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 and risks 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.

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 2010 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 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.”

In a 2008 report by the same groups, Florida ranked the worst, while North Dakota ranked the best. Colorado had the best tort laws on its books, while Rhode Island had the worst.

The Best and Worst Tort Climates- 2010

The Best- 2010

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- 2010

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.”