By Ingo Angermeier, President & CEO, Spartanburg Regional Healthcare System

Spartanburg, SC
In America, and particularly in South Carolina, our system of civil liability adjudication has become a major industry of its own. Direct tort costs alone (attorney fees, settlements, expenses, and court costs) account for over 2.2 percent of our gross domestic product, over 2½ times more expensive than the average of other industrialized countries. But these direct costs capture only a small portion of the total societal costs of the imbedded, fear factor costs in our run away tort system. The hidden cost of tort liability adds 30 percent to the cost of step ladders, 90 percent to the cost of vaccinations, and 95 percent to the cost of medical implantable devices. In the most complete study of the costs of defensive medicine ever by the Massachusetts medical society in 2009, it was conservatively estimated that over 30 percent of the cost of delivering medical care in the United States is caused by physicians over-ordering tests and consultations to protect them from our legal system. This represents 6 percent of our GDP, nearly three times the direct costs of tort liability. The practice of defensive medicine alone fully explains the difference between the cost of healthcare in America and other industrialized countries.

Have you seen a diving board in a public pool or a merry go round in a public playground lately? Many useful products are no longer available in the United States because of liability concerns. Further, the prospect of lawsuits drives the job descriptions of many risk managers and safety officers from truly meaningful work costing private industry millions of man hours and productive opportunity costs. The dollars we spend to support our liability system is more than what Americans spend on new automobiles every year, and 150 percent of the dollars Americans spend on pharmaceuticals. Even a cursory review of the literature causes one to conclude that the direct and indirect costs we all pay to support our out-of-control tort system is well into double digits of our gross domestic product and adds nothing to the value of goods and services. Further, without knowing the magnitude of this “hidden tort tax” we all pay, the majority of Americans (75 percent – 85 percent) support massive tort reform.

Sadly, even in the face of pervasive demands for change, “The System” has become far too self-perpetuating to change of its own accord. It took the exposure of massive political fraud at the State Attorney General level in Texas for that state to finally undertake the significant reforms of the mid 1990’s. We now know that this tort reform in Texas saved consumers over $2.5 billion, over a thousand dollars per family. The economic impact of this major liability overhaul exceeded even the outrageous predictions of the time. Over one-half of the new private sector jobs created in the United States from August 2009 to August 2010 (214, 000 total vs.119, 000) were created in Texas. The enactment of significant tort reform is largely credited with this astoundingly disproportionate geographic growth. Every Chamber and economic development executive should be contacting their Texas counterparts to replicate this miracle.

Then why is it so hard to “Fix our System” of liability which traps us? Why would it be so hard to enact some version of “Loser Pays” after an expert panel review? The following separation of fiction from fact may be useful:

Fiction: Our governmental institutions of legislative, judicial, and executive branches are separated to maintain a balance of power.

Fact: Many folks know the South Carolina governor has fewer executive powers than almost any in the United States. It’s a hold over from our desire to limit the powers of a “carpet bagger” governor appointed during reconstruction. South Carolina and Virginia are the only two states where judges are appointed by a vote of the legislature. Watching potential judicial appointee’s kowtow in the legislative lobby during the election process is painfully embarrassing. The ethical implications for such power by practicing trial lawyers in the legislature are staggering. One Spartanburg senator openly bragged that it was now time for him to return to the practice of law, “Because I appointed all of the judges and magistrates who will hear my cases.” Most states have adopted what’s known as “The Missouri Plan” of the 1940’s which is firmly based on judicial merit and periodic evaluation.

Fiction: Any system of Loser Pays is both un-American and un-constitutional.

Fact: During the writing of our constitution and the first thirty years of our history, America operated under a Loser Pays system of attorney compensation. Any percentage fee arrangements were considered illegal under what was known as the Champerty Law. In the 1820’s and beyond, judges began ignoring side-bar financial arrangements which by custom-and not legislation-became the norm. Incidentally, the state of Alaska has historically had a Loser Pays system of attorney compensation from when it was purchased from mother Russia. It retains that system today. Its direct liability costs are less than half that of the lower forty-nine.

Fiction: All attorneys will fight Loser Pays and tort reform to the death.

Fact: Some attorneys will. While the United States has more attorneys than the rest of the world combined, only a small minority practice trial law. Corporate law, tax law, contract law, family law, are all far more common than the plaintiff’s bar. Take out those who defend rather than offend, and perhaps less than ten percent of all attorneys in the United States practice the kind of liability law that would be effected by real tort reform. Indeed, many conclude that most attorneys are supportive of some form of tort reform. They are themselves embarrassed by the yellow page and television advertising of their “ambulance-chasing brethren”. Sadly, political campaign support disclosures reveal that this small minority represents the third largest contributor to political campaigns. Most of this supports Democrat party candidates openly committed to the trial lawyers bar.

Fiction: The settlement of liability cases is needed to protect the consumer.

Fact: Liability settlements have done increasingly little to improve product and worker safety. The easy availability of consumer reports, federal safety regulations, and the inherent natural selectivity of a competitive market place has clearly taken over this policing role.

Fiction: The demand for expanded tortuous action comes from the public.

Fact: A vast preponderance of client litigants are actively sought and found by trial lawyers, not the other way around. Targeted attorney solicitations for clients (“Do you or your loved one have Mesothelioma?”) are legendary, telling, and often offensively ridiculous. Within 24 hours of the landing of U. S. Airways Flight 1549 in the Hudson River, every passenger had been solicited by at least three legal firms offering representation. It’s clearly become a self-perpetuating industry that produces nothing and costs everyone.

Fiction: The current legal system allows for judges to assign Loser Pays so a change of law is not necessary.

Fact: In less than 1% of requested cases do judges grant motions for the loser of a tort case to pay the costs of the opposing side. We all read about the Washington DC $54 million lawsuit against a small business dry cleaner for losing a pair of pants. The business owner won. The trial judge refused a loser pays motion for the $100,000 it cost to “win” the case. The business is now closed. Coincidently (perhaps), the man who brought the suit is a judge by profession.

Fiction: Worker’s compensation is a form of tort reform.

Fact: That was the intent when it was passed in 1935. It was supposed to pay an injured worker a fixed price for a known injury resulting from the negligent act of an employer. No courts were to be involved. In nearly half the states, all money from the fund goes only to workers goes directly to the worker. Slowly, the trial lawyers got involved. Today in South Carolina, 22% of all workers’ compensation dollars from the fund is paid to trial lawyers. This is the highest percentage in the United States.

Fiction: Tort cases are tried in the state where the offense occurred.

Fact: Trial lawyers “jury shop” to plead their cases in states where regulations, juries, award precedents, lack of “caps”, and judges are documented to be most favorable to the plaintiff’s side. Prior to enacting reforms, Texas and Mississippi were notorious as favored places for “jackpot justice. South Carolina now ranks in the bottom ten and is becoming competitive for the role of most favored for trial shopping.

Undoing our expensive and self-perpetuating tort liability system in South Carolina will not be fast. Nor will it be easy. We all have to contact our legislators and demand real and lasting changes. Changes in tort incentives, judicial appointments, attorney disciplining systems, pre-trial authorization by expert panels, attorney reimbursements, and a whole host of other. We should not settle for the compromised “tinkerings” of the last “tort reform”. The savings to us now and the economic development potential in the future is far too great of us to ignore. Let’s get the double-digit hidden costs of liability out of our institutions, into our economy, and into our pockets.

Last year, Texas got over half the new private sector jobs of the United States because they had the courage to address tort reform. Next year, let’s add South Carolina to that list.