The Tort Tax

IN 1990 A UNIVERSITY OF TEXAS at Austin finance professor named Stephen Magee made headlines when he tried to put a dollar figure on the damage that lawyers and lawsuits inflict on the U.S. economy. He eventually estimated $320 billion a year—$1 million for each of the 320,000 American lawyers that he determined to be superfluous. Clever rogues that they are, lawyers were quick to respond: Magee received letters from attorneys wanting to know where they could surrender their law licenses in exchange for the million bucks.

Maybe that’s not such a bad deal after all. A good place to start would be the East Texas town of Daingerfield, the scene of the largest mass products-liability lawsuit in the United States and the subject of Skip Hollandsworth’s cover story, “The Lawsuit From Hell” (page 106). The case, which alleges that a variety of toxic products shipped to the Lone Star Steel plant caused thousands of workers to contract serious diseases, has lasted for nine years with minimal evidence to support it—“a maddening morass of litigation,” writes Hollandsworth, “that has ensnared hundreds of lawyers and generated untold millions of dollars in legal fees.” The discrepancy between the gargantuan cost of the case and its scant merits ought to make the entire legal profession ashamed of itself.

But the lawyers, of course, reap the rewards for their shenanigans while we pay the bills. The cost to each of us in the higher prices we pay for insurance and products is one good reason why, in the words on our cover, we hate lawyers. Excess medical claims add between $100 and $130 to the cost of every automobile insurance policy. The threat of lawsuits, which critics call a “tort tax,” accounts for half the cost of a football helmet, one-fifth the cost of a ladder, one-sixth the cost of a pacemaker. These indirect costs—estimated by Forbes magazine at $300 billion—pile up on top of the direct costs of legal fees, jury awards, and settlements.

Another reason to hate lawyers is that they are the ultimate hypocrites. (Some would say the same for journalists, but our fee is only $2.95.) Lawyers love to present themselves as champions of justice, but in fact the legal system benefits lawyers more than the people it is designed to help. In the routine field of automobile injury cases, lawyers on both sides take home almost half the dollars paid out by insurers. In mega-lawsuits, brazen types can do far better. When a class-action suit over dental adhesives was settled for $1 million, the original plaintiff got $25,000, another 650 plaintiffs ended up with $7 each, the remaining 2,800 plaintiffs received discount coupons for dental products, and the winning lawyers took home $954,934.57.

Money, however, isn’t the only price that society must pay for litigious lawyers. The biggest losses occur in ways that are beyond measurement: how the results of lawsuits and the fear of lawsuits alter behavior and diminish our everyday lives.

Once upon a time, real estate agents told prospective buyers the size of a house in square feet. Once upon a time, swimming pools in public parks had high diving boards. Once upon a time, a quail hunter could get verbal permission to hunt on a farmer’s land. Once upon a time, a school district could fire incompetent teachers. Once upon a time, oil companies told royalty owners how the payments were calculated. Once upon a time, an employer could find out why a job applicant had left a previous position. Once upon a time, a renter could move into a big apartment complex in Houston without submitting to a criminal background check. Because of lawsuits, there are fewer all-night laundromats, especially in high-crime neighborhoods. Because of lawsuits, insurance companies insist that coaches of youth-league teams take a seminar that packs fifteen minutes of obvious information (“Never touch a player’s genitals”) into three hours. Because of lawsuits, doctors put patients through unnecessary tests at an aggregate cost of $15 billion a year. Because of lawsuits, the forms you sign when you rent a car or buy a home are three times as long as they used to be. Because of lawsuits, many companies involved in inherently hazardous activities—from making cigarettes to operating nuclear power plants—have stopped doing self-critiques of their performance. They dare not put anything in writing.

Lawyers will tell you that they are defending people’s rights, but what too often happens is that one victim’s gain is the public’s loss. Tragically, a woman was raped in an Austin late-night laundromat, and her lawyer filed suit, contending that the owner should have provided security. She won the case, but the company couldn’t afford to hire a security guard for every laundromat. Instead, it closed 36 outlets in high-risk neighborhoods, putting 75 people out of work. Another justification lawyers use is that lawsuits benefit society by setting a higher standard for future conduct. But that’s not the impact of most lawsuits. When a real estate agent got sued for giving out the wrong number of square feet, for example, do you really think that lawyers for other agents told their clients to make extra-careful measurements in the future? Of course not. The lawyers advised agents to stop giving out the information altogether.

But, the lawyers will say, the threat of lawsuits has made America a much safer place. Perhaps—but safety has come at a high price. More than diving boards (and, in colder climes, sledding sites) in public parks have been taken away from us. A 1992 report by Science magazine, subsequently confirmed by the U.S. Office of Technology Assessment, found that fear of litigation has hampered the development of an AIDS vaccine. One researcher told the magazine, “If a vaccine protects ninety-nine people and one person develops complications and they trace that back to the vaccine, that one case will send the company down the drain.” If lawyers can claim credit for protecting society from harmful products, they must take the blame for preventing society from using beneficial products.

The lawyers are right

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