The Effects of tort reform

The Effects of Tort Reform: Evidence from the States


Tort reform has become a prominent issue at the federal level. Over the past year, the Congress has considered several specific tort reform bills: for example, the Asbestos Compensation Fairness Act of 2003 (H.R. 1586), which would prohibit punitive damages in asbestos cases, and the HEALTH Act (H.R. 5) and the Common Sense Medical Malpractice Reform Act of 2003 (H.R. 321), both of which would limit damages in medical malpractice cases. More general proposals for tort reform have also come before the Congress, notably the Class Action Fairness Act of 2004 (S. 2062), which would have allowed more cases to be transferred from state courts to federal courts. In many instances, states have enacted tort reform proposals similar to those being considered at the federal level. This paper reviews the major studies published since 1993 that evaluate state-level tort reforms and assesses the relevance of that research for evaluating similar federal proposals.

A tort is an injury to someone’s person, reputation, or feelings or damage to real property.(1) Under the U.S. system of tort liability, courts can hold injurers liable for many different types of torts, such as those caused by automobile accidents, contract fraud, trespass, medical malpractice, and defective products. The major categories of tort litigation are automobile-related torts (53 percent), premises liability (16 percent), and medical malpractice (15 percent).(2) The plaintiff in a tort suit can seek compensation of two types: compensatory damages to cover the “economic” cost of an injury–for example, medical costs and lost wages–and the “noneconomic” costs of pain and suffering and punitive damages intended to punish a defendant for willful and wanton conduct. (See Box 1 for a list of definitions of some common tort terms.) U.S. tort law is almost exclusively contained in state law, and the large majority of tort cases are filed in state courts. In 2000, more than 700,000 torts were filed in state general courts, compared with only 37,000 in federal courts. Tort law is based primarily on common law–in which judicial rules are developed on a case-by-case basis by trial judges–rather than on legislation.

Box 1.

Definitions of Some Common Tort Terms 

Collateral-source payments: Amounts that a plaintiff recovers from sources other than the defendant, such as the plaintiff’s own insurance. Under the collateral-source rule, that compensation from other sources may not be admitted as evidence at trial.

Contingent fee: A fee charged by an attorney for his or her services only if the lawsuit is successful or is favorably settled out of court. Usually, the contingent fee is calculated as a percentage of the amount the plaintiff recovers from the defendant.

Economic damages: Funds to compensate a plaintiff for the monetary costs of an injury, such as medical bills or loss of income.

Joint-and-several liability: Liability in which each liable party is individually responsible for the entire obligation. Under joint-and-several liability, a plaintiff may choose to seek full damages from all, some, or any one of the parties alleged to have committed the injury. In most cases, a defendant who pays damages may seek reimbursement from nonpaying parties.

Malpractice: “An instance of negligence or incompetence on the part of a professional.”(1)

Negligence: A violation of a duty to meet an applicable standard of care.

Noneconomic damages: Damages payable for items other than monetary losses, such as pain and suffering. The term technically includes punitive damages, but those are typically discussed separately.

Punitive damages: Damages awarded in addition to compensatory (economic and noneconomic) damages to punish a defendant for willful and wanton conduct.

Statute of limitations: A statute specifying the period of time after the occurrence of an injury–or, in some cases, after the discovery of the injury or of its cause–during which any suit must be filed.

1. Bryan A. Garner, ed., Black’s Law Dictionary, 7th ed. (St. Paul, Minn.: West Group, 1999), p. 971.

Tort Liability as a Tool for Achieving Efficiency and Equity

The risk of injury or loss is inherent in everyday life: consumers are injured or killed by defective products, workers are hurt on the job, train passengers are injured by derailments, and patients are harmed by medical errors. Markets provide broad incentives to control the number and costs of such injuries. For example, enhanced safety features can give a product a marketing advantage over competitors. Furthermore, insurance allows individuals and firms to reduce the financial uncertainty associated with potential injuries. The U.S. tort liability system, however, serves to augment the safety incentives and insurance opportunities provided by the market.(3) In particular, it provides incentives for individuals and firms to take appropriate care, compensates those who are harmed, helps spread risk, and serves the purposes of punishment or retribution.

