CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

CBO

PAPER

JUNE 2004

The Effects of 

Tort Reform: 

Evidence from

the States

© Royalty-free/BPX61344/Brand X Pictures

The Congress of the United States O Congressional Budget Office

CBO

The Effects of Tort Reform: 

Evidence from the States

June 2004

A

PAPER

Preface

In response to the perception that liability insurance coverage was becoming more costly 

and less available, most states enacted legislation in the mid-1980s that reformed the common-law rules and other court procedures involving tort litigation. Despite those reforms, the 

U.S. tort liability system remains controversial. Some critics contend that the system, which 

holds parties liable for injuries to people or their property, is costly and inefficient, arbitrary 

and open to abuse. Opponents of tort reform disagree with those criticisms and also point to a 

lack of evidence on the effectiveness of past reform efforts. 

Several bills now before the Congress would change the rules at the federal level that govern 

tort claims for medical malpractice and asbestos exposure and claims litigated as class actions. 

Most states have already enacted reforms similar to those under consideration. This Congressional Budget Office (CBO) paper reviews the major studies that evaluate the effects of statelevel tort reforms and assesses the relevance of that research to similar federal proposals. Both 

this report and a companion CBO study from October 2003, The Economics of U.S. Tort Liability: A Primer, were prepared at the request of the Senate Budget Committee. In accordance 

with CBO’s mandate to provide impartial analysis, this report makes no recommendations.

Cary Elliott of CBO’s Microeconomic and Financial Studies Division wrote the paper under 

the supervision of David Moore and Roger Hitchner. The author received valuable comments 

and assistance from Robert Arnold, David Austin, Perry Beider, Stuart Hagen, Allison Percy, 

and Shou Wang of CBO, as well as Jeff O’Hara, formerly of CBO, and Albert Yoon of the 

University of Chicago. (The assistance of external reviewers implies no responsibility for the 

final product, which rests solely with CBO.)

Christine Bogusz edited the paper, and John Skeen proofread it. Angela Z. McCollough prepared drafts of the manuscript, Allan Keaton and Maureen Costantino prepared the report for 

publication, and Maureen Costantino designed the cover. Lenny Skutnik printed the copies of 

the report, and Annette Kalicki produced the electronic versions for CBO’s Web site 

(www.cbo.gov).

Douglas Holtz-Eakin

Director

June 2004

Summary vii

Introduction 1

Tort Liability as a Tool for Achieving

Efficiency and Equity 1

Arguments For and Against Federal Tort Reform 2

Tort Reform Initiatives

at the State Level 3

Limits on Joint-and-Several Liability 4

Changes to the Collateral-Source Rule 5

Caps on Noneconomic Damage Awards 6

Limits on Punitive Damage Awards 6

Other Reforms 8

The Difficulties of Evaluating 

State-Level Tort Reforms 8

A Review of the Major Studies 

of State-Level Tort Reforms 9

Effects of Tort Reform Legislation

on Damage Claims and Lawsuits 11

Effects of Tort Reform Legislation

on the Liability Insurance Market 15

Effects of Tort Reform Legislation on Medical

Malpractice and Defensive Medicine 18

Bibliography 21

CONTENTS
vi THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

Tables

S-1. Selected Tort Reforms Enacted Since 1986 ix

S-2. Findings from the Major Studies of State-Level Tort Reforms

Published Since 1993 x

1. Major Studies of State-Level Tort Reforms Published Since 1993 10

2. Findings from the Major Studies of State-Level Tort Reforms 

Published Since 1993 12

Figures

1. States That Have Enacted Reforms to Joint-and-Several Liability and 

the Collateral-Source Rule Since 1986 5

2. States That Have Enacted Caps on Damages Since 1986 7

Box

1. Definitions of Some Common Tort Terms 2
Summary

Reforming the nation’s tort system—by enacting 

legislation to change the common-law rules that state and 

local courts use in cases of injury to people or their property—has become a prominent issue at the federal level. 

The Congress is considering legislation to restrict damage 

awards in medical malpractice and asbestos lawsuits and 

to transfer class-action suits to the federal court system. 

However, most states have already enacted tort reforms 

similar to those being considered by federal lawmakers. 

This Congressional Budget Office (CBO) paper reviews 

the major recent studies that evaluate state-level tort reforms and assesses the relevance of that research for evaluating similar proposals at the federal level. 

The studies examined by CBO have empirically tested 

whether reforms undertaken by the states in recent decades have had a measurable impact on tort activity and 

its effects on economic performance. A number of those 

studies have found that state-level tort reforms have decreased the number of lawsuits filed, lowered the value of 

insurance claims and damage awards, and increased insurers’ profitability as measured by payouts relative to 

premiums in the short run.

Those findings, however, should be interpreted cautiously, for several reasons. First, data are limited, and the 

findings are not sufficiently consistent to be considered 

conclusive. Second, the more persuasive studies were limited in that they analyzed specific types of torts, such as 

claims of bodily injury from automobile accidents, making generalizations difficult. Third, because tort reforms 

are often enacted in packages at the state level, distinguishing among the effects of different types of tort reforms can be difficult, obscuring the conclusions that 

may be drawn by federal policymakers. 

