Tort Reform and the Policy of Legal System Abuse
What is Tort Reform?
Tort reform refers to legislative measures aimed at modifying the civil justice system to address concerns about the costs and unpredictability of litigation, particularly in tort cases. Traditionally, tort reform efforts have focused on increasing the affordability and availability of insurance by making the risks associated with insured entities more predictable. Tort reform efforts vary state by state but a review of the legislative history across jurisdictions generally indicates that these measures were designed to protect defendants from excessive damage awards, reduce the financial burden on businesses and community organizations, and ensure fairness in the allocation of liability.
Legal System Abuse Trends Sought to be Addressed by Tort Reform Efforts
- Third-Party Litigation Financing (TPLF)— These schemes involve private third-party financers that secretly invest in personal injury claims, mass tort, IP and other types of litigation to seek high returns on their investments. The financers are not parties to the litigation but have been seen to try to exercise control over the outcome, e.g., by insisting that plaintiffs not accept a “low” settlement amount.
- Capital is rapidly growing in this space and approximately S15B in TPLF is deployed now in the US. The leading financier of litigation has seen its assets increasing exponentially, including a single, nearly $1 billion investment from an unknown, foreign sovereign wealth fund.
- Attorney Advertising– The trial bar has turned advertising into one of its top strategies to blitz the public and fuel litigation. Attorney advertising expenditure has increased significantly across the United States in recent year, often with significant TPLF backing.
- Nationally, in 2023, trial lawyers spent over $2.4 billion on nearly 17.4 million ads. This is an increase of more than 5 percent since 2022.
- The ads often give the false impression of plaintiffs receiving high monetary awards when the lawyers and funders pocket most of the settlement or award.
- A recent consumer survey conducted by Munich Re US and APCIA found that 67% agree state and federal lawmakers should put restrictions on lawyer advertising to ensure that they’re not misleading, and 68% agree that ads touting verdicts with [purported] large payouts desensitizes people to high jury awards.
- Phantom damages – Phantom Damages create disproportionate economic damage recoveries, usually medical damages, where amount billed but never paid are allowed into evidence, creating a false impression for jurors and a higher baseline for non-economic damages.
- Erosion of Damages Caps – Noneconomic “pain and suffering” damages are generally the largest component of nuclear verdicts. Damages caps instill certainty and reduce runaway verdicts that are driven by inflammatory appeals to emotion, and which are unsupported by facts in evidence.
- Nuclear Verdicts and Settlements – The growth in nuclear verdicts and settlements has been so substantial that there is now even a category of “thermonuclear” verdicts that are characterized as $100 million or greater. TPLF, Phantom damages, attorney advertising, erosion of damages caps and jury anchoring have all been shown to contribute to these mega settlements and awards.
- Jury Anchoring and “Reptile theory” – Jury anchoring is the practice of plaintiff attorneys asking jurors during voir dire or closing arguments to award an exorbitant sum for non-economic damages un-tethered to the evidence, which then “anchors” the jury to the sky-high number. Reptile tactics aim to instill a sense of fear, anger and danger in jurors’ minds, so they lash out at civil defendants with inflated damage awards. These inflammatory tactics can cause jurors to award “punitive” like damages in a negligence case where no punitive claim may exist.
- Bad Faith – Bad faith is a legislatively-created tort that creates “set-ups” against insurers. In states with bad faith laws, policyholders – and in some states, third parties – can sue an insurer in tort, for example, for ostensibly unduly delaying claims payments. This injects tort damages into contract disputes, which drives up costs significantly and can result in extra-contractual damages. In the end, consumers and businesses end up paying these increased costs.
Priority States for Legal System Abuse Reform
For 2025, the American Property and Casualty Insurance Association (APCIA) strategy to focus reform efforts divides the priority states into three categories:
- Priority States
- Opportunity States
- Defensive States
The message for state legislators is that ensuring available and affordable insurance within a state is inconsistent with permitting the plaintiff’s bar to dictate legislation allowing lawsuit abuse.
