Report: Tort Costs Down — For a While, At Least

By December 14, 2007Briefly Legal

From Towers-Perrin, a global professional services firm, their annual tort costs study. Notable subhed: “First Decrease in Tort Costs Since 1997, but Signs Indicate Trend Will Not Continue”:

Stamford, CT., December 12, 2007 — U.S. tort costs totaled $247 billion in 2006, which is approximately $825 per person and $57 less per person than in 2005, according to the 2007 Update on U.S. Tort Cost Trends from the Tillinghast insurance consulting practice of Towers Perrin. Tort costs declined by 5.5% in 2006, significantly lower than the growth rate of 0.4% in 2005, 6% in 2004 and 5.5% in 2003. The $13.4 billion decrease over tort costs in 2005 marks the first downward trend since 1997. The 2007 report analyzes U.S. tort costs from 1950 through 2006, with projections through 2009.

Reasons for the improvements? Stable med-mal costs, drops in auto claims, and diminishing asbestos claims. And coming up …

“In 2006, the modest decline in personal tort costs was combined with a significant drop on the commercial side,” said Russ Sutter, Towers Perrin Principal. “However, given several factors, including the potential fallout from the current subprime loan crisis, we anticipate a reversal in 2007. To put it bluntly, when people lose money, litigation tends to follow.”

A good summary of the factors that could come into play follows:

  • whether the declining frequency of auto accidents has bottomed out
  • how the recent state-level medical malpractice reforms from the past few years will affect the moderation of recent trends, particularly as Illinois tort reform was ruled by a judge to be unconstitutional last month
  • whether the deterioration in the subprime mortgage market in 2007 will lead to lawsuits from both investors in select financial institutions and homeowners holding mortgages from those financial institutions
  • the outcome of current asbestos litigation and impact on reserve amounts potential for litigation against companies related to spotlight issues like global warming and childhood obesity.
  • The full report is available here in .pdf format.

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