The Goal and Status of Tort Reform in 

the States

At the heart of many states’ tort reform statutes is the presumption that too many tort claims are filed and that 

court awards, such as those for punitive damages (which 

are intended to punish a defendant for willful and wanton conduct) and pain and suffering, tend to be excessive. 

Tort reforms that limit the amount that can be awarded 

for such noneconomic damages, as well as those that decrease awards by the amount of payments from thirdparty sources, aim to make it less worthwhile to pursue 

marginal cases—thus reducing the number of such cases 

and inefficiencies in the tort system. Other tort reforms 

seek to limit liability by making it more difficult to pursue cases against multiple defendants. Still other reforms 

focus on procedural changes, again making it less likely 

that marginal cases will be pursued.

Although tort reform is a continuing issue, it gained 

prominence in the mid-1980s, when many states enacted 

reforms in response to a perceived problem in insurance 

costs. Those reforms sought to limit exposure to liability, 

thereby reducing general insurance premiums. Indeed, 

premiums fell by 40 percent for some commercial policies in 1987, after tripling in the 1984-1986 period.

Since 1986, states have put in place various other tort reforms, with different specifics and in different combinations. (See Summary Table 1 for a list of selected reforms 

and the differences among states.) For example, although 

34 states enacted a cap on punitive damages, those caps 

vary. Some caps limit punitive damages to two or three 

times compensatory damages (which cover medical costs 

and lost wages); others are for fixed amounts ranging 

from $250,000 to $10 million. Furthermore, some reforms focus on specific areas, such as medical malpractice 

torts, whereas others are applied more widely. Those differences make it difficult to identify statistically which re-
viii THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

forms, applied in what manner, are most effective in 

achieving their intended effects at the state level.

General Findings from the Empirical 

Literature on Tort Reform 

The most consistent finding in the studies that CBO reviewed was that caps on damage awards reduced the 

number of lawsuits filed, the value of awards, and insurance costs (see Summary Table 2). One study of automobile-related torts found that caps on noneconomic damages decreased not only the value of noneconomic claims 

made to insurance companies but also the number of 

lawsuits filed. Other studies suggested that those caps led 

to increases in insurers’ profitability for both medical 

malpractice and general liability insurance. (Evidence on 

whether premiums were affected was mixed.) 

Yet even those findings must be viewed in context. As a 

whole, the studies provided little systematic evidence that 

any one type of reform had a significant impact on any of 

the various outcome measures studied. Few of the findings—except for a reduction in the losses experienced by 

insurers—were independently corroborated by other 

studies. Some studies were unable to document any measurable effects from the tort reforms, a result that may be 

more reflective of the lack of data than of any failure of 

the reforms. 

At least two issues complicate the analysis of tort reform. 

First, data limitations preclude separately estimating the 

effect of each of the many types of reform. Second, it is 

difficult to control for differences between states that reformed their tort system and those that have not. Controlling for such differences is critical in assessing the effect of tort reform on outcomes such as the level of 

insurance premiums.

Specific Findings by Type of Tort 

Reform

The nine studies that CBO reviewed looked at the effects 

of various types of tort reform: limits on damages, modifications to joint-and-several liability, changes to the collateral-source rule, and reforms considered as a group. 

Some studies evaluated more than one type of reform.

Caps on Noneconomic Damages 

Four of the studies analyzed the effect of caps on noneconomic damages. One of those, a 1999 study by Mark J. 

Browne and Robert Puelz, found that those caps led to 

lower noneconomic insurance claims by victims of automobile bodily injury and significantly reduced the probability that they would file a lawsuit. The other three studies—by Kenneth Thorpe (2004), Patricia Born and W. 

Kip Viscusi (1998), and W. Kip Viscusi and coauthors 

(1993)—found that insurers’ profitability, as measured by 

their losses for either their general liability or medical 

malpractice lines, or both, increased after the reform, although the study by Viscusi and coauthors found no significant effect on loss ratios. Two of the three studies 

found that premiums also declined significantly for at 

least some insurance lines; the third found no significant 

effect.

Two of those studies looked at the impact of caps on punitive damages separately from other reforms. Browne 

and Puelz found that those caps had a negative effect on 

noneconomic claims but a small positive impact on economic claims, which yielded an overall negative impact 

on total claims. Their study also found that caps on punitive damages led to the filing of fewer lawsuits. Viscusi 

and coauthors found that punitive damage caps had a 

negative impact on general liability premiums but not 

premiums for medical malpractice insurance.

A fifth study, by Albert Yoon (2001), analyzed legislation 

that imposed caps on noneconomic damages and punitive damages as well as limits on wrongful death suits. 

That study found that the recovery of damages by plaintiffs fell significantly after the enactment of those reforms.

Modifications to Joint-and-Several Liability 

Four studies looked at the impact of reforming (either by 

restricting or eliminating) the common-law rule of jointand-several liability, under which any one injurer or subset of injurers can be held responsible for paying all of the 

damages for injuries caused by more than one party.

