Op-Ed: Stephen Moore: America’s tort tax is hurting consumers. Reform can fix that
The legal profession includes many principled advocates. But the business model embraced by a growing number of trial lawyers — one driven more by contingency fees than justice — has helped turn the courtroom into a profit center, not a forum for fairness.
The tort tax they impose on America is considerable. According to the U.S. Chamber of Commerce’s Institute for Legal Reform, the average family of four has its yearly expenditures increased by nearly $5,000 because of the costs imposed by the trial bar on the productive sectors of the economy.
The pursuit of “jackpot justice” corrupts the judicial system. Yet, because it’s portrayed on TV and in movies as a noble, virtuous undertaking in which the underdogs ultimately vanquish evil, rapacious businesses that have committed some foul deed against an unsuspecting public, we too often think of these massive payouts as justified, even virtuous.
The advent of hidden third-party litigation funding, in which well-heeled individuals and organizations with no fiduciary obligation to the injured party covertly “invest” in lawsuits in exchange for a portion of any settlement or verdict, is exacerbating the issue. By some estimates, hundreds of millions, perhaps billions, are now underwriting often-frivolous lawsuits.
It is the dark money of the legal system. Anonymous third parties fund lawsuits, reap enormous profits, and pay little or nothing in taxes. Usury laws do not apply to them, and the interest rates they charge are often exorbitant. Even when plaintiffs win, they often receive only a fraction of the settlement after their “investors” are repaid.
It’s not just a problem in the federal courts. Things are worse in some states, and not just the blue ones. According to the ILR, Texas had the fourth-highest number of outrageous judgments in the U.S. between 2013 and 2022. There were more than 130 awards exceeding $10 million, which accounted for about half of the so-called “nuclear verdicts,” alongside ones in California, Florida, and New York.
A 2018 Upshur County, Texas fender-bender turned into a $101 million verdict. The plaintiff’s personal injury lawyer directed him to a chiropractor, a pain specialist, and a back surgeon, all of whom happened to be frequent witnesses in the lawyer’s cases.
Louisiana, which the non-partisan Americans for Tort Reform pegged as No. 10 on its 2024 list of “Judicial Hellholes,” has, by some estimates, lost jobs, revenue, and more than $3.8 billion in economic activity due to excessive civil court costs. Yet Gov. Jeff Landry (R., La.), a former state attorney general, just vetoed legislation that would have made a dent in the problem.
To put some perspective on how big a problem it is, in September 2024, an Opelousas, La., jury awarded a $220 million verdict in a trial stemming from a collision between an ambulance and a pickup truck. The plaintiff wasn’t wearing a seat belt at the time of the crash, but the verdict against the defendant’s employer, who was involved because he was driving some co-workers home at the time of the incident, included noneconomic damages in seven categories totaling $155.5 million.
States like these would be wise to follow the example set by Gov. Ron DeSantis (R., Fla.), whose reforms have yielded tangible benefits for insurers, policyholders, and state taxpayers. Under his leadership, the state has reined in frivolous litigation, stabilized insurance markets, improved economic output, and created jobs. In 2025, for the second straight year, the number of lawsuits filed against insurers during the first three quarters of 2024 declined by 23.8 percent — from 36,639 to 27,923 — compared to the same period in 2023.
Legal system abuse costs the U.S. economy and consumers an estimated $529 billion, or approximately 2 percent of the country's GDP. Tort costs have reached historic highs in recent years at an annual rate of 7.1 percent, outpacing inflation. Its misuse has a far-reaching economic impact, with policyholders and consumers ultimately shouldering the burden. The expenses associated with legal defense, judgments, and settlements are passed along to consumers in the form of higher prices and a reduction in the choices available to them when purchasing a particular type of item.
A survey commissioned by the American Property Casualty Insurance Association and Munich Re US showed 67 percent of those polled believe state and federal lawmakers should implement restrictions on lawyer advertising to prevent misleading practices and reduce the number of lawsuits filed.
Reform requires a multifaceted approach. Legislative and common-sense regulatory reforms, such as requiring transparency from third-party funders, reining in misleading attorney advertising, instituting reasonable caps on non-economic damages, and reforming abusive and frivolous litigation, are essential. The challenges posed by the ongoing abuse of the legal system are substantial. Understanding and deterring legal system abuse is critical to maintaining a healthy, predictable, and affordable insurance market for all, as well as a fair and just civil justice system.
A noted economist and expert on the intersection of law, economics, and public policy formation, Steve Moore is the co-founder of Unleash Prosperity, an organization that promotes policies fostering economic growth and job creation.