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How Tort Reform Works

TEXAS: Tort Reform Spurs Economic Growth; Aids Access to Healthcare

In 2003, the Texas state Legislature passed H.B. 4 to further reform the state's civil justice system. The bill addressed issues such as: limits on noneconomic damages; product liability reform; punitive damages; medical liability reform joint and several liability; and class action reform. Voters also approved a constitutional amendment, Proposition 12, in 2003, which eliminates potential court challenges to the law that limited noneconomic damages to $750,000. Since the enactment of H.B. 4 and the subsequent passage of Proposition 12, Texas has made great strides in growing its economy and providing jobs and accessible healthcare to its citizens.

Success in the business community:

  • Texas was awarded the 2004 Governor's Cup award for the largest number of job creation announcements (Site Selection Magazine, 3/05).
  • Texas also was selected as the state with the best business climate in the nation by Site Selection Magazine (Site Selection Magazine, 3/05).

Successes in the medical community:

  • The American Medical Association dropped Texas from its list of states in medical liability crisis (Houston Chronicle, 5/17/05).
  • Malpractice claims are down and physician recruitment and retention are up, particularly in high risk specialties (Houston Chronicle, 5/17/05).
  • The five largest Texas insurers cut rates, which will save doctors about $50 million, according to the AMA (Houston Chronicle, 5/17/05).
  • Malpractice lawsuits in Harris County have dropped to about half of what they were in 2001 and 2002. There were 204 cases filed in 2004, compared with 441 in 2001 and 550 in 2002. There were 1,154 lawsuits filed in 2003, attributed to attorneys trying to file before the new law took effect (Houston Chronicle, 5/17/05).
  • Harris County has seen a net gain of 689 physicians, an 8.4 percent increase, according to the Texas State Board of Medical Examiners (Houston Chronicle, 5/17/05).
  • Texas Medical Liability Trust, the state's largest liability carrier, reduced its premiums by 17 percent (Houston Chronicle, 5/17/05).
  • Fifteen new insurance companies have entered the Texas market (Associated Press, 2/16/05).
  • Health Care Indemnity, the state's largest carrier for hospitals, cut rates by 15 percent in 2004 (Associated Press, 2/16/05).
  • American Physicians Insurance Exchange and The Doctor's Company also reduced premiums (Associated Press, 2/16/05).
  • The American Physicians Insurance Exchange saw a $3.5 million reduction in premiums for Texas physicians in 2005. In addition, beginning May 1, 2005, 2,2000 of the 3,500 physicians insured by the company would see an average drop of 5 percent in their premiums (The Heartland Institute, 5/1/05).

Texas: Tort Reform Spurs Economic Growth

In 1995 the Texas Legislature passed a series of bills to reform the state's civil justice system. These bills addressed: limits on punitive damages, joint and several liability, sanctions for filing frivolous suits, limits on venue shopping and out-of-state filings, modifications to deceptive trade practices and medical malpractice reform.

According to the study, The Impact of Judicial Reforms on Economic Activity in Texas, the total cost of the Texas tort system in 2000 was $15.482 billion. Without reforms, it is estimated that the total cost would have been $25.889 billion. Of the $10.407 billion in total direct savings, approximately $2.777 billion may be attributed to improvements at the national level while $7.630 billion in savings were from reforms in Texas. Of the total savings, $2.542 billion went directly to benefit consumers.

The Perryman Group. The Impact of Judicial Reforms on Economic Activity in Texas Overall Economic Impact on State's Economy. (August 2000)

Facts to Consider: Benefits to Consumers

It is estimated that reforms enacted in 1995 resulted in savings of $2.542 billion that directly benefits consumers.

$1.796 billion in annual cost savings from reduced inflation ($216 per household)

$7.056 billion in annual total personal growth income ($862 per household)

The net result was a savings of $1,078 per year to the typical Texas household.

The Perryman Group. The Impact of Judicial Reforms on Economic Activity in Texas Overall Economic Impact on State's Economy. (August 2000)

MISSISSIPPI: Tort Reform Already Achieving Desired Results

In a 2004 legislative special session called by Governor Haley Barbour, the Mississippi Legislature passed H.B. 13, which included reforms relating to: product liability; joint and several liability; jury service; medical liability; and noneconomic damages. Improvements in the state's economy and healthcare system already are being demonstrated since the law took effect on Sept. 1, 2004.