In economic terms, those various purposes can be related to the overarching social goals of efficiency and equity. In theory, the tort system contributes to economic efficiency by assigning liability for accidents so that individuals and firms account for the extent to which their actions affect the risk of injury. However, different concepts of equity may affect the assignment of that liability. For example, a particular concept of fairness might hold that certain victims should not be considered responsible for exercising some forms of care although it would be more efficient if they did so. The literature this paper reviews does not address the efficiency and equity implications of various reforms but examines how reforms might affect the number of court filings or the size of awards.

Arguments For and Against Federal Tort Reform

Many legal scholars agree that tort liability has expanded over the past 30 years; the opportunity for victim compensation has increased, particularly in the area of product liability.(4) That growth was facilitated by a notion that more extensive tort liability would serve to compensate injured parties and reduce the level of accidents. However, many people have voiced concern that the tort system has gone too far; they say that businesses are saddled with excessive costs that lead to higher prices for consumers. Critics also express several other specific concerns about the tort system:

  • The “transaction costs” of the system, particularly attorneys’ fees, are too high;
  • Punitive damages and compensatory damages for pain and suffering are often awarded arbitrarily, with no beneficial effect on safety;
  • The class-action mechanism (whereby many claims that cover similar factual ground are combined into a single larger case) is too easily abused by plaintiffs’ attorneys;
  • Medical malpractice lawsuits are driving up the costs of liability insurance for physicians to the point that some of them are restricting their practices or retiring; and
  • Fair compensation for victims of torts is limited by frivolous lawsuits and excessive awards of noneconomic damages, which increase the likelihood of bankruptcy for firms.

Since the mid-1980s, a large majority of states have enacted statutes to restrict tort lawsuits.(5)Those statutes were enacted in response to problems in insurance costs and availability. The idea behind those changes was that limiting the liability exposure of firms would reduce liability insurance premiums.

Despite those reforms at the state level, some people see a role for a federal approach. They note that tort reforms have not been universally undertaken in the states and that those states that enacted changes have done so in a less than uniform way. People in favor of federal action contend that such a lack of uniformity in state laws increases the costs to businesses that manufacture and sell goods and services in multiple states and that federal legislation unifying tort laws across the country could reduce those costs. Uniform tort laws would also limit “venue shopping”–the ability of the plaintiff to choose the jurisdiction where a lawsuit is tried. In addition, proponents point to various large and unique liability cases–for asbestos exposure, for example–as special situations that warrant a national approach allowing victims to receive timely and fair compensation.

Opponents of tort reform argue that a lack of evidence on the benefits and costs of tort liability in general, as well as the economic effects of state reforms, makes a broad federal approach risky. Limited data on the deterrent effect of the tort system is available to counter the charges of excessive costs, but opponents of reform argue that those costs, to the extent that they exist, are justified by the system’s role in compensating victims, ensuring that injurers face the total costs of their actions, and improving safety. They contend that proposed reforms are too broad and that the states and the judiciary are better positioned to make adjustments to the system in response to existing problems.

Only a small number of studies have been conducted that analyze the effects of state-level tort reforms on various outcomes, including tort court filings, damage awards, health care providers’ behavior, liability insurance premiums, and insurance availability. However, whether or not tort reforms have had a significant effect on those measures says little about the overall functioning of the tort system in terms of efficiency and equity. For instance, whether damage caps reduce the number of lawsuits filed says nothing about whether it is more efficient or equitable to discourage marginal tort cases.

Tort Reform Initiatives at the State Level

Tort reform has been a national trend, but the extent and specifics of that reform have varied from state to state. Delaware, for example, has not passed any tort reform legislation since 1986, and its earlier statutes were limited to medical malpractice cases.(6) Colorado, in contrast, has enacted reforms since 1986 that restrict the application of joint-and-several liability, allow court awards to be offset by collateral-source payments, abolish punitive damages in a number of cases and restrict them to be less than compensatory damages in others,(7) limit the total award of damages to $1 million (of which no more than $250,000 can be for noneconomic damages), and modify class-action rules.

