It's raining liability lawsuits – is everybody suing everybody these days?

Did you know that as an American you have a 33 percent chance in your lifetime of being sued? And, that in any given year, you face a 10 percent chance of being named in a lawsuit?

The U.S. has a reputation for being a litigious society. The impression that the world has on us is that anyone will sue anyone for just about any reason. This is why the liability insurance industry is experiencing a steady growth.

Many Americans face a multitude of risks - in their profession, their business, even at their own homes. If they get sued because of what they did or what they failed to do has brought harm or injury to another party, they face the likelihood of having to spend considerable amount of money to defend themselves. Because of these risks and the related expenses involved, they go out and purchase liability insurance.

In this article, we highlight some important, interesting, shocking as well as fun facts about liability lawsuits.

America: the most expensive civil law system in the world

Civil lawsuits cost the country $261 billion in 2005. This makes the country's civil justice system the most expensive in the world according to a 2006 report by Tillinghast-Towers Perrin.

Individually, this means we pay $880 a year to support the increasing costs of civil lawsuits handled by our courts. If yours is a family of four, it means you are paying over $3,500 a year as "litigation tax"! This is equal to an 8 percent tax imposed on wages.

The growth in the cost of civil lawsuits is faster than the economic growth of our country since 1950. Overall tort costs in our country, as a percentage of the GDP, is greater than in other developed countries - double that in Germany, three times that in France or in the U.K. The yearly amount spent on liability lawsuits is more than what we spend yearly on new cars.

Here is how the cost of a civil lawsuit is broken down:

  • 24 percent goes to suffering and pain or what is referred to as non-economic losses.
  • 22 percent goes to economic losses.
  • 21 percent covers administration costs.
  • 19 percent goes to the plaintiffs' attorneys.
  • 14 percent covers the defense' costs.

The same Tillinghast-Towers Perrin report says that claimants actually get less than 22 cents on the dollar for actual losses they suffered.

Most sued professionals

Doctors

Doctors or those who work in the medical field get sued the most. An American Medical Association study claims that 42.2 percent of physicians faced lawsuits during the period 2007 to 2008. 22.4 percent of these physicians get sued twice or even more.

The most sued types of doctors are obstetrician-gynecologists and general surgeons with 69.2 percent of the total. 38.9 percent were family doctors and 34 percent were general practitioners. Male physicians are more likely to face a lawsuit than females and those in solo practices have higher risk of facing a claim.

Most of the cases filed, however, do not reach the courtroom. Data gathered by the Physician Insurers Association of America indicate the 65 percent of these cases were dropped, withdrawn or dismissed. About 20 percent reached settlement and another 4.5 percent were resolved via another dispute mechanism. Only 5 percent actually reached the trial stage where defendants claimed victory in 90 percent of the cases.

While the chance that a doctor wins a case is great, it is the cost of defending that will hurt him the most. On average, the legal cost for doctors on cases that did not reach the courtroom is $22,163. Those that did go to trial cost them over $100,000.

The case of lawyers

The general perception is that lawyers often get sued for malpractice in their profession. In reality, however, only a small number do.

Those who do get sued are along the areas of personal injury and real estate based on a report by The Washington Times.

The size of the legal company also has an impact on the number of claims. Those that have two to five lawyers recorded the most number of claims - 2.2 lawsuits a year per attorney in the firm. Solo practitioners, on the other hand, only face 0.77 lawsuits a year.

Top reasons lawyers get sued are:

  • Substantive errors - 46.61 percent.
  • Administrative mistakes - 28.63 percent.
  • Intentional wrongdoings - 13.53 percent.
  • Client Relations - 11.22 percent.

Impact on small businesses

In a study conducted by the Institute for Legal Reform, one in three small business claim that they have been slapped with a liability lawsuit or were threatened with one in the last 2 to 3 years.

The civil lawsuit system costs small businesses that earn $1 million a year, an average $20,000 per annum. Sixty nine percent of the overall $143 billion civil lawsuit costs imposed on all businesses are shouldered by small businesses. Yet these small businesses only have a 19 percent share of overall business revenue.

Many small businesses do not have liability insurance. These businesses, when they are named in a lawsuit, will have to pay out of their own funds. On a yearly basis, these out of pocket expenses total $20 billion. 

Impact of liability lawsuits that are beyond money

The impact of liability lawsuits is beyond financial. For instance, physicians who were sued were more prone to depression, burnout and suicide according to a study carried out by the American College of Surgeons.

A recent survey also revealed that small businesses think that lawsuits could:

  • Force them to increase the price of their products and services.
  • Have a negative impact on their reputation.
  • Have a negative effect on their ability to secure credit.
  • Prevent them from hiring new workers.
  • Force them to them to reduce the benefits they provide to their employees.
  • Limit them from providing new products and services.
  • Force them to give more time and resources to avoid being sued rather than to serve their clientele.

The Institute for Legal Reforms thinks that, ultimately, it is the American consumer and his family who will bear the brunt of the high cost of supporting the country's civil law system.

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