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Study Finds U.S. Legal System Most Costly

6/2/13

By: Matt Foree
A study released by the U.S. Chamber Institute for Legal Reform, conducted by NERA Economic Consulting, shows that the American legal system is the world’s most costly, with liability costs of 2.6 times the Eurozone average. International comparisons of litigation costs can be found here.
The study compares liability costs (the costs of claims “resolved through litigation or other claims resolution processes”) as a “fraction of GDP across Europe, the U.S. and Canada.”  The study builds on prior research that relied on insurance data, which allowed measurement of “average country-level differences by comparing costs of companies with similar risk exposure and size in each country.”
The study found the following countries to have the highest liability costs:

• U.S.,
• Canada,
• United Kingdom
• Ireland
• Italy

Among other things, the study determined that a common law (as opposed to a civil law) tradition and a large number of lawyers per capita are strong indicators of higher litigation costs, and that countries with higher costs have more frequent or more costly claims, or both.  Additionally, the study noted the potential indirect costs from litigation, including the uncertainty of litigation, which may deter investment in high-cost jurisdictions, affect companies’ borrowing costs and ability to invest, grow, and create jobs, etc.  Ultimately, as the study recognized, higher liability costs can reduce a country’s international competitiveness.  “America’s costly legal system inhibits our global competitiveness, and impedes our ability to grow our economy and create jobs,” said Lisa A. Rickard, President of the U.S. Chamber Institute for Legal Reform.  “Global businesses consider the cost of litigation in deciding where to locate.  These results underscore that our system puts us at a competitive disadvantage.”