U.S. Legal System Is World’s Most Costly: Study

The U.S. Chamber Institute for Legal Reform (ILR) today released a study by NERA Economic Consulting showing that the U.S. has the world’s most costly legal system as a share of its economy. The study compared liability costs as a percentage of GDP using general liability insurance sold to companies in Canada, Eurozone countries, and the U.S. because it covers similar types of costs in each country. Data shows that as a percentage of its economy, the U.S. legal system costs over 150 percent more than the Eurozone average, and over 50 percent more than the United Kingdom.

“America is known as the land of the free, but it is also the land of unnecessary lawsuits,” said Lisa A. Rickard, president of the ILR. “As the U.S. experience has shown, excessive litigation creates enormous costs for businesses, workers, consumers, and the overall economy.”

The study controlled for factors across countries that could account for significant differences in liability costs including the mix of businesses in a country, spending on government social programs, and the cost of private healthcare. It concludes that features of a country’s legal system explain most of the variation in liability costs.

In conjunction with the study, ILR also unveiled the results of a new national opinion survey showing that voters overwhelmingly view the civil legal system negatively, see it as more abuse-prone than a decade ago, and are concerned that it primarily benefits lawyers.

The national opinion survey of voters was conducted in April 2013 by leading polling firms Penn Schoen Berland and Public Opinion Strategies. The poll showed that 87 percent of voters view the number of lawsuits in the country as a problem and that 69 percent say that there has been increased abuse of the legal system over the past decade. Furthermore, one-in-three voters – and 43 percent of small business owners – report having either been threatened with or involved in a civil lawsuit.

Only 14 percent of those who were part of a class action lawsuit report having received something of meaningful value, such as a cashed check or redeemed coupon, as a result of the lawsuit. In contrast, four-in-five voters that had been involved in a civil lawsuit said that lawyers benefit the most from class action lawsuits.

“America’s costly legal system inhibits our global competitiveness, and impedes our ability to grow our economy and create jobs,” said Rickard. “Global businesses consider the cost of litigation in deciding where to locate. These results underscore that our system puts us at a competitive disadvantage.”

Source: U.S. Chamber of Commerce ILR