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Press Release

    Rhode Island Needs Tort Reform

    04/04/2004

    Excerpts from the Providence Journal

    “ON MARCH 21, The Journal printed an article about the ranking of the states in their litigation environment (‘Lawyers, judges dispute legal system's ranking’). In a survey conducted by the U.S. Chamber Institute for Legal Reform, Rhode Island ranked 36th, a very disappointing standing.

    Plaintiffs' lawyers have dismissed the survey as nothing more than the subjective conclusions of a particular group.

    However, not all Rhode Island lawyers agree. Some of us see a real need for reform. Defense Counsel of Rhode Island, the state association of lawyers who defend civil cases, believes that the survey's results should be taken seriously and that the Ocean State should enact appropriate tort reforms to improve the litigation environment, ones that would benefit both consumers and businesses.”

    […]

    “But the point here is that Rhode Island is perceived by business lawyers as unfair and unfriendly. Such perceptions can only hurt the state in its attempts to lure businesses and jobs.

    Consequently, we have to take a look at what it is about our laws that causes this perception and the state's low ranking. Here are a few examples:

    Rhode Island is among the worst state jurisdictions, if not the worst, in the treatment of prejudgment interest. [Editor's note: The laws of most U.S. jurisdictions provide that interest on a damages award be added from the time of the lawsuit to the day of judgment. Such interest is called prejudgment interest.]Prejudgment interest in Rhode Island is frozen at 12 percent a year, at a time when interest rates are at 50-year lows. By contrast, the federal system's interest rates are indexed to Treasury bills.

    Additionally, in Rhode Island prejudgment interest runs from the earliest possible time, the time when the cause of action accrues or begins, rather than when the lawsuit is filed. Therefore, if the plaintiff's lawyer waits three years to file a lawsuit, the plaintiff will have racked up 36 percent in interest charges before the defendant even has an opportunity to answer the case.

    Furthermore, a jury in Rhode Island cannot even be told of the existence of prejudgment interest when it considers the amount of damages to award. This situation can encourage plaintiffs to forestall matters and drag out cases in the hopes of obtaining an award skewed by the high statutory interest.

    It also imposes unreasonable additional costs. The effect on the economy is to raise product costs and insurance premiums, and in some cases, to reduce the number of jobs. The result is particularly burdensome on small businesses that self-insure and that have high deductibles.

    In health care, the effect is higher insurance premiums for doctors and other health-care practitioners, and higher health-care insurance costs for everyone consumers and businesses alike.

    Another example is Rhode Island's law on joint and several liability. This rule says that if there are multiple defendants in a case, even if one of the defendants is only 1 percent liable, the plaintiff can seek to collect the entire judgment against that defendant, and simply ignore the other defendants' responsibilities.

    This law encourages plaintiffs to seek out a so-called "deep-pocket" defendant and to try to establish any liability whatsoever, even 1 percent, in order then to collect the entire judgment against that defendant. Such a law leads to a clear perception in the business community, as well as the community as a whole, that our system isn't fair.

    In a larger context, reform is needed nationally if we are to have a vibrant economy in which new products are developed and entrepreneurs are willing to take risks.

    In a Feb. 11, 2003, article, Steve Galbraith, a strategist for Morgan Stanley U.S. Investment, discussed the 2002 study of tort costs by Tillinghast-Towers Perrin. Mr. Galbraith stated: ‘Today, tort costs stand at a staggering $721 per citizen in this country greater than the GDP [gross domestic product] per capita of most developing nations (almost equal to China's GDP per capita). At roughly 2 percent of U.S. GDP, tort costs are equivalent to roughly 40 percent of total S&P earnings.’

    What do plaintiffs' lawyers say in response? They argue that they are protecting consumers when they file tort cases, but are they really? The Tillinghast-Towers Perrin study notes: ‘When viewed as a method of compensating injured parties, the U.S. tort system is highly inefficient, returning less than 50 cents on the dollar to the people it is designed to help and returning only 22 percent to compensate for actual economic loss.’

    Do consumers really benefit from this kind of system? Do consumers really benefit when companies hesitate to develop new products for fear of litigation or because of unaffordable insurance costs? Do consumers really benefit when the high cost of litigation and exorbitant insurance rates are passed on as higher prices for goods and services? Most reasonable persons would say no.

    What, then, should we do to correct this inequity and change perceptions of the state? I suggest the following: Each year the Rhode Island General Assembly considers bills that would reform the legal system. In most years, the bills fail to pass.

    This year, I urge our legislators to take a close look at the areas where Rhode Island is out of step with other states and where reform is needed as a matter of perception and fact. The economy, businesses and citizens of our state would all benefit.”

    Michael B. Isaacs, a lawyer, is executive director of Defense Counsel of Rhode Island, the state association of defense lawyers who handle civil cases.