Risky Business: The annual boardroom guide to litigation in the 50 states

Despite the threats to capital formation and, at times, the sustainability of many businesses, most companies fail to accurately account for the total costs of lawsuits and underestimate the importance of a state's liability climate when they make employment, plant location, and operating decisions. In today's unpredictable legal environment, the accounted costs of litigation—legal fees, settlements, judgments, and G&A—are just a starting point. The unaccounted costs are often far higher and far more dangerous: share value loss, damage to company and product reputation, higher litigation reserves, higher insurance costs, and poorer litigation results.

Most chief executives measure the performance of their general counsel in terms of accounted costs only, which can result in undermanagement of the risks to share value, company and product reputation, and other unaccounted costs.

To heighten the awareness of corporate leaders of the liability risks their companies face, this guide provides a state-by-state profile of liability climates based on both empirical and experiential studies. The profiles indicate that there are vast differences in liability climates from state to state—differences that should contribute to strategic decisions about where to do business. This should also stimulate business leaders to demand that state officials are held to task for allowing their states to become hostile legal environments, while at the same time courting business through economic development programs.

Corporations were complacent when years ago the impact of litigation was confined to paying legal fees and enduring the occasional adverse verdict. Corporations could survive this competitive disadvantage against the trial bar. That is no longer true. Today, verdicts reflect an antibusiness sentiment and many juries have a lottery mentality when doling out awards. Now, a company's share value, brand equity, and even its very solvency are at risk. That's why successful companies must study the trial bar's new business model, and develop sound, effective, and preemptive opposition strategies.

Making the Rules and Selecting the Referees
Plaintiff lawyers are among the most politically astute and media-savvy entrepreneurs in America today. For the past 20 years or more, the trial bar has outflanked business in electing tort-friendly public officials and lobbying legislators to either enact pro- plaintiff liability laws or block liability reform efforts. This is a major reason that today, to give just one example, in 32 states automakers cannot introduce evidence in product liability trials that a plaintiff was not wearing a seat belt. Worse yet, trial lawyers have greatly influenced the process in which judges are appointed or elected.

Unlike many corporations that shy away from the political process, the trial bar isn't afraid to invest in partisan politics. According to the Center for Responsive Politics, since 1990, lawyers and law firms have contributed a staggering $780 million to finance federal candidates. That figure far outstrips the contributions of many of the trial bar's favorite litigation targets: It represents about five times the contributions of the pharmaceutical industry, four times the oil and gas industry, and three times the insurance industry. At the state level—where the judicial, legislative, and executive races that shape a state's legal climate are decided—the trial bar's dominance is likely even greater.

All of this is part of the trial bar's business model, which is not to try lawsuits, but to settle them quickly to increase their inventory turns. Their business is growing: U.S. tort costs have increased 46 percent over the past five years. A recent study by Pacific Research Institute calculates the total direct and indirect costs of lawsuits at $865 billion annually, of which $589 billion is unwarranted.