The Insurance Information Institute's Latest Publication Misleads the Public

The Insurance Information Institute's (III) stated mission is "to improve public understanding of insurance," yet their publication, Tort Excess 2004, reveals their true intent. It declares itself to be "part of a much larger effort (spearheaded by the United States Chamber of Commerce) to get substantive tort reform passed in this country."¹

Rather than improving public understanding of the insurance industry, the III report is a deliberate attempt to mislead the public.

Below are analyses of the top seven misrepresentations in Tort Excess:
(select the fib number to learn the truth)

Fib 1: One of every 7 jury awards is over $1 million.

Fib 2: The top ten jury awards illustrate the severity of liability claims.

Fib 3: U.S. tort costs are equivalent to a "litigation tax" of $809 per U.S. citizen.

Fib 4: Courts… have become so clogged with frivolous suits that justice cannot be administered in a timely fashion.

Fib 5: A defendant's entire future can turn on where its case is heard. The U.S. Chamber of Commerce States Liability System Ranking Study ranks all 50 states' liability systems based on a number of indicators, including treatment of class action suits, punitive damages, and jury predictability and fairness.

Fib 6: The historic pro-plaintiff, anti-business slant of juries was exacerbated by Enron and subsequent corporate scandals… All of this makes the plaintiff's mission to cast doubt on the character of businesses and executives that much easier.

Fib 7: Big liability costs, such as asbestos, could never be anticipated, and must be stopped.

Fib 1

Recent analysis from the National Center for State Courts found that:

• Tort filings have declined by 4% since 1993.² Contract cases meanwhile, which are more likely to involve businesses than tort cases, rose by 21% over the same period.
• Automobile tort filings, which make up the majority of all tort claims, have fallen by 5% since 1993 and by 14% since their high in 1996.³
• Medical malpractice filings per 100,000 population have fallen by 1% since 1998.⁴
• In 22 of the 30 states that NCSC examined population-adjusted tort filings declined from 1992 to 2001. The average change in tort filings across all 30 states was a 15% decrease.⁵

The same holds true in federal courts. According to the Administrative Office of the U.S. Courts, tort actions in U.S. District Courts dropped by 28% from 2002 to 2003.⁶ In addition, over the last five years federal civil filings are not only down, but the percentage of civil filings that are personal injury cases has also declined.⁷

The Bureau of Justice Statistics, a division of the Department of Justice, found that the number of civil trials dropped by 47% between 1992 and 2001.⁸ The number of tort cases decreased by 31.8% during the same period.

The trend in award size was also down. The median inflation-adjusted award in all tort cases dropped 56.3% between 1992 and 2001 to $28,000.

So how do JVR and III come up with such bloated figures, such as their claim that 54% of all verdicts in medical malpractice are over $1 million?

• JVR relies on media sources and self-reporting, and it's fair to say that larger verdicts tend to get more attention.
• JVR also takes no account of the many instances where a verdict is reversed or an award reduced.
• JVR also does not report defense verdicts.
• In fact, JVR's statistics cover less than 5% of payments to plaintiffs.⁹

Though JVR maintains that it is confident in its methods, any statistician worth his or her degree will tell you that this kind of methodology is the definition of systematic bias.

In addition, JVR reports enormous probability ranges in its data. The probability range for its 2000 verdicts was $1.3 million.

On top of this JVR even admitted to the Wall Street Journal that its "malpractice database has large gaps... collects award information unsystematically, and can't say how many cases it misses."¹⁰

III has a history of coming up with overblown figures. Their claim that 52% of all verdicts are over $1 million is 44% more than even their fellow tort reformers the Physician Insurers Association of America (PIAA) claim.¹¹

Fib 2

III execs are fond of citing the Lawyers Weekly "Top 10 Verdicts," as they do in this report. Yet they omit any mention of the true result of these cases. The truth is that the vast majority of the top ten verdicts are:

• Overturned
• Reduced, or
• Settled for substantially less

A look at the true outcomes of the cases III highlighted in 2003's version of Tort Excess shows that the most egregious examples of wrongdoing actually result in far, far less than the billions of dollars that III execs claim.

Fib 3

This Tillinghast-Towers Perrin (TTP) figure,¹² widely shirked in academic circles for its shrouded methodology and biased language,¹³ overstates the actual cost of lawsuits by including many insurance costs that would exist even without the legal system, such as the value of claims paid when no lawsuit has been filed, and claim handling costs and insurance company overhead.