Thorpe found no significant effect from that reform. Although Mark J. Browne and coauthors (1994) found no 

impact on the number of lawsuits filed after the reform 

was enacted, the researchers did find a significant surge in 

cases before the reform took effect. Additionally, Browne 

and Puelz found that reform of joint-and-several liability 

ed to an increase in the value of noneconomic awards but 

found no other significant effects. Finally, Viscusi and coauthors offered evidence that joint-and-several liability 

reform was a factor in lowering insurers’ losses in the 

mid-1980s and that it had a negative impact on

premiums.
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES ix

Summary Table 1.

Selected Tort Reforms Enacted Since 1986 

Source: American Tort Reform Association, Tort Reform Record (December 31, 2003), pp. 2-3, available at www.atra.org/files.cgi/

7668_Record12-03.pdf. 

Notes: The American Tort Reform Association (ATRA) does not list reforms enacted prior to 1986, when the association was founded. 

Although the ATRA lists Vermont as enacting reform of joint-and-several liability since 1986, Vermont actually enacted that reform in 

1985.

See Box 1 for definitions of the tort terms used in this table. 

* The only relevant law enacted since 1986 was found to violate the state's constitution. 

Type of Reform

Number of 

States Summary States That Have Enacted the Reform

Modify Joint-andSeveral Liability38 States have based the amount for 

which a defendant can be held 

liable on the proportion of fault 

attributed, but the formulas differ 

substantially from state to state. 

In addition, most of the reforms 

apply to specific types of torts or 

have other restrictions. 

Alaska, Arizona, Arkansas, California, Colorado, Connecticut, 

Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, 

Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, 

Missouri, Montana, Nebraska, Nevada, New Hampshire, New 

Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, 

Pennsylvania, South Dakota, Texas, Utah, Vermont, 

Washington, West Virginia, Wisconsin, Wyoming

Modify the CollateralSource Rule25 Typical reforms either permit 

evidence of collateral-source 

payments to be admitted at trial, 

allow awards to plaintiffs to be 

offset by other payments, or both.

Alabama, Alaska, Arizona, Colorado, Connecticut, Florida, 

Georgia,* Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas,* 

Kentucky, Maine, Michigan, Minnesota, Missouri, Montana, 

New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon

Limit Noneconomic 

Damages

23 The caps range from $250,000 to 

$750,000. More than half of the 

reforms apply to torts involving 

medical malpractice.

Alabama,* Alaska, Colorado, Florida, Hawaii, Idaho, Illinois,* 

Kansas, Maryland, Michigan, Minnesota, Mississippi, Montana, 

Nevada, New Hampshire,* North Dakota, Ohio, Oklahoma, 

Oregon,* Texas, Washington,* West Virginia, Wisconsin

Limit Punitive Damages 34 Various types of limits include 

outright bans; fixed dollar caps 

ranging from $250,000 to $10 

million; and caps equal to a 

multiple of compensatory awards.

Alabama, Alaska, Arizona, Arkansas, California, Colorado, 

Florida, Georgia, Idaho, Illinois,* Indiana, Iowa, Kansas, 

Kentucky, Louisiana, Minnesota, Mississippi, Missouri, 

Montana, Nevada, New Hampshire, New Jersey, New York, 

North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South 

Carolina, South Dakota, Texas, Utah, Virginia, Wisconsin
x THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

Summary Table 2.

Findings from the Major Studies of State-Level Tort Reforms

Published Since 1993 

Continued

Viscusi and others (1993) Browne, Lee, and Schmit (1994) Born and Viscusi (1998)

Applicability General and medical malpractice General General and medical malpractice

Modifications to Joint-and-Several 

Liability

1986 reforms led to a large reduction in 

losses for general liability insurers; 1985-

1986 reforms led to a large decrease in 

general liability premiums (only the 1985 

reforms had an impact on medical 

malpractice premiums); no effect on loss 

ratios detected.

No impact on number of claims filed after 

reform but a significant surge in court 

filings before reform took effect.

Included in "other" reforms.

Repeal of the Collateral-Source Rule No effect detected, but reform was 

combined with caps on contingent fees, 

modifications of statutes of limitations, 

and other reforms.

Not studied. Included in "other" reforms.

Caps on Noneconomic Damages Large decline in losses for both general 

and medical malpractice insurance. No 

effect detected for either premiums or 

loss ratios.

Not studied. Led to increased profitability for insurers 

and a decrease in premiums.

Restrictions on Punitive Damages Decline in premiums for general liability 

insurance. No other effect found.

Not studied. Included in "other" reforms.

Other Reforms General limits on liability awards or 

established immunities from prosecution 

seem to have reduced general liability 

premiums, but no other effect was found. 

Led to an increase in insurers' 

profitability and a decline in premiums for 

medical malpractice liability. For general 

liability, little effect was found.

Comments As a package, reforms enacted between 

1985 and 1987 significantly reduced 

insurers' losses, with a less dramatic 

decline in premiums, which yielded an 

overall drop in loss ratios.
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES xi

Summary Table 2.

