Goodyear Tire and Rubber Co. and the families of three men involved in a 2000 accident in which one of them died have settled a lawsuit.
The Mississippi Supreme Court last week dismissed the lawsuit. The court noted its order that both sides sought the dismissal because a settlement had been reached.
The young men's families -- and a Copiah County jury -- blamed the accident on a faulty tire on the Chevrolet Camaro rather than excessive speed and the beer the men had been drinking.
The state Court of Appeals agreed last April and upheld a $2.1 million verdict against Goodyear and Big 10 Tire Co.
Goodyear and Big 10 appealed.
Monday, June 28, 2010
Supreme Court Strikes Down Sarbanes-Oxley Accounting Board
The Supreme Court Monday struck down part of a 2002 law that created a national board that polices auditors of public companies, ruling that it violated the constitutional requirement on the separation of powers among the branches of government.
The high court's ruling on the Public Company Accounting Oversight Board (PCAOB) could put pressure on Congress to revisit the Sarbanes-Oxley corporate reform law, opening it up for potential changes in the reporting duties of companies.
The court's mixed ruling held that the board violated the the U.S. Constitution's separation of powers principle, but also held that the law does not violate the Constitution's appointments clause.
At stake in the case was how corporate America is audited and a key provision of the Sarbanes-Oxley corporate reform law adopted in response to the Enron and WorldCom accounting scandals early in the decade.
The ruling was a victory for the Free Enterprise Fund and a small Nevada accounting firm, which argued that the law unconstitutionally stripped the president of power to appoint or remove board members or to supervise their activities.
Board members are appointed by the U.S. Securities and Exchange Commission and can only be removed by the SEC for cause. The board, set up as a quasi-private agency, has the power to impose rules and to inspect and fine accounting firms.
The board is funded through fees it collects from public companies. It inspects thousands of auditors, including the Big Four accounting firms: Ernst & Young LLP, KPMG , PricewaterhouseCoopers and Deloitte & Touche LLP.
The Free Enterprise Fund and the accounting firm sued in 2006. A federal judge and a U.S. appeals court rejected the challenge.
The Supreme Court's majority opinion said the limits on the removal of board members violated the separation of powers requirement.
But the court also held that the unconstitutional provisions can be separated from the rest of the law.
The high court's ruling on the Public Company Accounting Oversight Board (PCAOB) could put pressure on Congress to revisit the Sarbanes-Oxley corporate reform law, opening it up for potential changes in the reporting duties of companies.
The court's mixed ruling held that the board violated the the U.S. Constitution's separation of powers principle, but also held that the law does not violate the Constitution's appointments clause.
At stake in the case was how corporate America is audited and a key provision of the Sarbanes-Oxley corporate reform law adopted in response to the Enron and WorldCom accounting scandals early in the decade.
The ruling was a victory for the Free Enterprise Fund and a small Nevada accounting firm, which argued that the law unconstitutionally stripped the president of power to appoint or remove board members or to supervise their activities.
Board members are appointed by the U.S. Securities and Exchange Commission and can only be removed by the SEC for cause. The board, set up as a quasi-private agency, has the power to impose rules and to inspect and fine accounting firms.
The board is funded through fees it collects from public companies. It inspects thousands of auditors, including the Big Four accounting firms: Ernst & Young LLP, KPMG , PricewaterhouseCoopers and Deloitte & Touche LLP.
The Free Enterprise Fund and the accounting firm sued in 2006. A federal judge and a U.S. appeals court rejected the challenge.
The Supreme Court's majority opinion said the limits on the removal of board members violated the separation of powers requirement.
But the court also held that the unconstitutional provisions can be separated from the rest of the law.
Monday, June 21, 2010
After Profitable 2009, Reinsurers Face Pricing Pressure from Primary Insurers
A softening casualty market, strong company earnings, and a quiet catastrophe season resulted in the reinsurance industry enjoying, in 2009, one of its most profitable underwriting years in nearly a decade.
Today, reinsurers must continue to push-back on multi-year deals and reject raw coverage despite pricing pressure by primary insurers, according to a panel of senior reinsurance executives who spoke before the Casualty Actuarial Society (CAS) Seminar on Reinsurance.