It also takes no account of the fact that judgments in lawsuits cover real costs that people incur when they are injured by the irresponsible behavior of others—costs they wouldn't face if they never had been hurt. These costs include such things as medical bills and lost wages. The TTP report implies that such costs wouldn't exist without lawsuits. That is not true. The legal system simply assures that the costs of injuries are paid by those who caused them.

But putting aside these concerns let's see who benefits from this so called "litigation tax?"¹⁴

• The insurance companies INVEST this money for about a 10% gain, or about $20 Billion.
• 140 Billion goes to Plaintiffs
• 23 Billion goes to Commissions and Brokerage Fees.
• 13.5 Billion goes to general expenses, including everything from the costs of buildings to the fat salaries of insurance company executives.
• Over $50 Billion goes to "underwriting expenses" that go to support a bloated and inefficient insurance industry.
• $30 Billion … who knows? TTP conceded that "no consistent data" exist to justify the $30 billion in self-insured costs included in the report.

Tillinghast-Towers Perrin—"Did I say down?"
TTP has been forecasting the "frenzied" rise of its "litigation tax" for years, but has had to grudgingly acknowledge that tort costs actually fell in relation to GDP each year from 1990 to 2000.¹⁵ This was plainly not the conclusion that the interest groups and insurance companies¹⁶ who commissioned the study had wanted. And so, in 2003 TTP issued an "update" that alleged that tort costs had suddenly risen, thereby miraculously reaching the conclusions that the study's sponsors had originally wanted.

What had changed in the data to cause this sudden upswing? TTP researchers point to "upward reassessment of estimated future payments," otherwise known as "changing our guess."

The TTP update also suggests that corporate accounting scandals may be partly to blame for some of the increase, though they apparently don't know how much. And corporate accounting scandals undoubtedly have played a role in the liability system's apparent increase in ratio to GDP, because, as the SEC notes, the scandals are to blame for $5 trillion in market losses.¹⁷ That amounts to a corporate abuse tax of $17,544 per citizen.

Fib 4

In 2002 the median time interval from filing to termination of civil cases in federal courts improved to 8.1 months, from 8.4 months the year before.¹⁸ And state courts clearance rates, which give the best indication of how courts are keeping up with their workload, has remained steadily high. According to the National Center for State Courts¹⁹ at least 32 states cleared 95% or more of their caseload between 1999 and 2000, and 13 states cleared 100% or better. All but three states cleared more than 90% of their caseload over the past three years.

III's contention regarding clogged courts comes from a 14 year old GAO report. Interestingly, that report was conducted in the wake of the insurance crisis of the 1980's which the insurance industry also blamed on exploding jury awards. The report concluded that GAO found that "in general damage awards were not erratic or excessive."²⁰

Fib 5

Earth Shattering Study? Not Really. The U.S. Chamber of Commerce commissioned study of Corporate America's perceived fairness of the civil justice system is hardly a surprise.

• The survey sought the opinions of those who work every day defending large corporations when they are sued by consumers or employees who have been injured or abused by the corporation.
• The poll (by HarrisInteractive) is probably an accurate representation of opinions of in house defense attorneys working for large corporations with $100 million per year or more of revenue
• 44% of the polled attorneys work for companies with annual revenues of at least $1 billion. The duties of these corporate defense attorneys include protecting corporate profits from the people their companies hurt.

Wrongdoers Don't Like To Get Caught.
A study isn't necessary to tell us that the attorneys working for Firestone are not happy with the legal system that holds Firestone accountable for the deaths and injuries caused by its tires. Similarly, any convicted criminal would say that the legal system doesn't work, and drivers who were punished for running a red light and causing an accident - or who were convicted of DUI - would likely also say the legal system treated them unfairly.

Civil Justice Works—Even Defense Lawyers Agree.
What is surprising about the study is that so many corporate defense attorneys believe that the same court system that finds corporations liable for their harmful actions does either an excellent or a good job. Only 14% of defense lawyers said the court system does a "poor" job.