Continued 

Source: Congressional Budget Office based on the studies shown here (full citations can be found in the bibliography of this report). 

Note: See Box 1 for definitions of the tort terms used in this table. 

Kessler and McClellan (1996, 2000, 

2002) Browne and Puelz (1999) Yoon (2001) Thorpe (2004)

Medical malpractice Automobile bodily injury Medical malpractice Medical malpractice

Included as an "indirect" reform; see 

"comments."

Led to an increase in the dollar value of 

noneconomic claims; no statistically 

significant effect on the value of 

economic claims or the number of court 

cases filed.

Not studied. Found no statistically significant effect.

Included as a "direct" reform; see 

"comments." 

Decrease in the value of both economic 

and noneconomic claims; no effect on the 

number of court cases filed.

Not studied. "Discretionary" collateral-source offsets 

(those considered at a judge's discretion) 

led to increased profitability (decreased 

loss ratios) for insurers. No significant 

difference in premiums found.

Included as a "direct" reform; see 

"comments." 

Decline in the value of noneconomic 

claims; a significant reduction in the 

number of court cases filed. No effect on 

economic claims.

Led to a decrease in the amount that 

plaintiffs recovered (but this reform was 

combined with a cap on punitive damages 

and a limit on wrongful death claims).

Led to increased profitability (decreased 

loss ratios) and lower premiums earned 

for medical malpractice liability insurers.

Included as a "direct" reform; see 

"comments." 

Decrease in the value of noneconomic 

claims, an increase in the value of 

economic claims, and an overall decline in 

the value of total claims; an increase in 

the number of claims filed.

Decrease in the amount that plaintiffs 

recovered (but this reform was combined 

with a cap on noneconomic damages and 

a limit on wrongful death claims).

Among "other" reforms, abolishing 

mandatory prepayment interest was 

included as a "direct" reform. "Indirect" 

reforms included imposing mandatory 

periodic payments, establishing patientcompensation funds, and capping 

contingent fees.

The presence of sanctions on frivolous 

suits or defenses, prejudgment interest, 

and structured settlements led to a 

decrease in the value of both economic 

and noneconomic claims and to a drop in 

the number of court cases filed.

A limit on wrongful death claims 

combined with caps on noneconomic and 

punitive damages led to a decrease in the 

amount that plaintiffs recovered.

States that enacted tort reforms had 

lower Medicare spending for 

hospitalization of elderly patients with 

heart disease and heart attacks, with no 

significant increase in adverse health 

outcomes. Those states also had lower 

malpractice claims. "Direct" reforms 

helped to lower some of the costs of 

claims, whereas "indirect" reforms 

actually increased several measures of 

claims costs.
xii THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

Reform of the Collateral-Source Rule 

The two studies that separately analyzed the impact of reform of the collateral-source rule found some effect. 

Browne and Puelz determined that both economic and 

noneconomic damages were reduced by reforms that allowed evidence of payment from sources other than the 

defendant to be introduced at trial, third-party payments 

to be subtracted from awards, or both. Thorpe found that 

“discretionary” collateral-source offsets (those considered 

at a judge’s discretion) led to increased profitability for insurers.

Reforms Considered as a Group

Many of the studies looked at the effect of various reforms as a group. Browne and Puelz, for instance, found 

that the presence of sanctions on frivolous suits or defenses, prejudgment interest, structured settlements, or 

any combination thereof led to a decrease in the value of 

both economic and noneconomic claims and in the number of lawsuits filed for automobile-related torts.1

 In addition, several studies by Daniel P. Kessler and Mark B. 

McClellan presented evidence that tort reform in medical 

malpractice led to a reduction in unnecessary medical expenditures, implying both the existence of defensive medicine (excessive tests and procedures that limit doctors’ 

malpractice liability but have minimal medical benefit) 

and the ability of tort reform to reduce its practice. However, those studies were conducted on a restricted sample 

of patients, whose treatment and behavior cannot be generalized to the population as a whole. Related research by 

Kessler and McClellan also found that tort reforms in 

general led to fewer medical malpractice claims. In particular, those reforms that directly capped awards led to a 

decrease in the number of claims paid, the number of 

claims incurring legal expenses, and the time it took to resolve claims; the other reforms that the authors studied 

tended to have the opposite effect. 

1. Reforms related to prejudgment interest limit the interest that 

may accrue on a loss during the time before the court awards damages. Reforms related to structured settlements allow award payments to be staggered over time. 
The Effects of Tort Reform: 

Evidence from the States

Introduction

Tort reform has become a prominent issue at the federal 

level. Over the past year, the Congress has considered several specific tort reform bills: for example, the Asbestos 

Compensation Fairness Act of 2003 (H.R. 1586), which 

would prohibit punitive damages in asbestos cases, and 

the HEALTH Act (H.R. 5) and the Common Sense 

Medical Malpractice Reform Act of 2003 (H.R. 321), 

both of which would limit damages in medical malpractice cases. More general proposals for tort reform have 

also come before the Congress, notably the Class Action 

Fairness Act of 2004 (S. 2062), which would have allowed more cases to be transferred from state courts to 

federal courts. In many instances, states have enacted tort 

reform proposals similar to those being considered at the 

federal level. This paper reviews the major studies published since 1993 that evaluate state-level tort reforms 

and assesses the relevance of that research for evaluating 

similar federal proposals. 

