Deepwater Horizon Pushes Up 2010 Tort Costs

U.S. tort costs are expected to show a significant increase in 2010, due mainly to the Deepwater Horizon disaster.

In its annual update on U.S. tort cost trends, Towers Watson predicts U.S. tort costs will rise by 9 percent in 2010.

However, excluding the Deepwater Horizon event, it expects U.S. tort cost growth will be fairly stable relative to 2009 – at about 2 percent.

Towers Watson says:

Specifically, our 2010 tort cost estimate assumes a 1.5 percent increase compared with 2009, plus $18 billion due to the BP oil spill. This $18 billion amount for the oil spill is a provisional estimate only, which will be modified in our next study as more information regarding the ultimate tort costs of the spill becomes known.†

Looking further ahead, Towers Watson expects growth in U.S. tort costs to range from 1 percent to 5 percent in 2011, excluding the impact of the BP oil spill, and a higher increase in 2012.

Chinese drywall and automobile recalls were two new tort actions that surfaced during 2009, according to the study. Towers Watson estimates total economic losses related to Chinese drywall in the range of $15 billion to $25 billion and total costs from Toyota auto recalls in excess of $1 billion.

The predicted increase in U.S. tort costs for 2010 follows a more favorable year in which tort costs decreased by 2.7 percent in 2009. An increase in personal tort costs was more than offset by a decrease in commercial tort costs, Towers Watson says.

The U.S. tort system cost $248.1 billion in 2009, which translates to $808 per person, versus $838 per person in 2008. Tort costs in 2009 were lower than four of the previous five years.

A major factor was the U.S. economy. Overall economic growth in 2009 was -1.3 percent. As such, the ratio of tort costs to gross domestic product (GDP) shrank in 2009.

This was the sixth consecutive year that tort costs rose less than GDP, according to Towers Watson.

However, since 1950, growth in tort costs has exceeded growth in GDP by an average of approximately two percentage points.

Check out an  I.I.I. presentation on the Deepwater Horizon disaster  and a recent I.I.I. paper Tort Inflation 2010.

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