Legal System Abuse Reform Priority (Tier One) States
Key issues to be addressed in the priority jurisdictions:
- Texas
- Court rule on Third-Party Litigation Funding
- Damage caps
- Continued trucking reform
- Phantom damages
- Attorney advertising
- Louisiana
- Collateral source
- Housley presumption (Housley v. Cerise, 579 So. 2d 973 (La. 1991))
- Georgia
- Third-Party Litigation Funding
- Limits on damages
- Phantom damages
- Premises liability
- Jury anchoring
- Recovery of attorney fees
Legal System Abuse Reform Opportunity (Tier Two) States
Jurisdictions with emerging opportunities for pursuing Legal System Abuse Reform:
- New York
- Third-Party Litigation Funding
- Scaffolding
- Illinois
- Coalition building
- Missouri
- Jury anchoring
- Personal injury statute of limitation reduction
- South Carolina
- Joint and several liability
- Nevada
- Ride-sharing ballot measure
- Attorney advertising
- Summary judgment on matters of law
- Montana
- Third-Party Litigation Funding
- Public nuisance
Defensive Legal System Abuse (Tier Three) States
States where defense of Legal System Abuse remains ongoing
- Florida
- 2023 tort reforms must be defended
- Defend against repeal of PIP without essential reforms
- Pennsylvania
- Proactive UM/UIM stacking reform legislation
- Supreme Court review of med mal venue rule
- Virginia
- New causes of action
- Trial bar influence
- Damages caps
- Maryland
- Fighting effort to abolish cap on non-economic damages
- Michigan
- Trial bar is working to introduce new avenues for bad faith claims
- Colorado
- New causes of action
- Trial bar influence
- California
- Continue advancing coalition efforts on Third-Party Litigation Funding reform
- Oregon
- Defend against efforts to expand bad faith provisions
- Washington
- Oppose legislation to impose prejudgment interest
Approaches to Advocating for Legal System Abuse Reform
- Key to beating back the ever-increasing abuses of the U.S. legal system is an extensive education and advocacy undertaking, combining the resources and efforts of business/industry, state and federal legislators, and key stakeholders.
- With the growth of public anti-business sentiment, it’s critical that we change the narrative from “us against them” to “we’re all in this together.”
- In order to accomplish this massive undertaking, it’s imperative that we build broad coalitions – similar to what was undertaken to achieve covid-19-related reforms – of both traditional and non-traditional allies.
- Not all reforms are needed in every state, but each of these is critical to achieving meaningful, impactful reforms.
- Key strategies to accomplish reform include:
- Education
- Counter-narrative “justice” against “evil corporations
- Building broad coalitions
- Legal reforms
- Data impact studies to support reforms
Litigation Financing is a Key Driver of Abuse
- Litigation financing has grown to $15.2B in the U.S.
- Financers admit they “make it harder and more expensive to settle cases”
- Foreign investment is now being revealed
- Financing is now reported in 30% of patent litigation
- Financers have invested billions in Mass Tort Claims
Impact of Corporate Nuclear Verdicts
- Corporate defendants across nearly 50 industries faced a staggering $14.5 billion in “nuclear verdicts,” verdicts surpassing $10 million, in 2023, according to an analysis by Marathon Strategies.
- The median nuclear verdict rose to $44 million in 2023, a significant increase from $21 million in 2020, Marathon found. 2023 also saw a 15-year high with 89 lawsuits resulting in verdicts over $10 million, while 27 were “thermonuclear,” or more than $100 million. This is the largest number of such cases Marathon has identified in a single year since 2009.
- Between 2010 and year end 2023, Consumer Price Index (CPI) Inflation increased 40%. During the same time period, commercial auto insurance losses increased 261% and other liability losses increased 194%.
- The United States is an extreme outlier in how much is spent on liability claims as a % of GDP. From 2017 to 2022, U.S. liability costs increased from .27% of GDP to .36%, which exceeds the increases seen in Canada and European countries and is 6 times greater than the liability costs as a percentage of GDP in Japan.
Rising Insurance Costs
The availability and affordability of insurance is dominating the conversation among policymakers at the state and federal level and in the media. Consumers and policy influencers need to understand the real factors impacting insurance costs: legal system abuse, inflation, population trends, regulatory uncertainty, and severe weather.
Case Study: California vs. Florida
Comparing tort reform strategies and regulatory reform as enacted and subsequently employed in California and Florida reveals a striking contrast in results. The example of Florida reveals 2023 legal system abuse reforms and regulatory reform measures that vastly improved the litigation environment in the state and stabilized the insurance market, positively impacting insurance affordability and availability.
- Florida was formerly known as a state with out-of-control litigation and significant lawsuit abuse. Florida had the highest number of homeowner property damage claims by far, the most nuclear verdicts per capita, excessive litigation, and one of the highest “tort taxes”. Multiple insurers declared insolvency or exited the market.