George Venuto, executive vice president, Willis Reinsurance, noted that there is a distinct difference in how primary business and excess casualty business is being viewed. "Trying to please primary casualty insurers is probably the most difficult thing to do right now," he said. "On the property side, we are continuing to see rate pressure. The model changes have created a visual downward pressure on pricing," he said, adding, "It is not the best pricing environment on the insurance and reinsurance side."
Venuto said that terms and conditions were softening somewhat and there was an increase in loss trends. "Capacity is available for all lines, in particular property and casualty. You can get it placed."
Damien Magarelli, director, Standard & Poor's, said that his firm has not seen a change in terms and conditions. "Multi-year policies are very few and far between, and there have not been a lot of changes in profit commissions," he said. "After Hurricane Katrina, there were 30 to 40 percent price increases for some property lines; renewal rates in 2010 have exhibited declines from 0 to 10 percent. Additional capacity has contributed to declining prices," he said.
Magarelli noted that 2010 has so far been active with disasters. "The Chilean earthquake was a large event but much smaller than Northridge, with losses expected in the $8 to $10 billion range," he said. "But that won't be a catalyst to drive rate increases globally. Floods and storms in the northeast will not change the pricing cycle. If you have a regional carrier, their earnings will be affected, but not dramatic enough of an impact for a new pricing cycle."
According to Magarelli, the Gulf oil spill is about a $1.5 billion insured property loss and while there may be litigation in terms of the debris cleanup, this is "not expected to be a significant insurance industry event, in our view."
Venuto agreed and said he didn't see that any of these events had enough impact to suck capacity out of the market because it is an overcapitalized industry. "I don't see these events being enough to change anything dramatically."
Magarelli said that these catastrophe events have reduced the margin reinsurers had going into hurricane season, but it's not outside the normal budget. "At this point in time, cat losses were low last year, but there were losses in the Midwest, which impacted a different group of regional companies. This year it is affecting more Northeast regional companies."
"It's not so much where we are, but where we are going," said Magarelli regarding where the industry is in the cycle. "Frequency has been declining for a number of lines for many years. That has propelled earnings to a greater degree," he said.
"Severity is increasing; we see frequency now turning flat; buying habits have changed," he said. "You may see a larger pick up of loss costs trends. It's an issue for us," he said. "If there is an acceleration of loss cost trends, then you may see a dramatic increase in losses and reduced earnings."
Venuto thought that the industry may have a loss ratio environment similar to that of 1995. "We are getting close to where there's not much rate left to give back," he said. "Frequency has been flattish. The impact of the economy on what's happening, chasing fewer exposure dollars, will have a dampening affect."
Venuto said that there are more fail-safes today than in the late1990s. "It's not just actuaries looking at it; now everybody gives you a price monitor. We really see where trends have been. Terms and conditions have held and that was the monster under the bed in the late '90s. We'll come out of this soft market better than the last one mainly because actuaries are more involved than they were in the past."
"The difference between the late '90s versus now is the reinsurance appetite for risk," added Magarelli. "Most direct reinsurance companies in the '90s opened up a lot of capacity that companies were allowed to write against. There's more discipline now, better tools. Also a fundamental change -- reinsurance companies are more restrictive in terms of capacity. We're still going to have cycles, but we may not have as many peaks and valleys as we did in the past."
"Clearly there have been external influences that have reinforced the focus and improved the testing of setting reserves," said Magarelli. "Some companies still think there are rate declines that can be had; others think rates should go up. Our view is that reserves are adequate, but we still think companies are living off the 2002-2005 accident years."
Venuto said that the rules have changed to some extent and that there is more discipline. "Claims are settling quicker. There is definitely a movement on the claims side of best practices, driven by actuaries, underwriters and claims adjusters. Reserving and claims practices have improved dramatically."
Venuto said that pricing actuaries are the "gatekeepers to get something placed in this business." He advised actuaries to be more visible with clients. "The way you're going to outperform your peers is to know how a company works. Get out there with your underwriters; get to know your clients and how they view risk," he said.
