The Institute for Legal Reform (ILR) recently presented how excessive civil litigation costs continue to plague the country at their SummitXX conference in Washington D.C. They explained that households are each indirectly spending thousands every year toward these costs. They reported that approximately 57% of the total expense is paid in plaintiff compensation and the remainder is used for administrative costs and legal and insurance fees. Lisa Rickard, who leads the ILR, says the costs are equivalent to 75% of U.S. defense spending and well exceeds the federal budget for education.
Gathering this vast amount of data is certainly not an easy process. Researchers accessed data from liability insurers operating in markets including commercial, medical malpractice, automobile, homeowners and others. The research was focused exclusively on data for 2016. The results showed that costs vary widely from state-to-state based on variables including the state’s economy and size along with the legal and regulatory framework. Those involved say the report is reliable and the analysis was “transparent.” This model will be their foundation for subsequent studies to evaluate U.S. litigation costs.
States With Highest Costs
Some of the factors considered when analyzing individual state data included costs of liability insurance coverage, limits (caps) on recoverable damages and healthcare costs. California’s overall litigation costs were reportedly $56 billion for 2016. New York was second with a total exceeding $43 billion. Pennsylvania and Illinois each were estimated near $18 billion. These costs were also calculated as a percentage of the state’s GDP. From this perspective, Florida has the highest rate with litigation costs equivalent to 3.6% of the overall state economy.
Costs on Per Household Basis
The research attempted to explain how these costs are “baked” into the economy. Households recognize these costs in higher insurance premiums. Some of the states with the highest totals are outlined below.
Annual Cost Per Household
Litigation Costs as a “Tax”
Stephen Waguespack, speaking on behalf of the Louisiana Association of Business, explained how his state is dealing with the second most costly insurance premiums of all U.S. states. He says that manufacturing companies and transportation firms have expressed a desire to relocate to move workers and production to other less costly environments. He is seeking to heighten awareness among voters of how litigation costs are actually a “tax” on households and businesses.
Maryland’s Caps (Limits) on Damages
The Maryland legislature has taken measures to reduce overall litigation costs such as by imposing limits on damages that may be awarded in personal injury suits . Some of the keys provisions relating to damages include:
- There is currently no cap on economic damages, which are those such as lost wages, medical expenses and property damage
- Non-economic damages such as pain and suffering, emotional hardship and loss of enjoyment were initially limited to $350,000
- This cap on non-economic damages increases annually by roughly $15,000 per year and was up to $845,000 as of October 2017
- In cases of wrongful death, the limitations are expanded, such as those with multiple plaintiffs that may be up to 150% of the limits
 Please note: This data does not apply to the state’s limitations for claims of medical malpractice
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