Consumer Law

Tort Reform – A mechanism for shifting business costs onto taxpayers

By Justinian Lane

For many years, I?ve been pointing out that there?s no ?free lunch? with tort ?reform.?  Medical bills don?t disappear just because a person?s ability to sue does.  All that happens is that those bills get shifted from a responsible defendant onto private or public insurers.  And by public insurers, I mean the taxpayers.  This op-ed from a Michigan attorney (who I do not know) hits the nail on the head:

4. There are only two choices for compensation.
?The responsible party pays. The person or entity found responsible for the loss in a legal proceeding pays the person suffering the loss. In the case of a business, this may be looked at as the ?cost of doing business,? where the cost of the accident is paid by the business, which in turn spreads those costs to its customers by raising the price of its product or service. In such a ?mini-free market? system, lawsuits punish an irresponsible party, forcing either higher prices or even market exit, while simultaneously rewarding a more responsible competitor who, without a lawsuit, can keeps its prices low.

?The government pays. If the loss cannot be recovered from a responsible party in the legal system, then, as in the case where a household loses a breadwinner or the breadwinner suffers an irreparable injury and cannot work, the last recourse will be some government assistance program. In other words, the loss is spread not among the users of the product or service, but is spread among taxpayers.

Source: Tort reform made simple | freep.com | Detroit Free Press

Some argue that the cost of lawsuits drives up the cost of the products we buy.  To some extent, that?s an accurate statement.  Manufacturers figure the costs of litigation into the prices of their products.  If the costs of litigation drop, the seller can either (a) reduce the price of the product, or (b) keep the savings as profit.  (I believe that (b) happens far more often than (a) does.)  Yes, tort ?reform? will have the effect of lowering a manufacturer?s costs of litigation.  This may lead to some drop in the price of the product.  But the savings to the manufacturer will often come at a cost to the taxpayer.  As Marcinkowski points out in his op-ed, tort ?reform? just shifts those costs onto taxpayer-funded programs like Medicaid/Medicare and Social Security.

Now, I don?t know about you, but I?d rather not have my tax dollars being used to bail out manufacturers of defective products.  And that?s why it makes good financial sense to oppose tort ?reform? measures.

Full post as published by TortDeform.com on April 08, 2010 (boomark / email).