Today, reinsurers must continue to push-back on multi-year deals and reject raw coverage despite pricing pressure by primary insurers, according to a panel of senior reinsurance executives who spoke before the Casualty Actuarial Society (CAS) Seminar on Reinsurance.
George Venuto, executive vice president, Willis Reinsurance, noted that there is a distinct difference in how primary business and excess casualty business is being viewed. "Trying to please primary casualty insurers is probably the most difficult thing to do right now," he said. "On the property side, we are continuing to see rate pressure. The model changes have created a visual downward pressure on pricing," he said, adding, "It is not the best pricing environment on the insurance and reinsurance side."
Venuto said that terms and conditions were softening somewhat and there was an increase in loss trends. "Capacity is available for all lines, in particular property and casualty. You can get it placed."
Damien Magarelli, director, Standard & Poor's, said that his firm has not seen a change in terms and conditions. "Multi-year policies are very few and far between, and there have not been a lot of changes in profit commissions," he said. "After Hurricane Katrina, there were 30 to 40 percent price increases for some property lines; renewal rates in 2010 have exhibited declines from 0 to 10 percent. Additional capacity has contributed to declining prices," he said.
Magarelli noted that 2010 has so far been active with disasters. "The Chilean earthquake was a large event but much smaller than Northridge, with losses expected in the $8 to $10 billion range," he said. "But that won't be a catalyst to drive rate increases globally. Floods and storms in the northeast will not change the pricing cycle. If you have a regional carrier, their earnings will be affected, but not dramatic enough of an impact for a new pricing cycle."
According to Magarelli, the Gulf oil spill is about a $1.5 billion insured property loss and while there may be litigation in terms of the debris cleanup, this is "not expected to be a significant insurance industry event, in our view."
Venuto agreed and said he didn't see that any of these events had enough impact to suck capacity out of the market because it is an overcapitalized industry. "I don't see these events being enough to change anything dramatically."
Magarelli said that these catastrophe events have reduced the margin reinsurers had going into hurricane season, but it's not outside the normal budget. "At this point in time, cat losses were low last year, but there were losses in the Midwest, which impacted a different group of regional companies. This year it is affecting more Northeast regional companies."
"It's not so much where we are, but where we are going," said Magarelli regarding where the industry is in the cycle. "Frequency has been declining for a number of lines for many years. That has propelled earnings to a greater degree," he said.
"Severity is increasing; we see frequency now turning flat; buying habits have changed," he said. "You may see a larger pick up of loss costs trends. It's an issue for us," he said. "If there is an acceleration of loss cost trends, then you may see a dramatic increase in losses and reduced earnings."
Venuto thought that the industry may have a loss ratio environment similar to that of 1995. "We are getting close to where there's not much rate left to give back," he said. "Frequency has been flattish. The impact of the economy on what's happening, chasing fewer exposure dollars, will have a dampening affect."
Venuto said that there are more fail-safes today than in the late1990s. "It's not just actuaries looking at it; now everybody gives you a price monitor. We really see where trends have been. Terms and conditions have held and that was the monster under the bed in the late '90s. We'll come out of this soft market better than the last one mainly because actuaries are more involved than they were in the past."
"The difference between the late '90s versus now is the reinsurance appetite for risk," added Magarelli. "Most direct reinsurance companies in the '90s opened up a lot of capacity that companies were allowed to write against. There's more discipline now, better tools. Also a fundamental change -- reinsurance companies are more restrictive in terms of capacity. We're still going to have cycles, but we may not have as many peaks and valleys as we did in the past."
"Clearly there have been external influences that have reinforced the focus and improved the testing of setting reserves," said Magarelli. "Some companies still think there are rate declines that can be had; others think rates should go up. Our view is that reserves are adequate, but we still think companies are living off the 2002-2005 accident years."
Venuto said that the rules have changed to some extent and that there is more discipline. "Claims are settling quicker. There is definitely a movement on the claims side of best practices, driven by actuaries, underwriters and claims adjusters. Reserving and claims practices have improved dramatically."
Venuto said that pricing actuaries are the "gatekeepers to get something placed in this business." He advised actuaries to be more visible with clients. "The way you're going to outperform your peers is to know how a company works. Get out there with your underwriters; get to know your clients and how they view risk," he said.
