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"New Study: U.S. Legal System Is World's Most Costly"

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A US Chamber Institute for Legal Reform study by NERA finds (no surprise) that the US legal system is the most costly in the world, even when one accounts for the difference in social-insurance programs between American and Europe. Of interesting note: UK legal expenses are up 47% in the last three years, though still substantially cheaper than the US. More: Fisher @ Forbes; Sunday Times ($); related: Zywicki @ Volokh on auto safety.

I'd like to see the full report, because even the figure of an extra 1% of GDP going to excess legal expenses relative to Europe is likely an understatement. A 2011 edition of a similar report by NERA didn't include the expense of securities litigation, where much of the money goes to attorneys (and a disproportionate share of the proceeds goes to institutional investors at the expense of small shareholders). (Update: here it is, and, indeed, the 0.82 to 1.03% estimate is very definitely an underestimate.)

While the trial bar argues the expense of the liability system as a deterrent to make medicine and consumer products safer, I'm not aware of any evidence that Europe is less safe than the US. For example, though Germany has both an Autobahn without speed limits and a much higher percentage of mini cars like the "Smart," in 2005, their auto fatality rate was 7.8 deaths per billion km travelled versus 9.1 in the United States the same year. New Zealand has no medical-malpractice cause of action at all, and there is no evidence that patients there are being butchered as a result. And fear of liability and overcautious pharmaceutical regulation is likely costing lives at the margin.

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I doubt the higher road fatality rate in the US is due to anything having to do with liability, it probably relates entirely to the fact that average mph is much higher in the US due to the sheer size and the expansive interstate system. People don't die in 60mph rollovers and truck collisions.

But back to your main point, all of those countries have vastly more powerful, and more involved, regulatory states, as your conservative colleagues constantly remind us. You don't need as much of a deterrent effect where the conduct is already closely prescribed by law and enforced as such.

I'd love to hear the definition of "excess legal expenses." I frankly think legal expenses in the US are too high, but the two main reasons for that are obvious: insurers play hardball on way too many cases, gladly expending the whole value of the claim or more on defense even where the claim is plainly meritorious and court rules and laws supported by "conservatives" have dramatically increased the cost of litigation. You can't shout "Daubert!" from the hilltops and then complain that every product liability case turns into a million-plus in expert and attorney's fees.

I see this all the time in medical malpractice cases. A good fraction of my cases are drop-dead, slam-dunk, no-argument instances of malpractice. Yet it is a total waste of time for me to even suggest an early resolution, because the insurer won't do it. Instead, I have to waste hundreds of hours and five or six figures on experts, while the defense lawyers do the same (all on the insurer's dime), just so we can settle the case on the eve of trial for a much larger sum than it likely could have been settled from the beginning.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.