Jackpot Justice

The Pacific Research Institute has just released a study of the US tort system and its huge costs, in a paper entitled Jackpot Justice: The true cost of America’s tort system.

Some of their ’shocker’ findings are that:

* the total annual cost of the US tort system is USD 865.37 billion, which is the same as
* an 8% tax on consumption
* a 13% tax on wages
* the combined annual output of all six New England states
* the total annual sales of the US restaurant industry
* the annual price tag for an average family of four is USD 9,827.
* total annual wealth loss to stockholders from tort lawsuits is USD 684 billion
* even allowing for legitimate tort costs, PRI still say that the amount wasted per annum is USD 589 billion. In other words only about 6.84% of the spend is not wasted.

You can take their hand test to see how much you know about the tort system. You can guess what the answers are, but even so the stats are, if true, pretty incredible even to a cynic like me (and no doubt you). Apparently, only 22 cents of each $ (in cost) go to the injured parties; 24 cents goes to non-economic payments including punitive damages, but that still leaves [does maths quickly] 54 cents in each dollar unaccounted for. Hmm, I wonder where that goes? (Click here for some clues).

The authors also consider certain hidden costs. For example, they say that ’studies show’ that an additional USD 124 billion was spent in 2004 alone on more tests, referrals and procedures simply through fear, essentially, of being sued. Malpractice costs themselves were a paltry (ha!) USD 28.7 billion.

Thanks to Bob Sargent, of Specialty Insurance blog, for the steer.