Some state-level tort reforms have made it more costly or difficult to file tort cases. For example, joint-and-several liability reforms tend to force plaintiffs to bring suit against multiple defendants rather than concentrate their efforts on a few defendants who are wealthier, more easily identifiable, or both; court procedural reforms can make it harder to file suits; and caps on legal contingent fees make it less lucrative for attorneys to accept “long shot” cases. The major argument for those reforms is that too many frivolous cases are brought in general. Other reforms limit the amount of damages, both compensatory and punitive, that can be awarded. Underlying those reforms is the contention that the courts are apt to make excessive awards, in terms of either what is necessary to compensate victims for their losses or what incentives are appropriate to avoid future accidents.

Limits on Joint-and-Several Liability

Thirty-eight states have reformed joint-and-several liability rules by statute since 1986 (see Figure 1).(8) Under the common-law rule of joint-and-several liability, if two or more parties cause harm, any of them can be held responsible for all of a victim’s damages, regardless of the relative degree of fault or responsibility. The plaintiff need only show that one of the defendants is at fault, and that defendant cannot use the involvement of third parties as a defense.(9) This is often called the “deep pockets” rule because it enables plaintiffs to concentrate their efforts on wealthier defendants.

Figure 1.

States That Have Enacted Reforms to Joint-and-Several Liability and the Collateral-Source Rule Since 1986

Source: American Tort Reform Association, Tort Reform Record (December 31, 2003), pp. 2-3, available

Notes: The American Tort Reform Association (ATRA) does not list reforms enacted before 1986, when the association was founded. Although the ATRA lists Vermont as enacting joint-and-several liability reform since 1986, Vermont actually enacted that reform in 1985.

In Georgia and Kansas, reforms to the collateral-source rule were subsequently found to violate the state constitution.

Supporters of this rule argue that if the individual actions of multiple defendants are together necessary for the injury to occur, then it is appropriate for each defendant to face the full value of the victim’s losses–that is, all defendants are jointly and fully responsible–without considering the extent to which each defendant’s own action contributed to the circumstances necessary to cause the injury. In its favor, joint-and-several liability advances the cause of full and quick compensation for the victim. It also may cause potential injurers to take care. Opponents contend, however, that the rule provides incentives for plaintiffs to bring marginal suits against wealthy defendants because the burden of proving that a single defendant is even partially at fault–rather than being primarily or wholly at fault–is low.

Changes to the common-law rule of joint-and-several liability usually limit a defendant’s responsibility for damages to a fraction of the total damages commensurate with the proportion of fault that is attributed to that defendant. Under limits of that type, a plaintiff would have to file multiple lawsuits to be fully compensated and in doing so would bear increased legal costs. Additionally, a plaintiff who can collect only partial compensation from each defendant is exposed to the risk that some defendants may be unable to pay. In all, a plaintiff’s expected benefit from filing a tort lawsuit is lower; therefore, those changes should result in the filing of fewer lawsuits. However, some observers argue that if the reforms are enacted, a plaintiff may attempt to inflate the size of his or her claim to offset those reductions in expected damages.(10)

In 1985, only five states restricted joint-and-several liability.(11) In 1986 and 1987, 24 additional states enacted reforms. Currently, 42 states limit joint-and several-liability in some way, but only seven have banned the use of the doctrine in the recovery of all damages. (In general, states have maintained the original doctrine except in specific cases–for example, for intentional torts, hazardous waste, and medical malpractice.)(12) Other states allow a single defendant to be responsible for compensating the victim’s total loss only in cases in which the defendant is found primarily responsible, which is usually defined as more than 50 percent at fault.(13) Other variants of the reform include allowing a defense of comparative negligence (by which defendants’ liability can be reduced by proving that the plaintiff was partially responsible for the injury); allowing joint-and-several liability for economic but not noneconomic damages; and restricting joint-and-several liability to cases in which defendants acted in a concerted effort.

