CEO Alarm: The Real Cost Of State Liability
Excessive tort litigation costs are estimated at $589 billion, but state-level liability lawsuits cost more than just indemnities, legal fees and G/A. There are substantial hidden costs.
Liability Crisis Hidden Costs
Damage to share value and reputation. Increasingly, the plaintiff's bar is mounting PR campaigns and analyst briefings designed to drive down share value to force companies to settle even when they've done nothing wrong:
  • Merck lost $40 billion in value after the filing of Vioxx lawsuits.
  • The HMO industry lost $12 billion in value in one day after a Dickie Scruggs press conference.
  • Tort lawsuits reduce stockholder wealth by $684 billion each year.
Higher litigation reserves, insurance costs and employee health care costs.
  • $124 billion of total health care costs is attributable to defensive medicine/litigation concerns. The lions share falls on employers that provide employee health insurance.
Stunted innovation/lost sales.
  • Inhibited research and development results in a $367 billion annual loss in sales of new products.
The Bottom Line
Liability Reform Objectives
  • 1. Reduce the risk of "bet the company" lawsuits and lawsuits that threaten share value, company reputation or product image.
  • 2. Slow the increase and eventually reduce unwarranted litigation costs.
Liability Reform Strategies
  • 1. Selection of "rule of law" state court judges, governors, legislators and attorneys general.
  • 2. Legislation and court rules that end perverse incentives for meritless lawsuits and restore fairness and predictability.
  • 3. Engage the public so they understand how a broken legal system hurts them every day.