Is this the End of Lawsuit Lotto?
The President is determined to limit who you can sue and for how much. The goal is fewer loony lawsuits. But are the facts getting whiplashed?
(MONEY Magazine) – It's the American way. Trip and fall, find a fast-talking lawyer and a gullible jury, and you too can sue somebody and get rich. Kind of like that grandma who spilled scalding-hot coffee on herself in a car back in 1992—and successfully sued McDonald's for nearly $2.9 million. Better hurry, though. Momentum is gathering in Washington, D.C. to transform our loco legal system. Indeed, the President has vowed to make tort reform a centerpiece of his domestic agenda.
Whether that's good for regular folks is a matter of fierce and partisan dispute, the first victim of which, as always, is going to be the unvarnished truth. You the citizen-juror are about to be spun senseless by two opposing sides stocked with enough aw-shucksing lawyers and stat-spouting lobbyists to fill a shelf's worth of John Grisham novels. But this much is certain: Whatever emerges from the debate could have a huge effect on everything from the price you pay for takeout coffee to your ability to stop an incompetent doctor from ever practicing medicine again. So you'll need to pay attention. Here's a guide to what's really going on.
Lead prosecutor George W. Bush says too many lawsuits are filed in this country and that the costs associated with them are hobbling the economy. "Those who have been hurt ought to have their day in court," he declared in December, "[but] we cannot have the legal system be a legal lottery." The President supports long-festering legislation in Congress that would limit pain-and-suffering awards in medical malpractice cases to $250,000. He also wants to make it harder for lawyers to gin up class-action lawsuits, which are big and complex cases with many plaintiffs, such as those against Enron and Merck, the maker of the painkiller Vioxx.
The President and his allies—business groups, from the U.S. Chamber of Commerce to the American Medical Association, and most Republicans—contend that fewer lawsuits and smaller awards will shrink tort costs for business and that will mean lower prices for consumers. David Bernstein, a law professor at George Mason University, says the average American will "care that their local doctor is more likely to stay in his or her practice, or that when they go to Home Depot, the ladders cost 20% less because people aren't falling off them and suing for millions. Scaling back the system probably won't have any effect on your health or safety, but it'll probably save you some money."
On the defense is the Association of Trial Lawyers of America and most Democrats, who counter that tort reform as the President defines it means people who've been hurt will have a harder time getting justice. "Everybody is talking about 'frivolous' lawsuits," scoffs Harvard Law School professor Arthur Miller. "Where's the proof? These allegations of 'tort taxes' and other statistics are put out by industry-oriented groups."
While there's rhetoric everywhere, there's little independent data to settle the question of whether America is suffering from a litigation crisis. A recent report by management consultants Towers Perrin Tillinghast found that total tort costs (mainly the dollars insurance companies spent on lawyers, judgments and settlements) rose 5.4%, or $35 per American, in 2003, compared with a 13.4% hike in 2002. While there've been peaks and valleys, tort costs have been taking a generally bigger bite out of the nation's GDP since the 1950s (see the chart). Score one for the President.
The unanswered question is why the nation's legal bill is rising. Is it due to an explosion of crazy lawsuits? Or is it because more quacks and crooks are being sued by patients and shareholders? It's even tough to say for sure how nutty those payouts have become. Settlements are often kept confidential. (Data on awards are scattered across the 50 states.) And many of the largest awards are later slashed by the courts on appeal. That $2.9 million McDonald's coffee spill made headlines and caused outrage a decade ago. Less widely reported was a judge's subsequent move to cut the award to $640,000. McDonald's then settled out of court. The amount actually paid is still a secret today.
The scorched grandma died last year at age 91, but her now legendary lawsuit remains Exhibit A in the tort debate. Some say it exemplified the worst in our suit-crazed culture. Others say wait a minute. The woman who sued suffered severe burns that required surgery. She tried to get the company to cover her medical costs (it refused) before suing. And it turned out that McDonald's had received hundreds of similar complaints about scalding-hot coffee.
That divide mirrors the debate in Congress. There are those who say people are taking advantage of good companies with lawsuits, and others who say suits with million-dollar penalties are the last, best hope for people to get companies to stop taking advantage of consumers. Your stand in the end? Depends on where you sit, of course. Just make sure a cup of 180°F coffee is nowhere within spilling distance.