States Tackle Lawsuit Reform as a Way Toward a Stronger Economy

At least 22 state legislatures are considering lawsuit reform this session. As states struggle to reemerge from weak economies, lawsuit reform can be the extra boost needed to lift economies out of their slug.

Fortune 500 companies continue to rate lawsuit reform as a top consideration when deciding where to do business and whether to expand operations in a state. It was the reason Toyota opened operations in Mississippi in 2007 and is one of the major reasons that Texas’ economy continually outperforms its fellow states. In the words of former chairman of the Dallas Federal Reserve Richard Fisher, “The most important thing, I think, that has happened to us is tort reform… It is one of the things that has helped dramatically.”

Small businesses stand to benefit most from fairer, more cost-effective liability laws. While larger companies may have the internal capacity to handle litigation, small businesses are more likely to have to choose between paying another employee and litigating a lawsuit that exceeds their insurance limit. In 2010, small businesses bore 81% of the business tort liability costs.

Fortunately, state legislators have recognized the potential benefits from passing lawsuit reform and have made it a priority.

West Virginia’s newly elected Republican majority legislature launched their 2015 session with a focus on lawsuit reform. Their quick, 60-day session produced reasonable limits on the awarding of punitive damages, improvements to liability rules under their state consumer protection statute, tweaks to the process of admitting expert evidence to safeguard against junk science-based testimony, new law to reign in lawsuit awards that inflate health care expenses, protections for land owners against undue liability from trespassers and provisions shifting liability for lawsuits with multiple defendants to ensure that liability is divided up fairly.

West Virginia is sure to see economic benefit from their reforms. NERA Economic Consulting completed a study quantifying the economic impact of passing a bevy of lawsuit reforms, many of which West Virginia passed this year. According to the report, passage of a complete package of lawsuit reforms could increase employment between 0.88 and 2.39%, or an additional 6,200 to 16,900 jobs.

Lawsuit reform may also be on the horizon for Nevada. Nevada lawmakers are considering many reforms similar to those passed by West Virginia, including liability sharing for lawsuits with multiple defendants and protections for land owners against lawsuits brought by trespassers. Nevada has made lawsuit reform a priority and three of their half dozen proposals have already passed their house of origin.

One of the most popular lawsuit reforms of the year is a transparency bill to ensure contracts between state agencies and private attorneys are given the same oversight as any other government contract. Nevada’s legislation passed the Senate; Arkansas Governor Asa Hutchinson just signed a transparency bill into law; Ohio’s and Missouri’s versions have also passed their Senates and are now being considered in their respective Houses. These reforms are ever more important in an era when attorneys general are frequently courted by private attorneys who seek the state’s authority to bring innovative litigation against well-funded industries. A little sunshine goes a long way toward ferreting out the abusive litigation and safeguarding taxpayer dollars.

South Carolina has a slew of legal reforms ripe for passage in either this calendar year or next. South Carolina legislators have constructed reforms similar to many of those already signed into law in West Virginia and are considering quite a few more. South Carolina is working to provide protections to product sellers who have had no involvement in the development of a product from expensive product liability lawsuits. These sellers are usually mom and pop establishments who get brought into litigation so the plaintiff’s attorney can bring suit in the shop’s plaintiff-friendly court district.

Even typically lawsuit reform-skeptic Maryland has caught the scent of the economic benefits of lawsuit reform. For many years, Maryland legislators have introduced but failed to pass reform normalizing the burden to appeal a verdict. Historically, defendants wishing to appeal a verdict generally had to post a bond for the full amount of the verdict before a court would consider an appeal. Since the 1980’s and 1990’s realized lawsuits in the hundreds of millions or even billions of dollars, a majority of states have placed reasonable caps on the amount to be posted in order to appeal a verdict. The bond should protect the plaintiff’s potential award and deter frivolous appeals without silencing defendants with legitimate concerns about a verdict. If Governor Hogan signs the legislation into law, Maryland will join the more than 40 other states with similar protections for the right to appeal.

Lawsuit reform is essential to creating a healthy, properly functioning free market economy. States with predictable legal systems that minimize unwarranted punishment will establish a fair business climate and pave the way for job creation. In this manner, fostering reliable justice will promote innovation, competition and prosperity. States like West Virginia that respond to inefficiencies and abuses in the enforcement of their laws will actualize increases in jobs and GDP. Other states would do well to take up the torch.

Amy Kjose Anderson is the Director of the Task Force on Civil Justice at the American Legislative Exchange Council.