Lately, I have been reading a report issued by the Center for Legal Policy at the Manhattan Institute entitled “Trial Lawyers Inc.”. Since the Manhattan Institute is a conservative think tank, not surprisingly the report is Shakespearean in its tone (you know the famous quote from Henry VI: “The first thing we do, let’s kill all the lawyers”). All kidding aside, the report is a very impressive survey on the state of the US tort system circa 2003. In my opinion, it provides a useful summary concerning the direct and indirect costs of the tort system, and it does a good job of identifying “traditional” areas of litigation (e.g., asbestos and medical malpractice), “high-growth” areas of litigation (e.g., mold), and future areas that are ripe for litigation (e.g., the fast food industry). Asbestos testing in Montreal has already been launched.

I also recommend an editorial page article in today’s Wall Street Journal entitled “Liberal Loopholes”. The article points out, among other things, that rich people (including some very prominent politicians) have a comparative advantage in avoiding taxation compared with the less affluent (because the rich can afford tax attorneys and complicated schemes to take advantage of perfectly legal “loopholes”). As a case in point, the article explains how during the mid to late 90’s, Senator John Edwards managed to shield 90% of his law practice income from the Medicare payroll tax by receiving this income primarily in the form of Subchapter S corporate dividends rather than in the form of a salary. Under the law, the former form of income is exempt from the Medicare tax, whereas the latter is subject to this tax. If I had been in Sen. Edwards’ shoes, I probably would have done the same, since the incentives to do so are extremely compellling (we’re not talking “chump change” here; Sen. Edwards managed to save $591,000 by implementing this strategy). The article points out the following irony, which fits with the tort reform message of this blog entry: “Mr. Edwards has claimed that he set up the subchapter S company to protect himself from legal liability. You know it’s time for tort reform when even the trial lawyers say they’re afraid of getting sued.”

This week (Thursday, July 15, 2004), I will be attending the Insurance Council of Texas (ICT) 2004 Mid-Year Property & Casualty Insurance Symposium in Austin, TX, along with Baylor students Blake Holman and Charles Panicker. ICT is a trade association which, among other things, represents the interests of the Texas property-casualty insurance industry in the regulatory process and supports academic teaching and research in risk management and insurance. Indeed, ICT annually funds $5,000 in student scholarships at Baylor University, and donates comparable amounts at many of the major universities in Texas. The program for the symposium is located at http://www.insurancecouncil.org/symposium.asp.

In recent years, Texas has had one of the most dysfunctional homeowners insurance markets in the United States. To a large extent, this can be attributed to the combination of increased costs from mold claims coupled with various regulatory constraints. At the worst point (back in 2002), Farmers Insurance pulled out of the state, and State Farm adopted a policy of not taking on new business. Not surprisingly, this public policy crisis has resulted in Texas being able to claim (not proudly) the number 1 spot in the United States for having the most expensive homeowners insurance. Anyway, the homeowners insurance crisis set in motion various regulatory reforms, including the adoption of new policy forms which substantially limits mold coverage for most homeowners. We are now finally starting to see the fruit of this policy.