Wednesday, June 16, 2010
Federal Judge Approves $72M Insurance Settlement with The Hartford
A federal judge has given preliminary approval to a settlement under which The Hartford Financial Services Group Inc. will pay $72.5 million to more than 21,000 people nationwide who alleged the insurer engaged in fraud in settling their injury claims.
U.S. District Court Judge Janet C. Hall approved the agreement last week in Bridgeport to resolve the class action lawsuit. It was announced Monday by attorneys for those who sued.
The plaintiffs alleged The Hartford engaged in fraudulent settlement practices by deducting up to 15 percent of the value of their settlements in undisclosed annuity costs.
"It's a great settlement because people who have been victimized by corporate fraud are getting reimbursed,'' said David Golub, one of the attorneys for the plaintiffs.
The Hartford said the claimants received the promised amounts they were due. It said the company settled to avoid the uncertainty and cost of continued litigation.
The company did not admit to fraud as part of the settlement. Company officials said it disclosed the settlement in its first quarter earnings report.
Its shares rose 91 cents, or 3.8 percent, to $24.92 in midday trading.
The 21,000 people were due payments for claims dating to 1997 involving car accidents, workers compensation and other injuries. They are expected to receive an average of about $3,300 each as a result of the settlement.
At issue were structured settlements in which payments are made over time rather than in a lump sum paid at the time of settlement. Such settlement payments are typically funded with annuities.
The lawsuit alleged The Hartford developed a scheme in which its property and casualty companies purchased the annuities from its life insurance subsidiary, which then paid a kickback to the property and casualty companies. The lawsuit accused the company of violating a racketeering law.
The Hartford retained about 15 percent of the value of the structured settlements to cover profits, taxes and costs, according to the lawsuit.
The settlement, expected to receive final approval in September, came after extensive mediation and five years of litigation in which Hall certified a nationwide class action and an appeals court rejected the company's challenge to class certification last year. The trial was scheduled to start in September.
U.S. District Court Judge Janet C. Hall approved the agreement last week in Bridgeport to resolve the class action lawsuit. It was announced Monday by attorneys for those who sued.
The plaintiffs alleged The Hartford engaged in fraudulent settlement practices by deducting up to 15 percent of the value of their settlements in undisclosed annuity costs.
"It's a great settlement because people who have been victimized by corporate fraud are getting reimbursed,'' said David Golub, one of the attorneys for the plaintiffs.
The Hartford said the claimants received the promised amounts they were due. It said the company settled to avoid the uncertainty and cost of continued litigation.
The company did not admit to fraud as part of the settlement. Company officials said it disclosed the settlement in its first quarter earnings report.
Its shares rose 91 cents, or 3.8 percent, to $24.92 in midday trading.
The 21,000 people were due payments for claims dating to 1997 involving car accidents, workers compensation and other injuries. They are expected to receive an average of about $3,300 each as a result of the settlement.
At issue were structured settlements in which payments are made over time rather than in a lump sum paid at the time of settlement. Such settlement payments are typically funded with annuities.
The lawsuit alleged The Hartford developed a scheme in which its property and casualty companies purchased the annuities from its life insurance subsidiary, which then paid a kickback to the property and casualty companies. The lawsuit accused the company of violating a racketeering law.
The Hartford retained about 15 percent of the value of the structured settlements to cover profits, taxes and costs, according to the lawsuit.
The settlement, expected to receive final approval in September, came after extensive mediation and five years of litigation in which Hall certified a nationwide class action and an appeals court rejected the company's challenge to class certification last year. The trial was scheduled to start in September.
Tuesday, June 15, 2010
Lawyer for Alleged Ponzi Schemer Stanford Accused of Insurance Fraud
The judge handling the criminal case against accused Ponzi schemer Allen Stanford is allowing parties to review documents related to allegations that the Texas financier's lawyers engaged in insurance fraud.
An order released Monday by U.S. District Judge David Hittner in Houston adds a twist to a case in which Stanford has cycled through many lawyers, prompting three co-defendants to ask that their trials be severed because the case has become a ''circus.''
Stanford was arrested in June 2009 and accused of running a $7 billion Ponzi scheme focused on his Stanford Financial Group's fraudulent sale of certificates of deposit issued by his Antigua bank. A January 2011 trial is expected.
