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Without legal reform, economic growth evades Nevada

Nevada’s economy continues to struggle. Its unemployment rate is 14 percent, the highest in the nation.

If lawmakers want to put people back to work — without costing taxpayers another penny for “stimulus” — they can enact desperately needed lawsuit reforms.

In the newly released U.S. Tort Liability Index: 2010 Report, Nevada ranks a dismal 40th out of the 50 states in the quality of its civil-justice tort climate. The ranking is based on each state’s monetary tort losses, numbers of tort lawsuits and lawyers, number of huge jury awards, and presence of plaintiff-friendly “judicial hellholes.” The data were adjusted for the size of each state’s economy and population.

The Silver State fell four places from 36th in the previous 2008 edition. Nevada has the seventh-highest monetary tort losses out of the 50 states. It had four of the nation’s 101 largest jury-verdict awards in 2008. And the state has the fourth-highest number of lawyers per dollar of state output. Nevada practices the rule of lawyers instead of the rule of law. The state Legislature has done little to fix this problem.

The index reveals that Nevada’s tort rules on the books rank 26th in their ability to contain tort costs and risks. The state ranks 50th, dead last, in 13 of the 29 areas tracked. Nevada emerges as a “sinner” state because of its weak tort rules in the face of high tort costs and litigation risks. In this state, businesses are easy targets for personal injury lawyers, costing jobs in the process.

When deciding where to start a business, expand operations or relocate, entrepreneurs prefer states with balanced tort systems that discourage abusive lawsuits. In 2006, job growth was 57 percent greater in the 10 states with the best tort climates than in the 10 worst states. Business leaders are leery of Nevada because of its sky-high tort costs and plaintiffs hoping to hit the jackpot in the courtroom, not the casino.

Fear of lawsuits also causes companies to withdraw or withhold beneficial products. Volkswagen planned to sell a 46 mpg three-wheel vehicle. This “green machine” would have cost only $17,000, but VW decided not to market it in the United States because of lawsuit fears.

Total direct tort costs were $255 billion in 2008. Abusive lawsuits cost every American a hidden “tort tax” of about $2,000 a year in higher prices and insurance premiums, fewer jobs and new products, lower wages and benefits for working people, reduced access to health care, and higher taxes to pay for court costs. And the current system is very inefficient at its intended purpose — less than 15 cents of every tort-cost dollar goes to compensate plaintiffs.

Nevada’s lawmakers should get serious and enact meaningful lawsuit reforms, which would be the best jobs bill. UC-Berkeley economist Lisa Kimmel examined six common tort reforms adopted by states from 1970 to 1997 and found that instituting an additional tort reform increased total employment in a state by 1 percent.

In other words, one tort reform in Nevada would put more than 11,100 people back to work.

An uncompetitive legal climate has spurred some states, such as Oklahoma in 2009, to enact meaningful reforms.

If Nevada politicians are serious about jump-starting the economy, they should act to reduce the state’s massive tort burden. Common-sense reforms would bring needed jobs to the Silver State.

Lawrence J. McQuillan, Ph.D., is director of business and economic studies at the California-based Pacific Research Institute. He is co-author with Hovannes Abramyan of the third edition of the U.S. Tort Liability Index, just released by PRI. Contact him at LMcQuillan@pacificresearch.org.

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