been referred to the Senate for consideration.

There is no companion bill in the Senate but it is anticipated that the Senate will consider the bill in 2006.

In the 108th Congress, LARA (H.R. 4571) passed the House of Representatives by a vote of 229-174. There was no time for separate consideration in the Senate.

NAMIC POSITION. NAMIC supports civil justice reform efforts that promote a rational, equitable, and affordable legal system. 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. 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 is a member of the Lawsuit Abuse Reduction Coalition (LARC) representing a broad spectrum of organizations on behalf of small businesses to work for the enactment of LARA. Today, it includes more than 342 organizations that represent millions of businesses and employees who are in search of commons sense legislation such as H.R. 420.