Examining the Cost of Litigation

An interesting paper by Bernie Black (Texas) et al. examines litigation costs with the benefit of actual data. The paper, Defense Costs in Medical Malpractice and Other Personal Injury Cases: Evidence from Texas, 1988-2004, finds in the med mal area that real defense costs increased approximately 4.6% per year (during the duration of the study). As the paper notes, "rising defense costs imply a decline in the “efficiency” of litigation, at least as measured by transaction costs." An excerpted abstract follows.

"We study litigation costs for personal injury tort claims in Texas over 1988-2004, relying on a detailed source of case-level data on defense legal fees and expenses, and Texas state bar data on lawyers' hourly rates. We study costs in medical malpractice cases in detail, and costs in other types of cases in less detail. Controlling for payouts (which are roughly flat), real defense costs in medical malpractice cases rise an estimated 4.6% per year, roughly doubling over this period; the rate of increase is similar for legal fees and for other expenses. Real hourly rates for personal injury defense counsel are flat, so rising rates cannot explain this increase. Costs correlate strongly with payouts. Medical malpractice insurers predominantly used outside counsel, occasionally used inside counsel, and rarely used both in the same case. Surprisingly, medical malpractice insurers did not react to the sustained rise in defense costs by adjusting their expense reserves, which did not increase either in real dollars or relative to reserves for indemnity payouts, and declined substantially as a percentage of defense costs."

Comments

[AM]

Great paper, but just a drop in the bucket as it only measures the problem in the area of medical malpractice.

He also focuses solely on defense costs. In my opinion, a better measure would be the % of money paid by a liable defendant, which went to lawyers and not the victim.

I've seen cases where, if you count every dollar paid by a liable defendant for their wrong, 80%! of it went to lawyers (plaintiffs and defense) and expenses.