A tort is an injury to someone’s person, reputation, or 

feelings or damage to real property.1

 Under the U.S. system of tort liability, courts can hold injurers liable for 

many different types of torts, such as those caused by automobile accidents, contract fraud, trespass, medical malpractice, and defective products. The major categories of 

tort litigation are automobile-related torts (53 percent), 

premises liability (16 percent), and medical malpractice 

(15 percent).2

 The plaintiff in a tort suit can seek compensation of two types: compensatory damages to cover 

the “economic” cost of an injury—for example, medical 

costs and lost wages—and the “noneconomic” costs of 

pain and suffering and punitive damages intended to 

punish a defendant for willful and wanton conduct. (See 

Box 1 for a list of definitions of some common tort 

terms.) U.S. tort law is almost exclusively contained in 

state law, and the large majority of tort cases are filed in 

state courts. In 2000, more than 700,000 torts were filed 

in state general courts, compared with only 37,000 in 

federal courts. Tort law is based primarily on common 

law—in which judicial rules are developed on a case-bycase basis by trial judges—rather than on legislation.

Tort Liability as a Tool for Achieving

Efficiency and Equity

The risk of injury or loss is inherent in everyday life: consumers are injured or killed by defective products, workers are hurt on the job, train passengers are injured by derailments, and patients are harmed by medical errors. 

Markets provide broad incentives to control the number 

and costs of such injuries. For example, enhanced safety 

features can give a product a marketing advantage over 

competitors. Furthermore, insurance allows individuals 

and firms to reduce the financial uncertainty associated 

with potential injuries. The U.S. tort liability system, 

however, serves to augment the safety incentives and insurance opportunities provided by the market.3 In particular, it provides incentives for individuals and firms to 

1. Bryan A. Garner, ed., Black's Law Dictionary, 7th ed. (St. Paul, 

Minn.: West Group, 1999), pp. 1496-1497. For a review of the 

basics of the U.S. tort system, see Congressional Budget Office, 

The Economics of U.S. Tort Liability: A Primer (October 2003). 

2. Those percentages are based on each category’s share of the total 

number of tort trials completed in the general-jurisdiction courts 

of the 75 largest U.S. counties in 2001. See Department of Justice, Bureau of Justice Statistics, Civil Trial Cases and Verdicts in 

Large Counties, 2001, NCJ 202803 (April 2004), Table 1.

3. Other tools are regulation and public compensation programs. 
2 THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

take appropriate care, compensates those who are 

harmed, helps spread risk, and serves the purposes of 

punishment or retribution.

In economic terms, those various purposes can be related 

to the overarching social goals of efficiency and equity. In 

theory, the tort system contributes to economic efficiency 

by assigning liability for accidents so that individuals and 

firms account for the extent to which their actions affect 

the risk of injury. However, different concepts of equity 

may affect the assignment of that liability. For example, a 

particular concept of fairness might hold that certain victims should not be considered responsible for exercising 

some forms of care although it would be more efficient if 

they did so. The literature this paper reviews does not address the efficiency and equity implications of various reforms but examines how reforms might affect the number 

of court filings or the size of awards.

Arguments For and Against Federal Tort Reform 

Many legal scholars agree that tort liability has expanded 

over the past 30 years; the opportunity for victim compensation has increased, particularly in the area of product liability.4 That growth was facilitated by a notion that 

more extensive tort liability would serve to compensate 

injured parties and reduce the level of accidents. However, many people have voiced concern that the tort system has gone too far; they say that businesses are saddled 

with excessive costs that lead to higher prices for consumers. Critics also express several other specific concerns 

about the tort system:

Box 1.

Definitions of Some Common Tort Terms 

Collateral-source payments: Amounts that a plaintiff recovers from sources other than the defendant, 

such as the plaintiff’s own insurance. Under the collateral-source rule, that compensation from other 

sources may not be admitted as evidence at trial.

Contingent fee: A fee charged by an attorney for his 

or her services only if the lawsuit is successful or is favorably settled out of court. Usually, the contingent 

fee is calculated as a percentage of the amount the 

plaintiff recovers from the defendant. 

Economic damages: Funds to compensate a plaintiff 

for the monetary costs of an injury, such as medical 

bills or loss of income. 

Joint-and-several liability: Liability in which each liable party is individually responsible for the entire 

obligation. Under joint-and-several liability, a plaintiff may choose to seek full damages from all, some, 

or any one of the parties alleged to have committed 

the injury. In most cases, a defendant who pays damages may seek reimbursement from nonpaying

parties. 

Malpractice: “An instance of negligence or incompetence on the part of a professional.”1

Negligence: A violation of a duty to meet an applicable standard of care. 