- However, Florida recognized the crisis and made a much-needed course correction. In 2022 and 2023, legislators enacted sweeping tort reform measures aimed at improving the insurance market, such as eliminating one-way attorneys fees and AOB’s, and bad faith, comparative fault and phantom damage reforms, among others.
- As a result, the insurer exodus was reversed, with 11 insurers entering the Florida market, post-reform, and rates decreasing, notwithstanding 3 recent major storms.
- On the other hand, California illustrates how a poorly functioning litigation and regulatory environment, and the lack of important tort reforms, have led to deteriorating instability of its insurance market.
- California remains plagued by lawsuit abuse that drives excessively large verdicts and settlements, all the while failing to adopt important legal system abuse reforms and expanding causes of action.
- California’s total tort costs amounted to a staggering $72 billion, the highest in the nation.
- California should emulate Florida and other states such as Mississippi and West Virginia, which have also adopted significant tort reform measures, such as damage caps, resulting in positive litigation and insurance cost impacts.
- On the regulatory front, Florida and California polar opposites. For example, Florida’s appointed insurance commissioner recognizes that rate adequacy is critical to a vibrant, competitive insurance market. In contrast, California’s elected insurance commissioner artificially suppresses rates – and takes upwards of one year to approve rate requests – because it is politically expedient. For example, while inflation was surging, the California DOI approved no rate increases for two years. Moreover, CA only recently began to allow carriers to use catastrophe models and include reinsurance costs in their rate filings, becoming the last state to do so.
- Moreover, because of Prop 103, California insurers have, until recently, been unable to use predictive models and the costs of reinsurance in their rate filings. Florida was the first state to recognize the validity of predictive models. It also allows insurers to account for the costs of reinsurance.
- Florida also recognizes the critical importance of loss mitigation and property hardening, and has provided hundreds of millions of dollars in grant money to homeowners who retrofit their houses – and, more recently, condominiums – to withstand strong hurricanes. California has no such program. Indeed, California’s environmental regulations make it challenging to remove vegetation that becomes wildfire fuel.
Putting the Strategies with Demonstrated Success into Action
- Education
- Highlight the growth of nuclear payouts and their impact on key industries like trucking, manufacturing, medical, and small businesses as well as consumers.
- Past successful efforts at lawsuit abuse curbs have included those that were an outgrowth of a media narrative highlighting a threat to key industries (Y2K, business protection from COVID exposure suits), concern over critical services (protecting first responders, medical care providers from COVID liability), or wide abusive practices (class action reform). Efforts to protect the interests of small businesses are routinely viewed favorably in polling and should be identified as a primary beneficiary of reforms.
- Counter-narrative
- Eliminate the false narrative of “justice” against evil corporations
- It is essential to think expansively about industries impacted by nuclear verdicts and social inflation. Success over the past twenty years has been driven by a broad coalition infused with urgency. Some of the best-known examples are class action reform, where a wide cross section of industries were impacted and abusive class actions were seen as rampant, and Y2K protections, where municipalities, utilities and basic service providers were perceived to be impacted. More recently, COVID liability protections have been adopted by governors and/or legislators at least 40 states, often with bipartisan support. These reforms were undertaken although in many cases we had not seen widescale abuse, but the perceptions were that: (1) lawsuits posed a threat to economic recovery and essential services: (2) liability protections were necessary to give small businesses in particular, but also including medical service providers, the confidence to restart operations without unnecessary fear of lawsuits; and (3) lawsuits were exploitative of a national crisis, where lawsuits brought in pursuit of compensation defied traditional legal theories of causation and duties of care. In short, they had a high potential for abuse.
- Priority Reforms for Insurers
- Third Party Litigation Funding (TPLF) reform – The goal is to disclose and regulate it in order to limit the money driving these cases and spurring exorbitant awards.
- Phantom Damages – Limit the abusive practice of inflating medical and other damages.
- Regulation of lawyer advertising and placing curbs on early attorney involvement and overreach.
- Limits on damages, including punitive damages, and curbs on judgment interest which often causes delays in case filing and resolution to take advantage of exorbitant statutory interest calculations and rates.
- Restrictions on judicial use of the ALI Restatement of Law, Liability Insurance.
APCIA’s Lawsuit Abuse Strike Force has been working on several lawsuit abuse reform initiatives, and the State Government Relations team is actively engaged in all the priority states, talking regularly to coalition partners.