For the first time in a decade, U.S. tort costs declined in 2006 thanks to significant drops in commercial legal awards ”“ but with potential litigation over subprime mortgage failures, don”™t expect a repeat performance.
Tort costs totaled $247 billion in 2006, down 5.5 percent from the year before, according to the Tillinghast insurance consulting practice of Stamford-based Towers Perrin.
Towers Perrin attributed the 2006 decline to a decrease in the number of auto accidents and a waning impact of asbestos litigation. Medical malpractice costs rose at a slower rate, which Towers Perrin said may have been due to the impact of reforms in several states.
The study included the financial impact of court awards, defense costs and administrative expenses, but not out-of-court settlements.
“In 2006, the modest decline in personal tort costs was combined with a significant drop on the commercial side,” said Russ Sutter, a Towers Perrin principal “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.”
In a separate report issued in December, liability reinsurance broker Guy Carpenter singled out Connecticut as one of a dozen states in which real estate professionals are most at threat for errors and omissions (E&O) in their liability coverage.
“It is fair to say that certain states could be considered lighting rods for lawsuits,” said Kevin Griffiths, head of the New York City broker”™s global casualty specialty practice. “As the number of foreclosures increases, and an increasing number of borrowers become delinquent in their mortgages, the likelihood of E&O lawsuits in these locations also rises.”
Connecticut has addressed perceived shortcomings in its tort system on several occasions in the past two decades. In 2005, the state passed laws to limit medical malpractice litigation in hopes of reducing insurance premiums paid by doctors.
Those reforms appear to have had an impact: last spring the Connecticut Department of Insurance reported that premiums for the five largest malpractice insurers fell 10 percent last year. In July, new data showed that just 290 cases were filed for the most recent fiscal year, down from an annual average of 380 over the first half of the decade.
By contrast, New Jersey won mention as a “judicial hellhole” by the American Tort Reform Association, which said the state”™s judges routinely side against defendants. A group called the New Jersey Lawsuit Reform Alliance was founded last October to examine a reported increase in lawsuits brought by out-of-state plaintiffs unable to successfully press their claims in other states.
Connecticut does not entirely escape the wrath of tort reformists ”“ at the start of 2007, the Competitive Enterprise Institute ranked state Attorney General Richard Blumenthal as the worst-case example of an AG regulating businesses through litigation.