Noneconomic damages: Damages payable for items 

other than monetary losses, such as pain and suffering. The term technically includes punitive damages, 

but those are typically discussed separately. 

Punitive damages: Damages awarded in addition to 

compensatory (economic and noneconomic) damages to punish a defendant for willful and wanton 

conduct. 

Statute of limitations: A statute specifying the period 

of time after the occurrence of an injury—or, in 

some cases, after the discovery of the injury or of its 

cause—during which any suit must be filed. 

1. Bryan A. Garner, ed., Black’s Law Dictionary, 7th ed. (St. 

Paul, Minn.: West Group, 1999), p. 971. 

4. See, for example, George L. Priest, “The Modern Expansion of 

Tort Liability: Its Sources, Its Effect, and Its Reform,” Journal of 

Economic Perspectives, vol. 5, no. 3 (Summer 1991). 
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES 3

B The “transaction costs” of the system, particularly attorneys’ fees, are too high;

B Punitive damages and compensatory damages for pain 

and suffering are often awarded arbitrarily, with no 

beneficial effect on safety;

B The class-action mechanism (whereby many claims 

that cover similar factual ground are combined into a 

single larger case) is too easily abused by plaintiffs’ attorneys;

B Medical malpractice lawsuits are driving up the costs 

of liability insurance for physicians to the point that 

some of them are restricting their practices or retiring; 

and

B Fair compensation for victims of torts is limited by 

frivolous lawsuits and excessive awards of noneconomic damages, which increase the likelihood of 

bankruptcy for firms.

Since the mid-1980s, a large majority of states have enacted statutes to restrict tort lawsuits.5 Those statutes 

were enacted in response to problems in insurance costs 

and availability. The idea behind those changes was that 

limiting the liability exposure of firms would reduce liability insurance premiums.

Despite those reforms at the state level, some people see a 

role for a federal approach. They note that tort reforms 

have not been universally undertaken in the states and 

that those states that enacted changes have done so in a 

less than uniform way. People in favor of federal action 

contend that such a lack of uniformity in state laws increases the costs to businesses that manufacture and sell 

goods and services in multiple states and that federal legislation unifying tort laws across the country could reduce 

those costs. Uniform tort laws would also limit “venue 

shopping”—the ability of the plaintiff to choose the jurisdiction where a lawsuit is tried. In addition, proponents 

point to various large and unique liability cases—for asbestos exposure, for example—as special situations that 

warrant a national approach allowing victims to receive 

timely and fair compensation.

Opponents of tort reform argue that a lack of evidence on 

the benefits and costs of tort liability in general, as well as 

the economic effects of state reforms, makes a broad federal approach risky. Limited data on the deterrent effect 

of the tort system is available to counter the charges of excessive costs, but opponents of reform argue that those 

costs, to the extent that they exist, are justified by the system’s role in compensating victims, ensuring that injurers 

face the total costs of their actions, and improving safety. 

They contend that proposed reforms are too broad and 

that the states and the judiciary are better positioned to 

make adjustments to the system in response to existing 

problems.

Only a small number of studies have been conducted that 

analyze the effects of state-level tort reforms on various 

outcomes, including tort court filings, damage awards, 

health care providers’ behavior, liability insurance premiums, and insurance availability. However, whether or not 

tort reforms have had a significant effect on those measures says little about the overall functioning of the tort 

system in terms of efficiency and equity. For instance, 

whether damage caps reduce the number of lawsuits filed 

says nothing about whether it is more efficient or equitable to discourage marginal tort cases.

Tort Reform Initiatives

at the State Level

Tort reform has been a national trend, but the extent and 

specifics of that reform have varied from state to state. 

Delaware, for example, has not passed any tort reform 

legislation since 1986, and its earlier statutes were limited 

to medical malpractice cases.6 Colorado, in contrast, has 

enacted reforms since 1986 that restrict the application of 

joint-and-several liability, allow court awards to be offset 

by collateral-source payments, abolish punitive damages 

in a number of cases and restrict them to be less than 

compensatory damages in others,7

 limit the total award 

of damages to $1 million (of which no more than 

$250,000 can be for noneconomic damages), and modify 

class-action rules. 

5. Some state legislation changing tort liability rules and procedures 

predated that surge. 

6. Delaware law permits the admissibility of evidence of collateralsource payments, restricts contingent fees, and allows periodic 

payment of future damages, all in medical liability actions. 

7. Punitive damages are disallowed in medical malpractice cases in 

Colorado when drugs have been approved by the Food and Drug 

Administration or when the patient has given informed consent. 
4 THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

Some state-level tort reforms have made it more costly or 

difficult to file tort cases. For example, joint-and-several 

liability reforms tend to force plaintiffs to bring suit 

against multiple defendants rather than concentrate their 

efforts on a few defendants who are wealthier, more easily 

identifiable, or both; court procedural reforms can make 

it harder to file suits; and caps on legal contingent fees 

make it less lucrative for attorneys to accept “long shot” 

cases. The major argument for those reforms is that too 

many frivolous cases are brought in general. Other reforms limit the amount of damages, both compensatory 

and punitive, that can be awarded. Underlying those reforms is the contention that the courts are apt to make 

excessive awards, in terms of either what is necessary to 

compensate victims for their losses or what incentives are 

appropriate to avoid future accidents.