It would have been more interesting and enlightening to survey people who were injured by Firestone tires, or Enron employees who were bilked out of their retirement funds. These people have only the civil justice system to rely upon to help them challenge decisions by multi million dollar corporations that injure consumers, workers, and shareholders. Because of our nation's legal system and the right to trial by jury, corporations can be held legally accountable when they physically or financially harm people. And the people who have been aided by the civil justice system—and as a result have forced corporations to make safer products and more responsible business decisions—would likely say the legal system works well.

Fib 6

In fact, research shows that juries are highly skeptical of plaintiffs.²¹ Researchers have found that, "jurors and the public are inclined to question the credibility and claims of plaintiffs who bring personal injury lawsuits… many jurors expressed hostility toward the plaintiffs who brought the lawsuits, even when they eventually found for the plaintiffs… and worried about trumped-up claims and fraudulent or exaggerated injuries."²²

Part of the reason for the inherent skepticism of juries is the widespread belief, pushed by insurance companies and big business lobbyists, that many suits are frivolous. Polls show that as many as 92% of potential jurors believe there are far too frivolous suits today.²³

Fib 7

Asbestos manufacture, importation and use are not banned. Asbestos is still being used in America and workers are still being exposed. The government says that seven million pounds of the deadly fibers were imported into the country in 2004.

What the asbestos industry did not anticipate was not the cost of liability but the prospect of getting caught. As the Supreme Court of Florida found, "The clear and convincing evidence in this case revealed that for more than thirty years Owens-Corning concealed what it knew about the dangers of asbestos. In fact, Owens-Corning's conduct was even worse than concealment, it also included intentional and knowing, misrepresentations concerning the danger of its asbestos containing products."²⁴

Endnotes

1. Tort Excess 2004, Executive Summary, Insurance Information Institute, 2003
2. Examining the Work of State Courts, 2003, at 23, National Center for State Courts, 2004
3. Id at 27
4. Medical Malpractice Filings per 100,000 Population in 11 and 17 States, 1993-2002, National Center for State Courts, 2004 (unpublished, on file with author)
5. Examining the Work of State Courts, 2002, at 25, National Center for State Courts, 2003
6. Judicial Facts and Figures, Table 2.2, Administrative Office of the U.S. Courts
7. Federal Judicial Caseload Statistics, Judicial Caseload Indicators, 2002 & 2003, Administrative Office of the U.S. Courts
8. Civil Trial Cases and Verdicts in Large Counties, 2001, Thomas H. Cohen, Steven K. Smith, Bureau of Justice Statistics, 2004
9. Medical Malpractice Award Trends, Public Citizen, 2003.
10. Insurers' Missteps Helped Provoke Malpractice 'Crisis', Christopher Oster and Rachel Zimmerman, Wall Street Journal, June 24, 2002
11. PIAA Presentation at press conference, 2/11/03—PIAA claim 7.9%.
12. U.S. Tort Costs 2003, Tillinghast-Towers Perrin
13. Combustible World of Pricing Tort System, David Hechler, National Law Journal, December 22-29, 2003
14. Aggregate and Averages—Property Casualty 2002, A.M. Best (www.ambest.com)
15. U.S. Tort Costs 2002, Tillinghast-Towers Perrin
16. Including the American Tort Reform Foundation, NORCAL Mutual Insurance Company, the Physician Insurers Association of America and the HealthCare Liability Alliance (which includes the American Medical Association).
17. Commissioner Paul S. Atkins, U.S. Securities and Exchange Commission, Washington, D.C., 11-14- 2002
18. Federal Judicial Caseload Statistics, 2001 & 2002, Table C-5, U.S. Administrative Office of the U.S. Courts
19. Examining the Work of State Courts 2002, p. 21, National Center for State Courts
20. Product Liability—Verdicts and Case Resolutions in Five States, p.2, GAO 1989
21. Valerie P. Hans, Business on Trial: The Civil Jury and Corporate Responsibility 22-23 (2000). See also Neal Feigenson, Legal Blame: How Jurors Think and Talk about Accidents (2000).
22. Whiplash: Who's to Blame? Valerie P. Hans & Juliet Dee, 68 Brook. L. Rev. 1093, 1095 (2003).
23. Whipped by Whiplash? The Challenges of Jury Communication in Lawsuits Involving Connective Tissue Injury, Valerie P. Hans & Nicole Vadino, 67 Tenn. L. Rev. 569, 572 (2000)
24. Ballard v. Owens-Corning Fiberglas Corp., 1999 WL 669026 (Fla. 1999).

September 2004