2011 Update on U.S. Tort Cost Trends

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The 2011 Update on U.S. Tort Cost Trends represents the 15th study of U.S. tort costs published by Towers Watson. The first study was completed in 1985. The most recent study prior to this, incorporating results through 2009, was published in December 2010. This update, which provides results from 1950 through 2010, as well as projections through 2013, has been neither funded nor subject to prerelease approval by any outside organization and was conducted entirely by Towers Watson.

Key Findings

• U.S. tort costs increased by 5.1% in 2010, as shown in the figure below. The increase is attributable to the April 2010 Deepwater Horizon drilling rig explosion and resulting oil spill in the Gulf of Mexico. Absent the cost from this event, tort costs would have shown an overall decrease of 2.4% in 2010.
• The U.S. tort system cost $264.6 billion in 2010, which translates to $857 per person, versus $820 per person in 2009.
• Overall economic growth in 2010 was 4.2%. As such, the ratio of tort costs to gross domestic product (GDP) rose in 2010 for the second consecutive year after five years of a decline in the ratio. Since 1950, growth in tort costs has exceeded growth in GDP by an average of approximately two percentage points. 

The Deepwater Horizon spill was the single most important event affecting 2010 tort costs. In June 2010, BP established a $20 billion fund to compensate the spill's victims. By November 1, 2011, BP had paid or approved for payment over $7.5 billion in claims related to the spill. While the ultimate tort costs associated with the spill remain uncertain, our estimate of tort costs from the spill was $19 billion.

The weak U.S. economy continued to have an influence on costs in 2010. While nominal GDP rose after a drop in 2009, real (inflation-adjusted) GDP in 2010 was below comparable levels from 2007. Due to a lower level of economic activity, opportunities for tort actions have also decreased over the last few years. The decline is most notable in the commercial auto line of business, perhaps the most economically sensitive coverage with a tort component. The line's tort costs in 2010 were the lowest since 2000 and 19% lower than in 2004. Personal auto tort costs showed a 1.1% increase in 2010, and medical malpractice costs continued to be stable.