Limits on Joint-and-Several Liability 

Thirty-eight states have reformed joint-and-several liability rules by statute since 1986 (see Figure 1).8

 Under the 

common-law rule of joint-and-several liability, if two or 

more parties cause harm, any of them can be held responsible for all of a victim’s damages, regardless of the relative 

degree of fault or responsibility. The plaintiff need only 

show that one of the defendants is at fault, and that defendant cannot use the involvement of third parties as a 

defense.9 This is often called the “deep pockets” rule because it enables plaintiffs to concentrate their efforts on 

wealthier defendants.

Supporters of this rule argue that if the individual actions 

of multiple defendants are together necessary for the injury to occur, then it is appropriate for each defendant to 

face the full value of the victim’s losses—that is, all defendants are jointly and fully responsible—without considering the extent to which each defendant’s own action contributed to the circumstances necessary to cause the 

injury. In its favor, joint-and-several liability advances the 

cause of full and quick compensation for the victim. It 

also may cause potential injurers to take care. Opponents 

contend, however, that the rule provides incentives for 

plaintiffs to bring marginal suits against wealthy defendants because the burden of proving that a single defendant is even partially at fault—rather than being primarily or wholly at fault—is low. 

Changes to the common-law rule of joint-and-several liability usually limit a defendant’s responsibility for damages to a fraction of the total damages commensurate 

with the proportion of fault that is attributed to that defendant. Under limits of that type, a plaintiff would have 

to file multiple lawsuits to be fully compensated and in 

doing so would bear increased legal costs. Additionally, a 

plaintiff who can collect only partial compensation from 

each defendant is exposed to the risk that some defendants may be unable to pay. In all, a plaintiff’s expected 

benefit from filing a tort lawsuit is lower; therefore, those 

changes should result in the filing of fewer lawsuits. 

However, some observers argue that if the reforms are enacted, a plaintiff may attempt to inflate the size of his or 

her claim to offset those reductions in expected damages.10

In 1985, only five states restricted joint-and-several liability.11 In 1986 and 1987, 24 additional states enacted reforms. Currently, 42 states limit joint-and several-liability 

in some way, but only seven have banned the use of the 

doctrine in the recovery of all damages. (In general, states 

have maintained the original doctrine except in specific 

cases—for example, for intentional torts, hazardous

8. Although the American Tort Reform Association lists Vermont 

as enacting reform to joint-and-several liability since 1986, Vermont actually enacted that reform in 1985.

9. Such a defendant can and usually does initiate its own suit against 

other responsible parties in the same or in a separate suit.

10. See the discussion in Mark J. Browne and Robert Puelz, “The 

Effect of Legal Rules on the Value of Economic and Non-Economic Damages and the Decision to File,” Journal of Risk and 

Uncertainty, vol. 18, no. 2 (1999), pp. 189-213. 

11. Joint-and-several liability rules in Indiana, Kansas, and Vermont 

were modified by statute before 1986; those in Oklahoma were 

modified by court decision in 1978. Iowa enacted a reform in 

1985 (and in 1997 further restricted joint-and-several liability 

with a new law). 
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES 5

Figure 1.

States That Have Enacted Reforms to Joint-and-Several Liability and 

the Collateral-Source Rule Since 1986

Source: American Tort Reform Association, Tort Reform Record (December 31, 2003), pp. 2-3, available at www.atra.org/files.cgi/

7668_Record12-03.pdf.

Notes: The American Tort Reform Association (ATRA) does not list reforms enacted before 1986, when the association was founded. Although 

the ATRA lists Vermont as enacting joint-and-several liability reform since 1986, Vermont actually enacted that reform in 1985.

In Georgia and Kansas, reforms to the collateral-source rule were subsequently found to violate the state constitution.

waste, and medical malpractice.)12 Other states allow a 

single defendant to be responsible for compensating the 

victim’s total loss only in cases in which the defendant is 

found primarily responsible, which is usually defined as 

more than 50 percent at fault.13 Other variants of the reform include allowing a defense of comparative negligence (by which defendants’ liability can be reduced by 

proving that the plaintiff was partially responsible for the 

injury); allowing joint-and-several liability for economic 

but not noneconomic damages; and restricting joint-andseveral liability to cases in which defendants acted in a 

concerted effort.

Changes to the Collateral-Source Rule

Under the collateral-source rule, a defendant is prohibited from introducing evidence at trial to show that a 

plaintiff has received compensation for an injury from 

another source—for example, an insurance policy. That 

common-law rule prevents any offsets of damage awards 

by the amount the plaintiff has received from those collateral sources.

Collateral-Source Rule

Joint-and-Several Liability

Collateral-Source Rule and

Joint-and-Several Liability

12. An intentional tort is a tort committed by someone acting willfully, with general or specific intent. Examples include battery, 

false imprisonment, and trespass to land. See Garner, Black's Law 

Dictionary, p. 1497. 

