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U.S. tort costs rising at slower rate than GDP: Report


Tort costs in the United States increased by $2.7 billion in 2008, a 1.1% rise from the previous year, according to a Tuesday report by Towers Perrin.

According to the 2009 Update of U.S. Tort Cost Trends, the U.S. tort system cost $254.7 billion in 2008. The report notes that overall economic growth was 3.3% in 2008. As such, the ratio of tort costs to gross domestic product shrank last year, the fifth consecutive year the ratio has declined. In contrast, U.S. tort costs have exceeded GDP growth by an average of about two percentage points since 1950, the Stamford, Conn.-based consultant said.

The study's methodology incorporates three cost components: benefits paid or expected to be paid to third parties (losses), defense costs and administrative expenses. Administrative expenses are identified separately in the report. “While Towers Perrin outlines why these are a real cost of the tort system, it takes no position on the efficiency of the insurance industry's administrative expenses,” the consultant said in a statement accompanying release of the report.

The 13th annual study does not include costs to federal and state court systems that administer suits cited in the report. Certain indirect costs also are omitted, such as those associated with litigation avoidance.

“Looking ahead, with the potential for increases in the areas of employment practices and medical malpractice, as well as litigation associated with professional services errors and omissions in the wake of the financial crisis, Towers Perrin is estimating that U.S. tort costs will increase 3% in 2009, an additional 4% in 2010 and 6% in 2011,” it said.

“Despite the chaos in the financial markets in 2008, the tort cost environment in the United States was relatively benign,” Russ Sutter, a Towers Perrin consultant and author of the report, said in the statement. “The slight increase was less than the general inflation in the U.S. and was well below the growth rates seen earlier this decade.

“Looking beyond 2009, and probably 2010, we see general inflation and judicial attitudes as being potential catalysts for higher tort cost growth rates,” Mr. Sutter added. “As such, we see medical malpractice as very susceptible to a quick change, given its costs. Further, because of the long time period needed to resolve many malpractice claims, coupled with the heavy use of the court system, this area of tort costs could see a return to the growth rates seen in the mid-1970s, mid-1980s and for a brief time, earlier in this decade.”

The report is available online at