Costs from lawsuits massive and rising according to new Inst. for Legal Reform study

The U.S. Chamber Institute for Legal Reform (ILR) released its latest study, Tort Costs in America: An Empirical Analysis of Costs and Compensation of the U.S. Tort System, focusing on tort costs in 2022, the most recent year for which data was available. The costs are sobering and they’re rising quickly.

What are tort costs?

Tort costs encompass compensation paid to injured parties as well as the costs involved in administering and defending claims. These costs also extend to precautionary measures taken to avoid liability and the opportunity costs of goods and services that are either not produced or removed from the market due to concerns over potential liability.

Costs going up fast

The study reveals that, nationally, the costs and compensation associated with the U.S. tort system exceeded $529 billion in 2022, amounting to over $4,200 per household. Additionally, the study highlights that tort costs have been increasing at an average annual rate of 7.1 percent between 2016 and 2022, outpacing inflation.

Arizona numbers 

For Arizona, tort costs have increased by nearly $2 billion since 2016. The total cost in 2022 for the state was $9.4 billion versus $8.6 billion in 2021, a 10.4% increase. 

The consequences

Excessive tort costs can negatively impact businesses and individuals, with studies highlighting significant indirect costs and liability risks, often called “externalities.”

• The risk of litigation can hinder the development and sale of new products, slowing innovation.
• Perceived liability risks can impact where businesses decide to operate or establish themselves, including offshoring. 
• Excesses in the tort system have been associated with reduced worker productivity and employment.

Legal reform can bring costs down

The study finds there are remedies to runaway lawsuit costs, however. State policymakers who commit to improving the legal climate for communities, businesses, and consumers can reduce costs for residents while enhancing their economic competitiveness.

In Arizona, for example, lawmakers and governors over the last decade have passed such reforms as limits on punitive damages, improved funding for jurors who serve in lengthy trials, caps on appeal bond costs, raised the standard for the admission of scientific evidence, cracked down on serial litigants, and more. 

“Arizona’s legal environment is just as important as its tax, regulatory, and labor environments,” Arizona Chamber of Commerce President and CEO Danny Seiden said. “When trial lawyers run wild, it hurts a state’s economic standing. Arizona has done a good job adopting smart reforms to protect our legal system from bad actors who are more interested in making a buck than in achieving justice. There’s more work to do, though, and the Chamber will continue to pursue legislation to improve our civil justice system.”