• Insurance: Raising The Stakes On Reform
  • May 5, 2005
  • Law Firm: Nixon Peabody LLP - Buffalo Office
  • Who can blame insurers for wanting to turn back the clock? From the catastrophic events of September 11 to the 2004 quartet of hurricanes that struck the southeastern United States, immense catastrophes continue to wreak havoc with performance. External risks such as rising tort costs and the failure of medical malpractice reforms create the same sort of daily chaos for corporate counsel. For companies seeking to withstand the legal and business gale winds, the following is a critical issues to take into account as they plan for the months ahead.

    U.S. businesses are suffering from an explosion of mass tort litigation. The asbestos litigation onslaught -- generated by creative plaintiffs' lawyers and supported by broken liability regimes -- exemplifies litigation which has needlessly harmed businesses and has damaged the U.S. economy. Asbestos litigation alone has cost over $70 billion, has bankrupted 70 companies, has vitiated 70,000 jobs and has enriched hundreds of thousands of unimpaired claimants. Add the $200 billion annual cost of the U.S. tort system and you have a litigation environment which is out of control, is pushing the bounds of insurability and which must be reformed.

    The defective system results from several causes, most notably the emergence of a compensation culture which rewards plaintiffs even when there is no damage, no breach of duty and no fault. The system has morphed from a liability process in which the entity which causes the damage owes compensation to a system committed to wealth transfer. These deficiencies present complex risk management challenges as traditional risk transfer mechanisms do not respond to wealth transfer schemes.

    President Bush is pressing Congress to pass legislation that will reform asbestos litigation and limit monetary awards for medical malpractice. While momentum is building, broader reform --including the institution of a "loser-pays" system -- is necessary to eliminate the enormous burden that tort litigation places on the U.S. economy. Business leaders need to elevate the importance of tort reform, to raise the quality of the public debate and to commit the necessary resources to ensure that meaningful reform is enacted.