Changes to the Collateral-Source Rule

Under the collateral-source rule, a defendant is prohibited from introducing evidence at trial to show that a plaintiff has received compensation for an injury from another source–for example, an insurance policy. That common-law rule prevents any offsets of damage awards by the amount the plaintiff has received from those collateral sources.

In 1986 and 1987, 18 states changed their collateral-source rules; currently, 23 states have either abolished or reformed the rule (see Figure 1).(14) Typical reforms either permit evidence of collateral-source payments to be admitted at trial, allow awards to plaintiffs to be offset by other payments, or both.

Advocates of the collateral-source rule emphasize its incentive effects. They contend that a potential injurer facing the entire cost of an accident will exercise an efficient level of care, whereas an injurer facing a smaller payment has less of an incentive to take care. Opponents of the rule argue that it leads to overcompensation, with victims compensated twice for the same injury.(15) Such overcompensation lowers a potential victim’s incentive to take care, opponents contend, and increases the number of lawsuit filings by boosting the expected size of an award. Critics of the tort system in general often argue that court awards exceed the amount necessary to induce the optimal level of precaution; in their view, this reform acts in part to offset those overpayments.

Caps on Noneconomic Damage Awards

Since 1986, 23 states have enacted statutes limiting noneconomic damages; currently, 18 states have such statutes (see Figure 2).(16) Advocates of limits on noneconomic damages point out that psychological losses–for example, damages for pain and suffering and loss of consortium–are not easily valued and can in some cases lead to unpredictable and extravagant judgments.(17)Furthermore, they believe that juries tend to be biased against large corporate defendants in favor of individual plaintiffs in tort suits. Applying a ceiling to the amount of noneconomic damages that can be awarded by juries, they argue, limits those errors and biases. Also, because the expected value of the total award is capped under this reform, the expected benefit of a tort lawsuit to the plaintiff is lower–unless economic or punitive awards increase to offset the restriction–and thus the number of tort lawsuits filed may fall.

Figure 2.

States That Have Enacted Caps on Damages Since 1986

Source: American Tort Reform Association, Tort Reform Record (December 31, 2003), pp. 2-3, available

Notes: The American Tort Reform Association does not list reforms enacted before 1986, when the association was founded.

In several states, the caps were subsequently found to violate the state constitution. See Summary Table 1 for a complete listing of those states.

Limits on noneconomic damages are often restricted to lawsuits involving medical malpractice. The typical reform imposes an upper limit ranging from $250,000 in Kansas and Montana to $750,000 in Texas.(18)

Limits on Punitive Damage Awards

In 1985, only seven states had restrictions on punitive damages,(19) but by 1987, legislation restricting such damages had been enacted in 22 states. From a legal standpoint, punitive damage awards serve to punish unusual and egregious behavior. From an economic standpoint, punitive awards can be justified as a useful deterrent to negligent behavior, and in a broad sense as a means to counteract torts that go undetected and, therefore, unpunished. If properly applied under that theory, punitive damage awards adjust the total expected costs of an action to reflect the expected harm to society.(20)

In practice, however, in many cases a jury will only by coincidence award punitive damages that match the cost to society of certain types of harms. In fact, the economic rationale for punitive damages does not correspond with the often cited retributional goal of the courts, which may lead to excessive awards from an efficiency point of view.(21) Several observers argue that those problems with implementation are manifested as random and unpredictable awards, which are an ineffective deterrent. Critics concerned with excessive punitive damage awards also note that the additional risk of being assessed punitive damages deters many firms from developing and selling products with an otherwise acceptable level of risk attached to them.

Since 1986, 34 states have enacted statutes imposing one or more of the following restrictions on punitive damages: (22)

  • Six states ban punitive damages outright.
  • Seven states allow a “government standards” defense for drugs approved by the Food and Drug Administration.
  • Nineteen states impose a maximum amount of punitive damages that a victim can recover. Some states impose a cap equal to some multiple of compensatory awards (typically three times that amount), whereas others set caps ranging from $250,000 to $10 million.
  • Twenty-three states require an elevated burden of proof for recovery of punitive damages. For example, many require “clear and convincing” evidence that the act was malicious before punitive damages can be awarded.
  • Thirteen states have procedural reforms that make it harder for plaintiffs to pursue punitive damages by requiring a separate hearing. Seven states created trust funds that collect a percentage of punitive damage awards, further reducing plaintiffs’ incentives to undertake costly litigation to win such awards.(23)

Other Reforms

States have pursued many other types of tort reforms. In some cases, it is not clear whether those reforms favor the plaintiff or the defendant, but all are described by their advocates as increasing fairness. In general, the effects of those reforms have not been examined by the empirical literature, except insofar as they may have been lumped in the category of “other reforms.”

