In a January 10 column arguing that "[t]he tort system is an abomination," Washington Post columnist Sebastian Mallaby relied on data from a highly questionable study paid for by tort reform advocates. He also made a dubious comparison between the "tort system" and Medicare, made vague reference to other unidentified "studies," and falsely equated "pain and suffering" with "emotional distress."
In arguing that the "tort system" costs too much and that the money goes to the wrong people, Mallaby wrote:
The most complete study of the tort system's cost comes from the consulting firm Tillinghast-Towers Perrin. Tillinghast's clients are mainly insurers, which are at loggerheads with the trial bar, so you may mistrust its data. Nonetheless, Tillinghast has published seven updates to its original 1985 study, refining its methodology along the way. Its numbers are the best available. And they are stunning.
In 2003, according to Tillinghast, the tort system cost $246 billion -- meaning that the average American paid $845 for it via more expensive goods and services. But the really shocking thing is where the billions went. Injured plaintiffs -- the fabled little guys for whom the system is supposedly designed -- got less than half the money.
According to Tillinghast's 2002 data, plaintiffs' lawyers swallowed 19 percent of the $233 billion. Defense lawyers pocketed an additional 14 percent, and other administrative costs, mainly at insurance firms, accounted for a further 21 percent. The legal-administrative complex thus guzzled fully 54 percent of the money in the tort system, or $126 billion.
While Mallaby noted that "Tillinghast's clients are mainly insurers," that statement may actually understate Tillinghast's conflict of interest. According to the Association of Trial Lawyers of America (certainly not a disinterested party itself), Tillinghast's studies are paid for in part by the American Tort Reform Foundation.
As Mallaby noted, the Tillinghast study included "administrative costs, mainly at insurance firms" in its tally of the costs of the tort system. In fact, the administrative costs, according to Mallaby, were the single largest component of the total "tort system cost." Those administrative costs include things like salaries for insurance company executives; categorizing them as a cost of the tort system is highly questionable, at best.
Thus, Mallaby's contention that "the fabled little guys for whom the system is supposedly designed" get "less than half the money" is true only if one makes the dubious decision to include all insurance company expenses in the calculation of total tort system costs. This is obviously absurd; insurance companies would have expenses even if all lawsuits were banned.
The Center for Justice & Democracy made a similar point in reaction to a previous version of the Tillinghast study, eviscerating the numerous ways in which the study overstated the cost of the tort system:
This figure measures costs not even vaguely related to the legal system. This figure is calculated from total liability insurance premiums, not jury verdicts, settlements, lawyers' fees or any actual costs of what might generally be considered the legal system.
It is calculated by including the immense costs of operating the wasteful and inefficient insurance industry. Fully 21 percent of this figure is insurance industry "overhead" (e.g. salaries of executives, rent and utilities for insurance company headquarters, commission paid to agents, advertising and other acquisition costs).
Nearly half of the "tort costs" identified by this figure concern personal auto insurance, like fender benders (for which policyholders pay premiums to insurance companies), the vast majority of which are settled without any attorneys being hired or anyone being sued.
It includes auto medical payments in no-fault cases, where lawsuits are prohibited against third parties in most cases, as well as uninsured motorist coverage when again, no party is sued.
This figure does not measure the countervailing costs saved by the tort system in terms of injuries and deaths that are prevented due to safer products and practices, wages not lost, health care expenses not incurred, and so on; nor does it place any value on the rights granted to all Americans by the tort system itself.
A more detailed critique by the Center for Justice & Democracy is available here.
Mallaby went on to make a highly misleading comparison between the administrative costs of the "tort system" and Social Security and Medicare:
The legal-administrative complex thus guzzled fully 54 percent of the money in the tort system, or $126 billion. ... No other system for compensating misfortune has such outrageous administrative costs. To guard against the possibility of sickness, people buy medical insurance; the health insurance industry, justly regarded as a paper-clogged nightmare, has administrative costs of 14 percent. To guard against the danger of disability, we have the Social Security program. The overhead for the Social Security disability system is around 3 percent. If you want a really good number to set against the 54 percent overhead in the tort system, just take a look at Medicare. Its overhead is about 2 percent.
In addition to overlooking the fact that the "54 percent" figure is artificially high because of its inclusion of administrative expenses unrelated to "the tort system," Mallaby's comparison is dubious for another reason: The tort system is an adversarial one, while Social Security and Medicare largely are not; it would be surprising if the tort system didn't have higher "administrative costs."
Mallaby went on to argue that the risk of damages doesn't actually encourage companies to make products safer:
The haphazard nature of tort payouts undermines the potentially salutary effect on corporate behavior. If manufacturers can't predict what they might be sued for and how much, they won't reach rational decisions about making their products safer. Sure enough, studies of injury rates often find no evidence that a rise in litigation is followed by an increase in safety.
Mallaby's "studies ... often find" construct makes it difficult for readers to assess the credibility of his claim; one wonders if he's referring to more studies financed by advocates of tort reform.
Finally, Mallaby attempted to trivialize damages awarded for "pain and suffering" by inaccurately implying that they were synonymous with payouts for "emotional distress":
So the tort system's administrative costs are a scandal. But are its other costs much better? Of the 46 cents per dollar in the system that actually make it to plaintiffs, 22 cents are paid out to compensate people for economic damages, including damaged property, lost wages and medical expenses. The other 24 cents are paid to compensate plaintiffs for "pain and suffering." Should we really want a system that pays out billions for emotional distress? A little thought suggests we shouldn't.
In fact, damages for "pain and suffering" and "emotional distress" are two separate components of "noneconomic damages." As a 2001 article in the Alabama Law Review noted:
The United States Supreme Court has stated that emotional distress specifically describes a mental or emotional injury that is separate and distinct from the tort law concepts of pain and suffering.
Even tort reform advocates seem to recognize that "pain and suffering" and "emotional distress" are not one and the same. The American Tort Reform Association's website declares that "Noneconomic Damages" include "such things as pain and suffering, emotional distress and loss of consortium or companionship, which do not involve cash loss and have, therefore, no precise cash value."