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Contract and Torts

In: Business and Management

Submitted By suchare
Words 535
Pages 3
Q: 2 What interest groups favor of Tort Reform and why?

Proponents or advocates of Tort Reform support maximizing tort liability because of the ripple effects excessive damages and legal fees have on industries and, by extension, taxpayers. Prices for services and products and products are impacted because of these ripple effects and more often than not make them costlier for consumption. Proponents of tort reform like doctors, hospital and insurance groups argue for reform while the powerful plaintiff bar and certain consumer rights groups argue against it.

Arguments for tort reform generally involve medical malpractice torts along with product liability. Cases involving medical malpractice or product liability usually result in heavy penalties for the party rendering services or product. There are direct and indirect costs involved with these penalties. Tort liability has resulted in price increase for many products, for example, stepladders now cost 30% more due to this factor (Huber 1988; Discussion 1989, p. 2237).This may indirectly result in useful products/services not even making to the market.

Insurance companies covering tort liability for medical mal practice or product liability have an economic interest in having a cap on the amount of penalties being awarded. It is in their economic interest in maximizing tort liability. Since insurance companies do not know the level of risk they need to insure for such services or products, they cannot adjust their premiums proactively in order to receive a normal return on covering the risk. Thus, they are more concerned about the amount and level of damages that are being generated by the tort system.

Proponents of the tort reform cite studies to make their point. One such brief was given by the Central Budget Office (CBO)-dated January 8, 2004, concluded that in states where tort

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