Hittner's order relates to a separate insurance coverage dispute that Stanford and underwriters at Lloyd's of London and Arch Specialty Insurance Co. are litigating in the same court. The order lets the underwriters review documents filed under seal.
According to court papers, the underwriters learned that Michael Essmyer, who is Stanford's co-counsel in the criminal case, alleged that lead counsel Robert Bennett and his Bennett-Nguyen Joint Venture "may have engaged in insurance fraud'' in submitting a fee application.
Bennett denied engaging in insurance fraud, according to the papers, which were signed by him, Essmyer and a lawyer for the insurers.
It follows the June 9 request by Laura Pendergest-Holt, a former Stanford Financial chief investment officer, to sever her trial.
She said the "egregious and circus-like conduct'' by Stanford and his lawyers jeopardizes her right to a fair trial.
Former Stanford accounting executives Mark Kuhrt and Gilbert Lopez joined her motion, which uses the word "circus'' nine times and said the potential prejudice created by Stanford could prove "toxic.''
Bennett Monday declined to comment.
Earlier this month, Hittner rejected Essmyer's attempt to withdraw from the case after Stanford had fired him, and amid ''irreconcilable differences'' with Bennett over litigation strategy, but directed that Bennett serve as lead counsel.
Bennett is a Houston-based lawyer, not the prominent Washington, D.C., lawyer with the same name.
The case is U.S. v. Stanford, U.S. District Court, Southern District of Texas, No. 09-cr-00342.
An order released Monday by U.S. District Judge David Hittner in Houston adds a twist to a case in which Stanford has cycled through many lawyers, prompting three co-defendants to ask that their trials be severed because the case has become a ''circus.''
Stanford was arrested in June 2009 and accused of running a $7 billion Ponzi scheme focused on his Stanford Financial Group's fraudulent sale of certificates of deposit issued by his Antigua bank. A January 2011 trial is expected.
Hittner's order relates to a separate insurance coverage dispute that Stanford and underwriters at Lloyd's of London and Arch Specialty Insurance Co. are litigating in the same court. The order lets the underwriters review documents filed under seal.
According to court papers, the underwriters learned that Michael Essmyer, who is Stanford's co-counsel in the criminal case, alleged that lead counsel Robert Bennett and his Bennett-Nguyen Joint Venture "may have engaged in insurance fraud'' in submitting a fee application.
Bennett denied engaging in insurance fraud, according to the papers, which were signed by him, Essmyer and a lawyer for the insurers.
It follows the June 9 request by Laura Pendergest-Holt, a former Stanford Financial chief investment officer, to sever her trial.
She said the "egregious and circus-like conduct'' by Stanford and his lawyers jeopardizes her right to a fair trial.
Former Stanford accounting executives Mark Kuhrt and Gilbert Lopez joined her motion, which uses the word "circus'' nine times and said the potential prejudice created by Stanford could prove "toxic.''
Bennett Monday declined to comment.
Earlier this month, Hittner rejected Essmyer's attempt to withdraw from the case after Stanford had fired him, and amid ''irreconcilable differences'' with Bennett over litigation strategy, but directed that Bennett serve as lead counsel.
Bennett is a Houston-based lawyer, not the prominent Washington, D.C., lawyer with the same name.
The case is U.S. v. Stanford, U.S. District Court, Southern District of Texas, No. 09-cr-00342.
Thursday, June 10, 2010
24 South Florida firms closed for lack of workers' compensation
A two-day sting has led to the closure of 70 Florida businesses -- including 24 in South Florida -- because of violations of the state's workers' compensation laws.
Random site visits by the state Department of Financial Services found the companies failed to provide workers' compensation insurance for their employees.
State law says construction-related companies must have workers' compensation coverage if they have one or more employee, including the owner. Other businesses must have the coverage if they employ four or more employees, excluding business owners.
More than 360 liens have been filed against delinquent employers since late 2009, totaling $13.7 million.
The companies caught without the right coverage or coverage violations were issued stop-work orders, which require businesses to shut down until proper coverage is obtained and a penalty is paid.
