Jackpot justice

Few political issues get the business community’s attention like tort reform. Not surprisingly, business owners do not like to be sued any more than they like paying higher insurance costs fueled by lawsuits.

One of the most influential business lobbies, the U.S. Chamber of Commerce, through its Institute for Legal Reform (ILR), focuses on states’ tort systems. The Lawsuit Climate 2007: Ranking the States is ILR’s annual assessment of liability systems conducted by the polling firm Harris Interactive.

“This study shows how a handful of jackpot jurisdictions can drag down the reputation of the entire state, even in those states that have enacted meaningful legal reform measures,” notes Tom Donohue, president and CEO of the U.S. Chamber of Commerce “Similarly, a handful of states with bad lawsuit systems can affect the U.S. business climate, hurting our global competitiveness.”

According to the group, the annual cost of the tort system in America is about $261 billion, or $880 per citizen.

The most recent ILR study shows that Delaware has the best legal climate for business, and West Virginia has the worst. Other top states include Minnesota, Nebraska, Iowa, and Maine.

West Virginia is ranked last for the second year and scores significantly worse than the next lowest, Mississippi. Others at the bottom of the list include Louisiana, Alabama, and Illinois.

The data from the past six years indicates an overall improvement in legal climates. In some states, this trend correlates with legal reforms enacted over the same period, according to ILR.

But improvement is not all about enacting new laws. The climate can also be affected by states assuring that their courts correctly apply existing laws, appointing impartial judges, and monitoring rules regarding venue, class actions and discovery.

For example, Tennessee jumped up 22 notches to number seven, an improvement ILR attributes to its “enforcing meaningful venue requirements, perception of judges’ competence, handling of scientific and technical evidence, and equity in handling the discovery process.”

Florida’s legal climate continues to make modest progress in ILR’s view. The state moved up two spots to number 36 — an improvement of six places in the last two years, even though Miami-Dade County remains one of the 10 least-loved environments by businesses. Kentucky also showed slight improvement.

Not all states are moving in the right direction, however.

North Carolina’s drop of six positions is due to lower scores on handling of scientific evidence, class action suits and mass consolidation suits, and venue requirements. Georgia dropped off four places due to class action and mass consolidation suits, punitive damages, and tort and contract litigation.

According to the U.S. Chamber, the best thing a state can do to attract business is to have a balanced legal system.

“The bottom line is this: even though we’re seeing some improvements, from the perspective of global competitiveness, we’re only as good as our worst states. So we need to keep working,” adds Donohue.