Personal Injury Lawsuit

People trying to survive the current economic downturn are looking to economize in every possible way. From car-pooling or (gasp) using public transportation to buying generic groceries and cutting back on luxury goods, people who have lost their job or fear they will lose their job are seeking to save precious dollars. Unfortunately, their attempts to economize run headlong into rising costs in all sectors of the economy, especially health care. Squeezed between shrinking income and costs they cannot cut, people are finally raising a hue and cry about the astronomical price of health care in this country.

Trying to capitalize on the terror of the masses, demagogues, largely inspired by industry lobbyists, have taken up the banner of “tort reform” as the way to reduce costs. Their argument claims that frivolous medical malpracticepremises liability and other lawsuits cost us money, about $3250 a year for a family of four ($880 per person) according to an add run simultaneously in the Wall Street Journal, the Chicago Tribune, and the Washington Post. This cost, they say, is passed on to you in the form of higher prices, which is why so many people are having a hard time affording gas, food, medical care, and house payments. In addition, they say, this cost stunts the growth of the economy, which is part of the reason why so many people’s jobs are currently being threatened. They also claim that even frivolous lawsuits cost local governments, business, and medical organizations in terms not only of settlements, but in the ongoing cost of rising insurance rates.

However, you should not be fooled. Tort reform is a new brand of supply-side, trickle-down economics that may provide some modicum of economic benefit to the average consumer, but that benefit will be dwarfed by the resulting increase in profits for corporations, and by the real costs that individuals pay through greater exposure to risk and by a lack of access to legal recourse when they suffer harm as a result of dangerous cost-cutting methods practiced by corporations such as manufacturers, health care conglomerates, and pharmaceutical companies.

First, let’s consider the tort reformers’ arguments. Note that they try to use the costs of “frivolous” lawsuits twice, which makes no logical sense. Either companies pass the costs on to consumers, in which case the companies have the money and can use it for expanding business and improving facilities and hiring employees, or they do not pass the cost on to us, and they do not have the money to reinvest into economic growth. In other words, the cost must be divided between the two arguments, let’s say evenly between the two at $440 per person in increased cost, and $440 in reduced economic growth. Now let’s consider the cost of “frivolous” lawsuits in context.

If we consider that we pay $440 per year in higher costs related to “frivolous” lawsuits, does this constitute an undue burden on corporate America? Are frivolous lawsuits threatening to eclipse the profits of corporations? Not by a long shot.

Corporate profits, that is, money they take in free and clear above all costs (including the inflated cost of CEOs in terms not only of salary but bonuses and expense accounts), are the equivalent of $4514 per year for every man woman and child in the United States, over ten times the cost of “frivolous” lawsuits. And, if you are concerned about being able to pay your bills with a salary that doesn’t seem to stretch far enough, consider that corporate profits are at their highest level as a share of GDP since the 1960s, while the real pay rate for workers has been level or in decline, despite the continual rise in productivity. In addition, when we had our so-called recovery from the economic downturn of 2001-2003, corporate profits grew at three times the rate of salary growth. Corporations were making money, but not passing it on to workers, and this ensured that many people, offered mortgages based on the expectation that salaries would rise with or above interest rates, could not meet loan payments.

So, do you pay for “frivolous” lawsuits? Yes, but it pales in comparison to what you pay for corporate profits.

But what about the second argument, that lawsuits stunt economic growth? That argument is even more complex, and we will take it up in part 2. Then, in part 3, we will consider the corollary argument that states with legal systems susceptible to abuse will suffer both an economic downturn and a “flight” of doctors in comparison to states with legal systems more friendly to corporations and doctors. Finally, in part 4, we will consider alternate solutions to the so-called “tort crisis” that can reduce costs even more than tort reform without restricting access of individuals to legal recourse, leading to a win-win situation for everyone but profiteering insurance companies.

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Hiring a lawyer in a personal injury claim is a must-have cost for anyone considering making a claim. The mere thought of going through the legal wrangling without someone on side who knows the law intimately is enough to put most people off making a claim altogether. But new research from the heart of the lion’s den itself – the Association of British Insurers (ABI) – says that that freeing people from the need to use lawyers could slash car insurance premium rates.

Primarily, those making claims of less than £25,000 would save literally billions of pounds a year if they managed to make the claims sans lawyer. The problem lies with the extortionate legal costs associated with hiring the lawyers. Out of every pound awarded in compensation to the victims of injury, just seven pence goes to the claimant. The rest is mostly dished out to the injury lawyers themselves, with some charging as much as £165 an hour, the trade union Unite has claimed. The result? Up to £2 billion a year is cruelly taken from the injured party’s hands and put into that of the overpaid, unnecessary legal teams.

So what is being proposed to combat these aberrations of justice? A schematic model has been introduced – an effective pay-out ceiling – that would cover 95% of all claims. Instead of the highly variable methods used at the moment, a set of tariff payments would be used to speed up the claims to just six months. At present, they typically take a mind-numbingly slow three-years to process – and that’s when the legal costs tend to mount up. The ABI backs these claims up with some powerful and persuasive proposals: instead of today’s stand-off between claimants and insurers mediated by costly lawyers intent on dragging the case out for as long as possible, a system for smaller claims would be set up to allow the quick and efficient passage of cases through the system. Undoubtedly, the wording of insurance contracts would have to be tightened up so less room for interpretation is left to lawyers to exploit.

The director general of the ABI Stephen Haddrill said: “Our proposals are a blueprint for a much-needed reform of the personal injury compensation system. Too many people are waiting far too long to get a fair pay-out.” But at what price would this ‘fair pay-out’ be secured at? The Association of Personal Injury Lawyers (APIL) rightly points out that victims are likely to get far less money (albeit more quickly) overall: initial compensation sums offered by insurers are by-and-large around half of that eventually secured by lawyers. APIL is unlikely to support the new proposals – it in effect puts them out of a job – and is not quick to state how much of the victim’s extra cash actually gets spent on them. It could actually end up being more than if the claimant has just settled for the insurance company’s’ payout. Just having the option to take a smaller claim and have less hassle is surely a battle won for the already hard-done by consumer, hacking their way through the thickets of insurance policy.

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