Before President Bush signed the Class Action Fairness Act of 2005 into law, tort reform efforts always stalled like a car in serious need of a tune-up. But this new law will go a long way toward remedying abuses and restoring balance to a seriously out-of-whack civil justice system.
For too long, the system has allowed a few large law firms with vast resources and expertise to exploit it for their own gain. It has rewarded plaintiffs’ lawyers with huge fees, but provided little or no value to victims. It has stymied innovation, stifled economic growth and bankrupted many businesses. The Class Action Fairness Act will begin to attack the “litigation tax” that levies $246 billion annually on our society.
The cost is particularly high for American manufacturers, amounting to 4.5 percent of the cost of making everything from clothing to cars. The U.S. Chamber of Commerce estimates our tort system costs small businesses alone $88 billion a year.
Now we are on the verge of restoring common sense and balance. The new law restricts forum shopping by directing cases of truly national scope to federal courts. It also limits lawyers’ fees in so-called coupon settlements, where plaintiffs get discounts on products instead of financial settlements, and requires settlement notices to be written in plain English.
The next step is asbestos lawsuit reform. Even the American Bar Association told Congress: “Asbestos litigation is spiraling out of control. Many ill people are dying before they get their day in court, while others are denied compensation as dozens of corporations go bankrupt.” More than 600,000 asbestos claims are clogging the courts. Estimates of the total cost for all claims, including attorney fees, range from $200 billion to $265 billion.
Certainly, asbestos victims and their survivors must be compensated. But the system is being gamed to provide financial rewards for fraudulent and frivolous claims. Federal legislation, now under consideration, would untie what has been called the “Gordian knot of American politics.” An acceptable solution must afford fairness both to victims and companies, provide compensation for meritorious claims and provide predictability to industries that stopped using asbestos decades ago.
This Fairness In Asbestos Injury Resolution Act would create a trust fund with contributions from manufacturers, insurers and others to pay workers who are actually sick and provide screenings for those exposed to asbestos but not yet ill. The trust fund approach has some merit, yet this particular bill is problematic.
This summer, as the bill makes its way to the Senate floor, many insurers and other industries are opposing it. Congress should examine all possible ways to resolve the asbestos problem, including medical criteria legislation that would require claimants to prove their cases in courts in the state where alleged injuries occurred.
Finally, medial malpractice lawsuits must be curbed. It’s a problem that costs America’s health care system untold billions of dollars. One costly consequence has been the defensive practice of medicine whereby doctors prescribe unnecessary tests to shield themselves from lawsuits. By one estimate, that alone dents the federal budget by $217 billion a year.
There are hidden, more insidious costs as well: doctors who shun high-risk patients for fear of being sued and talented obstetricians who retire early or transfer to other fields rather than pay breathtaking malpractice insurance premiums.
A federal approach to malpractice reform should be considered, perhaps based on California’s Medical Injury Compensation Reform Act. Over three decades, that law has trimmed legal fees and liabilities and kept premium growth to one-third the national rate.
Clearly, we’ve got our work cut out for us. We must understand what’s at stake, educate our employees and find common ground to solve these issues. As business leaders and as concerned citizens of a country with a $12 trillion economy, we can help right what’s wrong.
Edward M. Liddy is chairman and CEO of The Allstate Corporation in Northbrook, Ill.