The South Florida firms include:
In Broward, BP Paving Inc., D&D Construction Group, Ideal Roofing Systems.
In Miami-Dade, Aldo's Pool, Americans Builders and Construction, Dianza Commercial Dry Wall System, Authentic Construction, Professional Carpentry USA, GA Stone, No Drip Plumbing, JJJ Finishing Master, Built Top Building Services, Superior Wood Floor, Unlimited Ceiling Corp., Reinolds H. Castro Inc., Laura's Management, J.R.F. Florida Painting Corp., ABC Seamless Rain Gutters, Jose Ber Tile, Zepol, Allen R. Greenwald, Mercado Enterprise, Articpolo Inc., Enloe Carpentry.
Random site visits by the state Department of Financial Services found the companies failed to provide workers' compensation insurance for their employees.
State law says construction-related companies must have workers' compensation coverage if they have one or more employee, including the owner. Other businesses must have the coverage if they employ four or more employees, excluding business owners.
More than 360 liens have been filed against delinquent employers since late 2009, totaling $13.7 million.
The companies caught without the right coverage or coverage violations were issued stop-work orders, which require businesses to shut down until proper coverage is obtained and a penalty is paid.
The South Florida firms include:
In Broward, BP Paving Inc., D&D Construction Group, Ideal Roofing Systems.
In Miami-Dade, Aldo's Pool, Americans Builders and Construction, Dianza Commercial Dry Wall System, Authentic Construction, Professional Carpentry USA, GA Stone, No Drip Plumbing, JJJ Finishing Master, Built Top Building Services, Superior Wood Floor, Unlimited Ceiling Corp., Reinolds H. Castro Inc., Laura's Management, J.R.F. Florida Painting Corp., ABC Seamless Rain Gutters, Jose Ber Tile, Zepol, Allen R. Greenwald, Mercado Enterprise, Articpolo Inc., Enloe Carpentry.
And the Best, Worst States for Tort Liability Costs Are...
Alaska, Hawaii and North Carolina get thumbs up while New Jersey, New York and Florida get thumbs down for their tort liability costs in the latest ranking by a free-market think tank.
The states with the worst performance had the highest monetary tort losses and tort litigation risks, meaning they had more costly and riskier business climates due to larger plaintiff awards, larger plaintiff settlements, more lawsuits, or some combination of the three, according to the researchers.
The Pacific Research Institute (PRI), a non-profit free-market organization based in San Francisco, and the Manufacturers Alliance (MAPI), a public policy and economic research organization for manufacturers based in Arlington, Va., today released their 201o U.S. Tort Liability Index, a measure of which states impose the highest and lowest tort costs and risks.
States were also ranked according to their tort rules and reforms on the books to reduce lawsuit abuse and contain tort costs and risks, such as award caps, venue reforms to stop "litigation tourism," or judicial-selection reforms to hinder the types of abuses engaged in by the likes of now imprisoned "Kings of Tort" Dickie Scruggs and Paul Minor. The Index found that, in the wake of its comprehensive lawsuit reforms enacted in 2009, Oklahoma now has the best tort rules on the books, followed by its neighboring state of Texas.
The Index, now in its third edition, was authored by Lawrence J. McQuillan, Ph.D., director of Business and Economic Studies, and Hovannes Abramyan, M.A., adjunct public policy fellow.
"Direct tort costs account for almost 2 percent of GDP in the United States—that's the highest in the world," said McQuillan. "These high costs impact American businesses when firms have to divert revenue to fight lawsuits. But all of us ultimately shoulder the burden through higher prices and insurance premiums, lower wages, restricted access to health care, less innovation, and higher taxes to pay for court costs."
"If lawmakers want to put people back to work, without costing taxpayers another penny for so-called 'stimulus', they should enact needed lawsuit reform," added Abramyan. "Job growth was 57 percent greater in the 10 states with the best tort climates than in the 10 states with the worst tort climates."