Contingent Fees. Several states have enacted restrictions on the amount that an attorney can charge on a contingent basis in medical malpractice cases. (In those cases, the attorney receives payment only if he or she is successful in winning a dollar award for the plaintiff.) Such contingent fees–which are typically a percentage of the amount awarded–create incentives for attorneys to take on a large number of cases, each with a low probability of success, with the expectation that the fees earned from the successful cases will be large enough to subsidize the unsuccessful cases. Limiting contingent fees removes that incentive but may, in the view of supporters of the practice, foreclose a means for low-income victims to get legal representation.

Statutes of Limitation. A few states have either established or reduced the statutes of limitation or repose for certain types of cases. A statute of limitation restricts the filing of lawsuits within a certain period after an injury occurs; a statute of repose restricts the filing of lawsuits within a certain period after the manufacture or sale of a product even if injury occurs outside of that period.

Periodic Payment of Future Damages. Six states have required or allowed courts to stagger award payments over time. In that way, if a plaintiff’s situation changes, the court can alter the payments.

Prejudgment Interest. Some states have limited the amount of interest that may accrue on an award for compensation during the time before the court awards damages.

Victim Compensation Funds. Some states have set up no-fault funds, similar to federal statutes such as the Childhood Vaccine Compensation Fund, to compensate victims of certain types of medical malpractice. Victims who accept compensation from those funds are limited in their right to file lawsuits.

Alternative Dispute Resolution. Several states’ laws provide for court-sponsored arbitration and mediation programs. Colorado, for example, recently enacted a statute that allows judges to refer litigants to alternative dispute resolution systems. That approach reduces costs by keeping cases out of the court system.

The Difficulties of Evaluating State-Level Tort Reforms

Researchers must contend with a number of issues when estimating the impact of tort reforms. They include these:

  • There are numerous differences in tort reform statutes. The variety in states’ approaches to tort reform makes evaluation difficult. While the general approach to tort reform has been similar among the states, there are important differences in the way those reforms have been implemented. For instance, although 18 states have enacted caps on noneconomic damages, those caps range from $250,000 to $750,000 and are applied to different types of torts and conditions.
  • Tort reforms are often enacted in groups. Researchers are faced with the difficult task of reliably estimating the effects of individual reforms, a task made even harder by the high degree of correlation among different types of reforms. For example, a cap on punitive damages may have the same effect on damage awards as a requirement for a separate hearing for punitive damages. If those two provisions are enacted simultaneously, it will be difficult to determine whether an observed change in damage awards is caused by the cap, the procedural reform, or a combination of both factors.
  • It is difficult to determine the status of state laws. To begin with, identifying those states that have undertaken tort reforms can be difficult. Many researchers rely on the records of the American Tort Reform Association, a national organization that has tracked state legislation since 1986, while others conduct their own survey of state laws. In addition, some researchers consider court decisions that change common law, whereas others, more strictly, consider only statutes enacted by a state’s legislature. Furthermore, determining whether a statute offers substantive changes to existing practices in the courts is difficult. For example, a 1987 New Mexico statute codified a practice that was already adopted in 1982 by court decision.(24)
  • The implementation lag caused by constitutional appeals complicates analysis.Uncertainty about whether legislation will be ultimately found to violate a state’s constitution or how long those challenges will take mitigates the effect of tort reform legislation. For instance, insurance companies can be slow to change their premiums in response to a cap on damages if they think those measures will be struck down or take a long time to materialize.
  • There is a dearth of data on tort cases. Few data are available that include details about tort cases brought in the various jurisdictions across the country. Only two studies have overcome that problem by using detailed data about individual insurance claims.

