Tort Reform Can’t Muster Enough Signatures to Get on Ballot in Oregon.

Tort Reform is an initiative sponsored by largely by insurance companies with two main goals: Blocking access to the courts and reducing awards to people who have been found at trial to have been wronged. In Oregon an initiative fell short of the required number of signatures to get on the fall ballot.

This initiative was a very clever attempt to deprive many of the people who cannot afford a lawsuit from bringing claims by putting limits on contingent fees. The initiative would limit fees to 25% for awards of $25,000 or less and then to 10% of amounts in excess of $25,000. This would effectively deprive many of any opportunity to have a trial because lawyers would not be able to afford many contingency cases.

Here is what is not commonly known. First, contingent fees are most commonly charged in personal injury cases to people who cannot afford a lawsuit. Without a contingent fee, they could not go to court.

States already have limits on what a lawyer can receive as compensation. If a person thinks that a lawyer received too much as a contingency fee, they can ask the bar association to review the fee. Bar associations are rather diligent about this and at least in Washington have the power to reduce the fee but they will not increase it. The bar association does in fact reduce fees it determines were too high.

The purpose of the initiative is to further reduce compensation so as to deter lawyers from taking cases that promise hard work but involve limited damages.

This cap would put the injured person at a severe disadvantage in most lawsuits with insurance companies which routinely pay a great deal more for defense than what the plaintiff’s lawyer could hope to receive. It would tilt the playing field rather dramatically in favor of the insurance company.

I would guess that a fairly routine trial takes at least 200 hours of time for a lawyer. It is not uncommon to invest 500 hours or more on a trial. So for a lawsuit that involved a claim that was $25,000, the lawyer would receive a maximum of about $35 an hour if he or she was successful. If the claim was challenging, perhaps half of that, maybe less. If they lose, then there is no compensation. Meanwhile insurance companies pay their litigators four to eight times that amount (sometimes more than that) on an hourly basis.

In order to cover overhead, personal injury lawyers would have to limit the number of smaller contingent fee cases they took on.  On the face of it, the only segment of society that would benefit by this would be the stock holders of the insurance companies. To the degree that people who cannot afford a lawsuit are denied an opportunity to go to court (this would be most of the middle class), the society as a whole is destabilized.

It would be potentially economically disastrous to take challenging cases that took a lot of time, even if the claim was substantial. On a claim for $1 million the maximum allowed to a lawyer would be about $104, 000. If it took 1000 hours to win, then the lawyer would receive about $100 per hour. This is about half to a third, or less, of what an experienced trial lawyer would charge. It would be enough to cover overhead and leave a profit but it would be devastating to most firms to lose or receive a smaller award. So the economic incentives would not be high for taking on a large challenging case.

Again, the system would work much better and insurance companies would save significant a amount of money if they settled cases promptly instead of being highly adversarial from the beginning. John Ladenburg’s statistics from Pierce County show this quite clearly. (See my entry on June 20.) Instead of trying to create a system that prejudices the rights of injured people, the insurance companies could achieve actually a better result for their bottom line by just investing their efforts in prompt, reasonable settlements. This would have the added benefit of reducing the role of trial lawyers in the system and thereby give more money to the injured person.

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