The Best and Worst Tort Climates
The Best
1.Alaska
2.Hawaii
3.North Carolina
4.South Dakota
5.North Dakota
6.Maine
7.Idaho
8.Virginia
9.Wisconsin
10.Iowa
The Worst
1.New Jersey
2.New York
3.Florida
4.Illinois
5.Pennsylvania
6.Missouri
7.Montana
8.Michigan
9.Connecticut
10. California
Saints, Sinners, Suckers, and Salvageables
The Index sorts states into four groups based on their ranking for outputs (tort costs and tort litigation risks) and inputs (tort rules and reforms on the books).
Saints: States that have relatively low tort costs and/or low tort litigation risks and relatively strong tort rules on the books.
Sinners: States that have relatively high tort costs and/or high tort litigation risks and relatively weak tort rules on the books.
Suckers: States that have weak tort rules on the books because they currently have relatively low tort costs and/or low tort litigation risks.
Salvageables: States that have moderate to high relative tort costs and/or tort litigation risks, yet have moderate to strong tort rules, usually as a result of recent reforms.
"Only five states made 'Saint' status, whereas 20 states were labeled 'Sinners'," said McQuillan. "This signals a dire need for further reform in many states. The goals of our tort system are to efficiently deter harmful events and fully compensate true victims, not to line the pockets of system abusers."
The states with the worst performance had the highest monetary tort losses and tort litigation risks, meaning they had more costly and riskier business climates due to larger plaintiff awards, larger plaintiff settlements, more lawsuits, or some combination of the three, according to the researchers.
The Pacific Research Institute (PRI), a non-profit free-market organization based in San Francisco, and the Manufacturers Alliance (MAPI), a public policy and economic research organization for manufacturers based in Arlington, Va., today released their 201o U.S. Tort Liability Index, a measure of which states impose the highest and lowest tort costs and risks.
States were also ranked according to their tort rules and reforms on the books to reduce lawsuit abuse and contain tort costs and risks, such as award caps, venue reforms to stop "litigation tourism," or judicial-selection reforms to hinder the types of abuses engaged in by the likes of now imprisoned "Kings of Tort" Dickie Scruggs and Paul Minor. The Index found that, in the wake of its comprehensive lawsuit reforms enacted in 2009, Oklahoma now has the best tort rules on the books, followed by its neighboring state of Texas.
The Index, now in its third edition, was authored by Lawrence J. McQuillan, Ph.D., director of Business and Economic Studies, and Hovannes Abramyan, M.A., adjunct public policy fellow.
"Direct tort costs account for almost 2 percent of GDP in the United States—that's the highest in the world," said McQuillan. "These high costs impact American businesses when firms have to divert revenue to fight lawsuits. But all of us ultimately shoulder the burden through higher prices and insurance premiums, lower wages, restricted access to health care, less innovation, and higher taxes to pay for court costs."
"If lawmakers want to put people back to work, without costing taxpayers another penny for so-called 'stimulus', they should enact needed lawsuit reform," added Abramyan. "Job growth was 57 percent greater in the 10 states with the best tort climates than in the 10 states with the worst tort climates."
The Best and Worst Tort Climates
The Best
1.Alaska
2.Hawaii
3.North Carolina
4.South Dakota
5.North Dakota
6.Maine
7.Idaho
8.Virginia
9.Wisconsin
10.Iowa
The Worst
1.New Jersey
2.New York
3.Florida
4.Illinois
5.Pennsylvania
6.Missouri
7.Montana
8.Michigan
9.Connecticut
10. California
Saints, Sinners, Suckers, and Salvageables
The Index sorts states into four groups based on their ranking for outputs (tort costs and tort litigation risks) and inputs (tort rules and reforms on the books).
Saints: States that have relatively low tort costs and/or low tort litigation risks and relatively strong tort rules on the books.
Sinners: States that have relatively high tort costs and/or high tort litigation risks and relatively weak tort rules on the books.
Suckers: States that have weak tort rules on the books because they currently have relatively low tort costs and/or low tort litigation risks.
Salvageables: States that have moderate to high relative tort costs and/or tort litigation risks, yet have moderate to strong tort rules, usually as a result of recent reforms.
"Only five states made 'Saint' status, whereas 20 states were labeled 'Sinners'," said McQuillan. "This signals a dire need for further reform in many states. The goals of our tort system are to efficiently deter harmful events and fully compensate true victims, not to line the pockets of system abusers."
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