In addition to dealing with those data availability and quality issues, researchers must construct valid measures of the effects of tort reform. Generally, researchers compare the experience of states that have enacted reform statutes with the experience of states that have not (and compare states with themselves before and after the enactment of reforms). Implicit in that comparison is the assumption that the impact of reforms in nonreform states would be similar to that in states with reforms. But that assumption may not be warranted. The fact that some states enacted tort reform and others did not opens the possibility that the two groups of states were different to begin with and that tort reform would have different effects in each of the two groups.

To help account for differences among states, researchers statistically adjust for observed characteristics before making comparisons. However, some important factors that may help determine the outcome measure–the likelihood of reform and the state-level response to reform–may be unobservable or unknown. Failing to account for those unobserved factors can make comparisons across states (and time) misleading. If there are factors that do not vary over time–that is, they have “fixed effects”–then researchers may eliminate their influence by comparing the changes in, rather than the levels of, outcomes between reform and nonreform states.(25) However, even in those cases, there could be remaining bias in the measure of the impact of tort reform caused by unobserved (or uncontrolled) factors that are suspected of varying over time.

A Review of the Major Studies of State-Level Tort Reforms

The nine studies covered in detail in this review analyze the effects of state-level tort reforms on the number of court filings and the size of awards. They also look at the implications of tort outcomes on economic factors such as liability insurance premiums, insurers’ profitability, and the practice of defensive medicine (see Table 1).

Table 1.

Major Studies of State-Level Tort Reforms Published Since 1993

and others
Browne, Lee,
and Schmit
Born and
Kessler and
(1996, 2000, 2002)
and Puelz

Outcome Measures Insurance premiums and loss ratios for general liability and medical malpractice Number of tort cases filed Insurance premiums and loss ratios for general liability and medical malpractice insurers Medical expenditures, health outcomes, number of claims filed, and claims costs Number of automobile tort cases filed; value of economic and noneconomic awards Awards recovered by plaintiffs in medical malpractice cases Insurance premiums and loss ratios for medical malpractice insurers at the state level
Reforms Studied Joint-and-several liability; limits on liability; damage caps; other reforms Joint-and-several liability Damage caps; all other types of reform “Direct” and “indirect” reforms (as classified by the authors) targeting medical malpractice as well as more general reforms Joint-and-several liability; collateral-source rule; damage caps; limits on punitive damages; sanctions on frivolous suits or defenses; prejudgment interest; structured settlements Caps on noneconomic damages; caps on punitive damages; limit on wrongful death suits Joint-and-several liability; caps on attorneys’ fees; collateral-source rule; damage caps
Period Studied Mid- to late 1980s 1984 to 1989 1984 to 1991 Mid-1980s to late 1990s Mid-1980s to early 1990s 1987 to 1999 1985 to 2001
Data Set Used State-level premiums and losses from Best’s Review and Best’s Aggregates and Averages Number of tort filings at the state level in 19 states; state characteristics from various sources Premiums and loss ratios by state for each insurance company from the National Association of Insurance Commissioners Hospital admission data for Medicare recipients; physician survey data; malpractice claims data 18,777 individual claims of automobile bodily injury disposed of in 1992 in 45 states Individual malpractice claims against physicians in four states State-level premiums and loss ratios from the National Association of Insurance Commissioners

Source: Congressional Budget Office based on the studies shown here (full citations can be found in the bibliography of this report).Note: See Box 1 for definitions of the tort terms used in this table.

Many of the studies conclude that tort reform can affect outcomes most closely related to the tort system in much the same way that advocates of changing the tort system would claim. Those studies find that reforms in general have decreased the number of lawsuits, reduced awards, and improved the profitability of insurance providers. (See Table 2 for a summary of the findings from those studies.) Moving further away from economic behaviors most directly influenced by torts, the literature is thin. For that reason, the conclusions should be interpreted with caution, especially insofar as they indicate how federal tort reform might be expected to affect the economy.

Table 2.

