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Paulson Attacks Civil Justice System to Protect Corrupt Corporate CEOs

Tuesday, November 21, 2006 (Washington, DC)—Treasury Secretary Henry M. Paulson Jr.'s claim that the tort system represents "an Achilles heel for our economy'' is both misinformed and an unwarranted attack on the nation's civil justice system.

"Paulson's attack is nothing new for a Bush administration beholden to corporate CEOs and their goal to eliminate accountability by dismantling the civil justice system,'' said Jon Haber, CEO of the American Association for Justice.

In a speech delivered to the Economic Club of New York on Monday, Paulson, the former head of investment giant Goldman Sachs, complained that "U.S. tort costs reached a record quarter trillion dollars'' in 2004, representing about 2.2 percent of the nation's gross domestic product. He also characterized the tort system as "broken," and "an Achilles heel for our economy.''

But Paulson's misguided claims are based on a widely-discredited study by the insurance industry consulting firm Tillinghast-Towers Perrin (TTP) that Business Week characterized as a "wild exaggeration."

Paulson's analysis also failed to take into account court statistics released by the Bush administration in 2005 that showed the number of tort trials on both the state and federal level declining.

Here are the facts:

Misleading Paulson Statement: "In 2004, U.S. tort costs reached a record quarter-trillion dollars, which is approximately 2.2 percent of our GDP."

The Facts:

• Paulson Cited a Widely Discredited "Study" to Support His Claims Regarding the Costs of the Legal System; Business Week Called It a "Wild Exaggeration." In his speech to the Economic Club of New York, Secretary Paulson cited a study from the insurance industry consulting firm, Tillinghast-Towers Perrin (TTP), which claims that the legal system costs approximately $260 billion a year. However, this study, which is updated annually, has been widely discredited because it includes the cost of the insurance industry - multimillion dollar salaries for insurance CEOs, rent on office buildings, and administration overhead - in the "cost" of the legal system. ["How Partisanship Puts Big Solutions Out Of Reach," Business Week editorial, 3/14/05; "U.S. Tort Costs and Cross-Border Perspectives: 2005 Update," Tillinghast-Towers Perrin; "Remarks by Treasury Secretary Henry M. Paulson on the Competitiveness of U.S. Capital Markets" Economic Club of New York New York, NY, U.S. Treasury Department website, accessed 11/21/06]
  
  
  • Business Week Called the TTP Study a "Wild Exaggeration." Business Week magazine editorialized that the study "includes everything from payouts for fender-benders to the salaries of insurance industry CEOs. It's a wild exaggeration." ["How Partisanship Puts Big Solutions Out Of Reach," Business Week editorial, 3/14/05]
    
    
  • Wall Street Journal: TTP Study "Includes Payments that Don't Involve the Legal System at All." The Wall Street Journal previewed the new version of the TTP report, and noted that it includes costs that are not part of the legal system: "…critics of past years' studies -- and there are many -- say the number and the projections that come with it are deeply flawed. For instance, they include payments that don't involve the legal system at all. Say somebody smashes his car into the back of your new SUV and his insurance company sends you a $5,000 check to fix the damage. That gets counted as a tort cost in Tillinghast's number. Critics say it's just a transfer payment from somebody who wasn't driving carefully to somebody who has been legitimately wronged. How is that evidence of a system run amok?" [Wall Street Journal, 3/13/06]
    
    
  • TTP Admitted that Past Study Not a Reflection of the Tort System. After being criticized for the methodology, TTP was forced to admit in their 2005 edition that "the costs tabulated in this study are not a reflection of litigated claims or of the legal system." ["U.S. Tort Costs: 2004 Update," Tillinghast-Towers Perrin]
    
    
  • The Study's Primary Author Said Study Used in a Misleading Way. Russ Sutter, primary researcher for the study, admitted in 2005 that tort-reform advocates use the data "in a way that's probably misleading." ["Tort issue creates a tussle," Kansas City Star, 5/18/05]
    
    
  • Analysis of TTP Tort Cost Studies Revealed Flawed Data. A May 2005 report from the Economic Policy Institute (EPI), a nonprofit, nonpartisan think tank in Washington D.C. revealed that TTP's reports are one-sided, exaggerating the impact of the tort system and ignoring its benefits, and that evidence supporting them is shaky or nonexistent. Claims that the tort system harms the U.S. economy do not square with the data. In fact, there is a good deal of evidence to the contrary. EPI's careful examination concludes that nearly half of the "costs" of the tort system described in the Tillinghast study are actually payments made to from wrongdoers to injured people for lost wages, property damage, or medical care - costs that are the result of injuries caused by the defendants and would be borne by society one way or another, whether by government programs or charities, or absorbed by the victims and their families. ["The frivolous case for tort law change; Opponents of the legal system exaggerate its costs, ignore its benefits," Lawrence Chimerine and Ross Eisenbrey, The Economic Policy Institute, 5/17/05]

Misleading Paulson Statement: "Simply put, the broken tort system is an Achilles heel for our economy."

• Court Statistics Released Last Year by the Bush Administration Refute Paulson's "Achilles Heel" Claim; Tort Trials at the Federal and State Level are Actually Declining. Statistics released last year by the Bush Administration show that that the number of tort (personal injury) cases resolved in U.S. District Courts fell by 79 percent between 1985 and 2003. In 1985, 3,600 tort trials were decided by a judge or jury in U.S. District Courts. By 2003, that number had dropped to less than 800. The administration similarly reported that the number of tort trials at the state level has decreased. These state-based statistics were compiled as part of the Bureau's survey of state civil justice systems in the nation's largest 75 counties. Among these counties, the number of tort trials decreased 31.8 percent between 1992 and 2001. [ "Federal Tort Trials and Verdicts, 2002-03", Bureau of Justice Statistics, 8/17/05; "Civil Trial Cases and Verdicts in Large Counties, 2001", Bureau of Justice Statistics, 4/04]

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As the world's largest trial bar, AAJ promotes justice and fairness for injured persons, defends the constitutional right to trial by jury, and strengthens the civil justice system through education and disclosure of information critical to public health and safety. With 60,000 members worldwide, ATLA provides lawyers with the information and professional assistance they need to serve clients successfully and protect the democratic values of the civil justice system.