What Could Tort Reform Mean for You?

Lawyers can expect to hear a lot about tort reform in the upcoming months. With a Republican president-elect, a Republican-controlled Congress, and a Trump-selected future Supreme Court justice, tort reform advocates are facing one of their most favorable political climates in some time.

So, how likely is tort reform in the near future and what could it mean for attorneys like you?

Tort Reform: Improved Odds, but Not a Sure Thing

If you want to see limits to medical malpractice awards, fewer consumer class actions, or personal injury reform, you're probably feeling pretty good these days.

But tort reform, at least on the federal level, is no sure thing, despite the most recent election. John Beisner, leader of Skadden's mass torts, insurance, and consumer litigation teams, told the National Law Journal that the mood was one of "cautious optimism."

"It's hard to know what position the new administration will take because a lot of these things haven't been directly addressed in the campaign and there's the question of priority levels in the initial days," he says.

The U.S. Chamber of Commerce, however, is focusing more on the "optimism" than the "cautious."

"It's a whole new day," says Lisa Rickard, president of the group's Institute for Legal Reform. She predicts "more activity and more actions in the Congress by the business community to try to advance much-needed reforms."

The Chamber is planning to push for legislation reducing to increase disclosures by plaintiffs' lawyers in asbestos cases and which would make class action certification more difficult.

The Republican Party's pledge to "repeal and replace" Obamacare could also result in changes to medical malpractice law. House Speaker Paul Ryan has called for federal tort reform that would impose caps on non-economic damage awards.

The Impact of Tort Reform

If such legislation is successful, it could be a direct blow to the plaintiffs' bar. More stringent certification requirements, for example, could become a significant impediment to consumer action lawsuits. Limits on medical malpractice damages could make that field less lucrative.

But there could be less obvious impacts, as well. Michael McDonald, an assistant professor of finance at Fairfield University, predicts that tort reform may also shake up the litigation finance industry.

Assuming that tort reform legislation will reduce both the amount of lawsuits and the costs of defending against them, McDonald predicts two possible outcomes. Writing in Above the Law, he states that, should reform make bringing suits more difficult, "it would unambiguously reduce the number of large lawsuits." That, in turn, would "reduce the demand for capital in the litigation financing space and hurt investors by reducing rates of return."

If defending against suits becomes less costly, litigation would become "less valuable for an investor," reducing the price investors pay for new claims.

But reform could have unintended impacts as well:

By reducing the costliness of lawsuits for companies, it could be that firms would be less concerned with engaging behavior that would get them sued. That in turn could actually lead to more lawsuits.

In other words, if a pre-tort reform suit would have cost a firm $1 million per product liability incident, and a post-tort reform suit costs only $500K, then a firm could afford to have twice as many failures post-tort reform.

If preventing failures is costly, then firms might well opt to have the same level of total expected legal liability exposure and simply spend less on product quality and safety. Thus the number of lawsuits would increase.

While cheaper lawsuit defense might shift funding over to equity investments, rather than litigation financing, that too could "increase returns in the space as less money chased opportunities."

How exactly this will play out, of course, remains unknown. Until we see some actual legislation, everything remains speculative.

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