July 12, 2004

July 12, 2004 | Commentary on Legal Issues

Tort reform, the right way

Everyone this side of the trial lawyers' cabal knows that the civil-justice system is broken. Fewer than 45 cents of every dollar recovered in civil actions wind up in the pockets of the victims; the rest goes to the lawyers and their "overhead costs."

This method of redressing civil wrongs is tremendously inefficient, costing Americans more than $180 billion per year -- roughly 2 percent of our Gross Domestic Product. By contrast, other countries' tort systems operate far less expensively. Great Britain's system claims only 0.6 percent of its GDP annually; Denmark's only 0.4 percent.

Yet legislative efforts to reform the system have stalled in state capitals and Washington, DC. This is partially due to the wealth and raw political pull of trial lawyers. Their campaign contributions -- running to hundreds of millions of dollars every election cycle -- have bought a dedicated opposition to reform among many incumbents.

But the stalemate also partially results from the fact that many timeworn reform proposals -- though well-intentioned -- are wrongheaded. Putting a monetary cap on damages, for example, inevitably means that some deserving victims will be undercompensated. Indeed, the thrust of popular reforms often pits defendants (whether doctors or manufacturers) and their insurers against the average citizen, whose only real desire is to be justly compensated for injuries suffered.

It is time to change the dynamic. Bold new thinking is required to put victims and insurance companies on the same side of the debate and lessen the influence of lawyers who too often add nothing to the process except costs.

The new ideas should not focus exclusively on plaintiff's lawyers when it comes to lowering excessive costs. Defendants' lawyers make a killing as well. They can delay resolution of cases, all the while lining their own pockets.

Let's begin by identifying the core problem. When a truly tragic accident occurs -- say an operation goes badly wrong -- the victim should be compensated. That's a given. But lawyers sell the myth that victims can't recover without their help. As a result, plaintiff lawyers charge a 33 percent fee to provide access to the courts. And defense lawyers collect $300 per hour for delaying payment of claims that everyone knows are legitimate.

How do we fix the problem? The answer lies in returning to the concept of "risk." We have always allowed lawyers to charge "contingent fees" based upon a percentage of the recovery because we want them to take on risky cases where there might be no recovery at all. But in a serious auto accident or a botched operation there is no "risk." Recovery is a certainty. Why should the lawyers get anything more than a modest fee for their time and energy in making all the forms come out right?

Here are two proposals to fix the problem. Either would work.

Proposal A: a rule requiring truth in advertising. When lawyers charge a contingent fee, they should also disclose the equivalent hourly rate, and give the clients a choice. Based upon their own experience, plaintiff lawyers know how much they will have to work to get a settlement. So do the defense lawyers and insurance companies. Only the poor victims, inexperienced with the legal system, enter into the proceedings ignorant of these matters.

But it doesn't take a legal education to understand money. Imagine how the average American would react if lawyers were forced to quote their fees as "33 percent or $5,000 per hour." And why would lawyers object, except to keep the true nature of their fees secret?

Or, how about Proposal B, a rule that requires lawyers to try to settle cases before filing suit? And, if their client wants to accept the settlement offered, then they could only charge an hourly rate based upon the actual number of hours they must work to finalize the settlement papers. Either of these proposals would do two things: reduce the amount of money that lawyers drain out of the system, and increase the amount of money that actually goes into victims' pockets. Wouldn't that be a good thing?

Paul Rosenzweig is a senior legal researcher at The Heritage Foundation and an adjunct professor of law at George Mason University.

About the Author

Paul Rosenzweig
Edwin Meese III Center for Legal and Judicial Studies

Related Issues: Legal Issues

First appeared in the San Francisco Examiner