Americans are so detached from the products we buy in a grocery store we have little clue why they cost what they do. We recently toured a cheese manufacturing plant outside of Venice, Italy. We saw the trucks roll up to the factory with the milk that is used to make 100 million pounds of cheese annually. Then we saw what it took to make the fifty different kinds of cheese and the facilities where the cheese had to be stored to be aged for nine months or more before being put on a truck. A special truck delivers the finished product to an airplane that ships it to the United States where it is then shipped around the country to be delivered to your grocery store. There are even more costs added to the price of the cheese and that is what this column is about.
One of the biggest elements for product costs in America is lawsuits. We have a complex legal system that is often abused by people for their own financial purposes. That causes the many forms of insurance a company pays, including liability and worker’s compensation, to soar thus driving up the cost of goods for us all.
A recent study by the Chamber of Commerce Institute for Legal Reform determined that in 2020 the total cost of lawsuits (tort system) was $443 billion. That includes the individual lawsuits for actions such as when someone falls in a store or those class-action lawsuits. We all receive notifications of these lawsuits where we are potentially a member of a group of recipients of a favorable ruling if we can produce paperwork from five years prior.
One of the reasons costs from lawsuits are soaring is a boom in litigation financing. That means investors are funding class actions in return for which they receive a portion of any proceeds. Bloomberg reported in a recent survey that 75% of litigation funders had a growth in their business in the past year. The investors and the lawyers end up with the lion’s share of the proceeds as sometimes the members of the class action get as little as 12%.
This is a massive cost to our society running at 2.1% of our GDP. More importantly, the average cost to a household is an estimated $3,621 per year.
States have different systems and are ranked by their costs. New York has the highest cost per household of $5,400 while other states including ones run by both parties have flagrant lawsuit initiators. California comes in as one of the worst states at number three.
The organization American Tort Reform Foundation has an annual report entitled Judicial Hellholes. This year there are eight: Georgia, California, New York, Louisiana, St. Louis, Cook County, Illinois (Chicago), South Carolina Asbestos Litigation and The Supreme Court of Pennsylvania and the Philadelphia Court of Common Pleas. California plummeted to third place in the current survey only because Georgia and Pennsylvania leapfrogged the state.
I spoke to a proprietor of a restaurant who did a major redo of his establishment. He had an ADA consultant during the redo to assure he did everything to code. He still has people enter his restaurant who are part of legalized scams who collaborate with attorney groups that sue him for any perceived ADA violation they can gin up.
California has some unique laws that generate a massive number of lawsuits and the tort law bar in California helps to enable the lawsuits. The Private Attorneys General Act (PAGA) allows employees to delve into the nooks and crannies of 1,100 pages of labor law and file a lawsuit against their employer. The law protects the employee from termination even if the lawsuit is deemed unwarranted.
As you know, these lawsuits are aimed to gain a settlement from the defendant’s insurance company who decides it is cheaper to settle than fight in court. The insurance company then passes the costs on to their policy holders who pass the cost onto you.
Though the ADA (Americans with Disabilities Act) is 30 years old, there are still a massive number of lawsuits against businesses for the smallest infractions. This is despite the fact that America is the most handicap friendly country in the world. Fifty percent of accessibility lawsuits occur in California. It is hard to believe 50% of the violations of the law exist in California.
Other areas that create massive tort litigation in California are the state’s Covid-19 rules, climate change litigation, lemon laws (new car problems) and ever-expanding consumer protection liability litigation.
Interestingly, Delaware is ranked number one amongst the states for litigation environment. The state has created a significant industry with corporations domiciled in the state which has been protected by the beneficial tort laws. States may wish to study their laws to improve the tort environment in their own states.
When you pick up that box of crackers to go with that delicious cheese you have chosen, remember the costs are partially so high because of the plentiful lawsuits that enlarge the legal community’s bank accounts at the expense of the rest of us.