Loser Pays, Everyone Wins


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  • December 15, 2010

Texas pushes the British rule on tort reform. Republicans picked up 16 governorships and at least 675 state legislative seats in November, and some of them are using this new running room to get creative. One Governor out of the gate early is Texan Rick Perry, who wants to extend his state’s impressive tort reform record. Most notably, Mr. Perry is proposing a British-style “loser pays” rule, which would require plaintiffs to pick up the legal costs of their targets if they lose their suits. Almost all of America’s economic competitors follow a similar standard, but trial lawyers and their Democratic codependents have blocked states from making this revolutionary improvement to U.S. civil justice. Americans now spend more on tort litigation than they do on new cars. The courts are choked with such high crimes as the $54 million pair of pants that a D.C. dry cleaner allegedly ruined in 2007. A procedural reform like loser pays to deter junk lawsuits would make the legal system less of a drag on the economy and less of a political tool for redistributing wealth. Mr. Perry’s proposal isn’t the pure version of loser pays, in which the losing party—plaintiff or defendant—is responsible for the winner’s attorneys fees. Instead, it adds an extra disincentive for the tort industry to bring suits that Texas law already defines as “groundless.” The lawyers and firms that file such claims would in almost all cases pay the penalty, a downside they’d have to weigh against their chances of personal enrichment. At the same time, to speed compensation to genuine victims, Mr. Perry would create new legal channels to expedite smaller claims (below $100,000). Judges would also be barred from creating causes of action from the bench that haven’t been approved by the state legislature. This Texas upgrade would build on reforms in 2003 and 2005 that have vastly improved the legal climate in what has not coincidentally become the country’s best state for job creation. Texas rewrote everything from class-action certification to product liability. One success was rationalizing the asbestos-silica litigation scam. Another was an overhaul of medical malpractice laws, ending the practice of venue shopping for friendly judges and putting a $250,000 cap on noneconomic damages like pain and suffering. Before the reform, Texas was a kind of holy place on the tort bar pilgrimage. Now it’s a Mecca for doctors, especially the emergency physicians, obstetricians and surgical specialists who elsewhere can face blue-sky malpractice premiums. Liability rates have fallen by 27.5% on average since 2003. The number of doctors applying to practice in Texas has increased 60%, even as the overall population grew by 14%. All of this is helping to end an acute Lone Star physicians shortage, especially in rural areas. Twenty-three counties now have their first E.R. doctor, 10 their first OB-GYN. Hospitals are reinvesting the malpractice savings in scarce services like neurosurgery and neonatal units and expanding access to care. This Texas success has opened eyes in nearby Oklahoma, where even Democrats have been forced to agree to some legal reforms. The plaintiffs bar will flood the Texas legislature with cash to defeat loser pays, but Republicans have no excuse not to pass it. After a recent party switch, Republicans will have a supermajority of 100 to 50 in the house next year and 21 to 11 in the senate. Texas climbed to 36 out of 50 states in the Chamber of Commerce’s litigation-climate ranking this year, from 46 in 2003. Maybe loser pays can carry it to No. 1.