Findings from the Major Studies of State-Level Tort Reforms Published Since 1993

and others
Browne, Lee,
and Schmit
Born and
Kessler and
(1996, 2000, 2002)
and Puelz

Applicability General and medical malpractice General General and medical malpractice Medical malpractice Automobile bodily injury Medical malpractice Medical malpractice
Modifications to Joint-and-Several Liability 1986 reforms led to a large reduction in losses for general liability insurers; 1985-1986 reforms led to a large decrease in general liability premiums (only the 1985 reforms had an impact on medical malpractice premiums); no effect on loss ratios detected. No impact on number of claims filed after reform but a significant surge in court filings before reform took effect. Included in “other” reforms. Included as an “indirect” reform; see “comments.” Led to an increase in the dollar value of noneconomic claims; no statistically significant effect on the value of economic claims or the number of court cases filed. Not studied. Found no statistically significant effect.
Repeal of the Collateral-Source Rule No effect detected, but reform was combined with caps on contingent fees, modifications of statutes of limitations, and other reforms. Not studied. Included in “other” reforms. Included as a “direct” reform; see “comments.” Decrease in the value of both economic and noneconomic claims; no effect on the number of court cases filed. Not studied. “Discretionary” collateral-source offsets (those considered at a judge’s discretion) led to increased profitability (decreased loss ratios) for insurers. No significant difference in premiums found.
Caps on Noneconomic Damages Large decline in losses for both general and medical malpractice insurance. No effect detected for either premiums or loss ratios. Not studied. Led to increased profitability for insurers and a decrease in premiums. Included as a “direct” reform; see “comments.” Decline in the value of noneconomic claims; a significant reduction in the number of court cases filed. No effect on economic claims. Led to a decrease in the amount that plaintiffs recovered (but this reform was combined with a cap on punitive damages and a limit on wrongful death claims). Led to increased profitability (decreased loss ratios) and lower premiums earned for medical malpractice liability insurers.
Restrictions on Punitive Damages Decline in premiums for general liability insurance. No other effect found. Not studied. Included in “other” reforms. Included as a “direct” reform; see “comments.” Decrease in the value of noneconomic claims, an increase in the value of economic claims, and an overall decline in the value of total claims; an increase in the number of claims filed. Decrease in the amount that plaintiffs recovered (but this reform was combined with a cap on noneconomic damages and a limit on wrongful death claims).
Other Reforms General limits on liability awards or established immunities from prosecution seem to have reduced general liability premiums, but no other effect was found. Led to an increase in insurers’ profitability and a decline in premiums for medical malpractice liability. For general liability, little effect was found. Among “other” reforms, abolishing mandatory prepayment interest was included as a “direct” reform. “Indirect” reforms included imposing mandatory periodic payments, establishing patient-compensation funds, and capping contingent fees. The presence of sanctions on frivolous suits or defenses, prejudgment interest, and structured settlements led to a decrease in the value of both economic and noneconomic claims and to a drop in the number of court cases filed. A limit on wrongful death claims combined with caps on noneconomic and punitive damages led to a decrease in the amount that plaintiffs recovered.
Comments As a package, reforms enacted between 1985 and 1987 significantly reduced insurers’ losses, with a less dramatic decline in premiums, which yielded an overall drop in loss ratios. States that enacted tort reforms had lower Medicare spending for hospitalization of elderly patients with heart disease and heart attacks, with no significant increase in adverse health outcomes. Those states also had lower malpractice claims. “Direct” reforms helped to lower some of the costs of claims, whereas “indirect” reforms actually increased several measures of claims costs.

Source: Congressional Budget Office based on the studies shown here (full citations can be found in the bibliography of this report).Note: See Box 1 for definitions of the tort terms used in this table.

Effects of Tort Reform Legislation on Damage Claims and Lawsuits

Evidence from several of the studies suggests that different tort reform initiatives affect the number of lawsuits filed, the value of insurance claims, and the value of insurance payouts for damages. A 2001 study by Albert Yoon, for instance, found that the enactment of statutes to cap damages led to a significant reduction in the amount that plaintiffs

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