Tort costs dipped 2.7 percent in 2009, but the level is expected to grow over the next two years as the gross domestic product grows, said Towers Watson.
The global professional services company recently released its 2010 Update on U.S. Tort Cost Trends (available at http://www.towerswatson.com/united-states/research/3424). In it, Russ Sutter, Towers Watson consultant and author of the report, said, "The lack of a robust economy contributed to a decrease in the opportunity for tort actions."
The ratio of tort costs to GDP shrank for the sixth straight year, he said.
The drop in tort costs was observed mostly in commercial auto lines—"perhaps the most economically sensitive coverage with a tort component"—where tort costs fell by 7.4 percent in 2009. All commercial tort costs dropped 5 percent from 2008 to 2009, which offset a slight increase in personal tort costs, Mr. Sutter wrote.
Collectively, tort costs fell for only the fourth time since 1975. The drop in 2009 was the second in the last four years, Towers Watson said.
Mr. Sutter said Towers Watson had anticipated an uptick in directors and officers liability litigation in 2009 related to the credit crisis, but the costs came in lower than expected.
In addition, in prior studies, the consulting firm had discussed the long-term potential for inflation that has also not materialized.
However, two new tort actions surfaced during the year—those related to Chinese drywall and automobile recalls, according to the report.
Economic losses related to drywall will range from $15 billion to $25 billion, Towers Watson estimates, and claims— mostly against suppliers, homebuilders and manufacturers—have been most active in Florida and Louisiana. In addition, total costs from recalls related to Toyota are expected to be more than $1 billion.
As a result of the Deepwater Horizon oil spill, tort costs are expected to increase significantly—about 9 percent—in 2010. But excluding the oil spill, tort costs in 2010 are expected to remain stable as auto and medical malpractice-related torts stayed mild.
Total insured and self-insured tort costs were $248.1 billion in 2009, dropping from $254.9 billion in 2008. The 2009 figure is roughly $808 per person, compared with $838 per person in 2008, Towers Watson reported.
As the gross domestic product grows, so will tort costs, according to the report. Towers Watson forecasts tort costs to increase between 1 percent and 5 percent, with a midpoint of 3 percent in 2011 (excluding the oil spill) and again in 2012, with a midpoint of 4 percent.
The 2010 Update on U.S. Tort Cost Trends is the 14th study of U.S. tort costs published by Towers Watson. The most recent prior study, incorporating results through 2008, was published in December 2009. The current update sets forth results from 1950 through 2009, as well as projections through 2012.
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