Successes in the business community:

Businesses have made new investments in the state starting in 2004. These include:

  • $35 million investment by Textron
  • $3.5 million payroll by Winchester Ammunition
  • $1.8 billion expansion by Fed Ex Ground
  • $20 million investment by Kingsford Charcoal (The Clarion-Ledger, 2/27/05).

Successes in the medical community:

  • The Medical Assurance Company of Mississippi (MACM), which provides medical malpractice insurance to about 70 percent of doctors in the state, announced a 5-percent decrease in premiums for 2006 (The Natchez Democrat, 10/19/05). MACM did not raise base premiums in 2004 or 2005, and previously had been raising rates annually up to 20 percent (Associated Press, 9/24/04).
  • Mass Mutual Insurance Group, St. Paul Travelers, World Insurance Company, and Equitable Life Insurance Company are returning to Mississippi (The Clarion-Ledger, 2/27/05).

TORT REFORM AT A GLANCE: Other States Begin to Make Strides

Missouri

Expansion Management, a monthly business magazine, ranked Missouri as one of the leading states in the nation for having a business friendly climate that attracts industry and new jobs. Missouri, along with Ohio and Virginia, each had five metro areas earning top honors (Jefferson City News Tribune, 6/23/05).

New Jersey

In 1995, the state legislature passed the Affidavit of Merit Statute. The law provides that in any suit alleging professional malpractice or negligence, 'the plaintiff shall, within 60 days following the date of the filing of the answer to the complaint by the defendant, provide each defendant with an affidavit of an appropriate licensed person that there exists a reasonable probability that the care, skill or knowledge exercised or exhibited in the treatment, practice or work that is the subject of the complaint fell outside acceptable professional or occupational standards or treatment practicerthes.'

Enactment of the law coincides with a measured drop in the number of medical malpractice suits filed. In 2004, 1,493 medical malpractice suits were filed, a 24 percent decrease from 1997 when 1,971 suits were filed. 1997 is the earliest year for which data is available from the state Administrative Office of the Court (New Jersey Law Journal, 6/13/05).

West Virginia

After passing tort reform measures in 2003 that included a $250,000 cap on noneconomic damages, West Virginia has seen an increase in the number of new physicians in the state. According to the West Virginia Board of Medicine, 377 new physicians were licensed to the state in 2004, the most since 391 were licensed in 1999. The state previously had hit a low point with 305 new licenses in 2000 (The Heartland Institute, 5/1/05).

West Virginia Physician's Mutual, the states largest medical malpractice insurer has added 100 new doctors who had previously left West Virginia to its membership rolls. In addition, the company has applied in 2005 for a 5 percent reduction in premiums physicians pay for malpractice coverage. The president credits the reduced premiums and the addition of doctors to medical malpractice reforms that have been passed since 2001 (Charleston Gazette, 8/20/05).

Woodbrook Casualty Insurance, the state's largest private malpractice coverage provider serving about 250 doctors, sought a 3.9 percent rate decrease in 2005. The request must go to the state Insurance Commission for approval (Charleston Gazette, 8/20/05).

STUDIES: Noneconomic Damages Caps Led to Greater Percentage of Physicians

According to a study conducted by senior economists from the Center for Delivery, Organization, and Markets Agency for Healthcare Research and Quality, states where noneconomic damages are limited in medical malpractice cases have more physicians per capita than states without limits. The study found that:

  • Counties in states with limits had 2.2 percent more physicians per capita
  • Rural counties in states with limits had 3.2 percent more physicians per capita
  • Rural counties in states with a $250,000 cap had 5.4 percent more OB-GYNs and 5.5 percent more surgical specialists per capita than rural counties in states with a cap above $250,000 (Health Tracking, 5/31/05).

According to a study in the Journal of the American Medical Association (JAMA), the adoption of direct medical malpractice reforms that limit the size of awards led to a greater growth in the overall supply of physicians. Three years after adoption of reforms, the study found that the physician supply increased by 3.3 percent. The direct reforms had a larger effect on:

  • The supply of nongroup vs. group physicians
  • The supply of most specialties with high malpractice insurance premiums
  • States with high levels of managed care
  • The supply through retirements and entries rather than through the propensity of physicians to move between states (Medical Society News, 5/25/05).


© 2007 American Tort Reform Association