13. Eight states set the fault limit at 50 or 51 percent; Illinois sets it at 

25 percent and New Jersey at 60 percent. South Dakota restricts 

the liability of defendants who are less than 50 percent at fault to 

no more than twice the percentage of fault. 
6 THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

In 1986 and 1987, 18 states changed their collateralsource rules; currently, 23 states have either abolished or 

reformed the rule (see Figure 1).14 Typical reforms either 

permit evidence of collateral-source payments to be admitted at trial, allow awards to plaintiffs to be offset by 

other payments, or both. 

Advocates of the collateral-source rule emphasize its incentive effects. They contend that a potential injurer facing the entire cost of an accident will exercise an efficient 

level of care, whereas an injurer facing a smaller payment 

has less of an incentive to take care. Opponents of the 

rule argue that it leads to overcompensation, with victims 

compensated twice for the same injury.15 Such overcompensation lowers a potential victim’s incentive to take 

care, opponents contend, and increases the number of 

lawsuit filings by boosting the expected size of an award. 

Critics of the tort system in general often argue that court 

awards exceed the amount necessary to induce the optimal level of precaution; in their view, this reform acts in 

part to offset those overpayments.

Caps on Noneconomic Damage Awards

Since 1986, 23 states have enacted statutes limiting noneconomic damages; currently, 18 states have such statutes 

(see Figure 2).16 Advocates of limits on noneconomic 

damages point out that psychological losses—for example, damages for pain and suffering and loss of consortium—are not easily valued and can in some cases lead to 

unpredictable and extravagant judgments.17 Furthermore, they believe that juries tend to be biased against 

large corporate defendants in favor of individual plaintiffs 

in tort suits. Applying a ceiling to the amount of noneconomic damages that can be awarded by juries, they argue, 

limits those errors and biases. Also, because the expected 

value of the total award is capped under this reform, the 

expected benefit of a tort lawsuit to the plaintiff is 

lower—unless economic or punitive awards increase to 

offset the restriction—and thus the number of tort lawsuits filed may fall.

Limits on noneconomic damages are often restricted to 

lawsuits involving medical malpractice. The typical reform imposes an upper limit ranging from $250,000 in 

Kansas and Montana to $750,000 in Texas.18

Limits on Punitive Damage Awards

In 1985, only seven states had restrictions on punitive 

damages,19 but by 1987, legislation restricting such damages had been enacted in 22 states. From a legal standpoint, punitive damage awards serve to punish unusual 

and egregious behavior. From an economic standpoint, 

punitive awards can be justified as a useful deterrent to 

negligent behavior, and in a broad sense as a means to 

counteract torts that go undetected and, therefore, unpunished. If properly applied under that theory, punitive 

damage awards adjust the total expected costs of an action to reflect the expected harm to society.20

In practice, however, in many cases a jury will only by coincidence award punitive damages that match the cost to 

society of certain types of harms. In fact, the economic 

rationale for punitive damages does not correspond with 

the often cited retributional goal of the courts, which

14. Georgia’s 1987 statute was found to violate the Georgia Constitution in 1991. Kansas’s 1988 statute was found to violate the Kansas Constitution in 1993.

15. Some analysts say that double compensation is mitigated by the 

fact that most insurers have a right of subrogation in which they 

can require repayment for any benefit from court awards. However, insurers often do not exercise that right for at least three reasons. First, it can be difficult to establish that a certain award 

covers the same damages as an insurance benefit; second, administrative costs are large; and third, those actions may contribute to 

ill will among customers. 

16. Five states’ statutes have been found to violate the state constitution.

17. Loss of consortium is defined as a loss of the benefits that one 

spouse is entitled to receive from the other. See Garner, Black’s 

Law Dictionary, p. 958. 

18. Colorado caps total damages at $1million. 

19. Lisa Kimmel found common-law prohibitions on punitive damages in Connecticut, Louisiana, Massachusetts, Michigan, New 

Hampshire, and Washington. In addition, punitive damages are 

prohibited by the Nebraska Constitution. See Kimmel, “The 

Effect of Tort Reform on Economic Growth” (Ph.D. dissertation, 

University of California, Berkeley, Spring 2001). New Hampshire 

subsequently codified its common-law prohibition in statute, and 

Louisiana repealed its prohibition in part but then reversed that 

decision. 

20. Say an injury is detected only one-fifth of the time. By paying 

punitive damages equal to four times compensatory damages, the 

injurer pays for the accident for which he or she was caught and 

the corresponding four accidents for which he or she was not 

caught. 
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES 7

Figure 2.

States That Have Enacted Caps on Damages Since 1986

Source: American Tort Reform Association, Tort Reform Record (December 31, 2003), pp. 2-3, available at www.atra.org/files.cgi/

7668_Record12-03.pdf.

Notes: The American Tort Reform Association does not list reforms enacted before 1986, when the association was founded.

In several states, the caps were subsequently found to violate the state constitution. See Summary Table 1 for a complete listing of 

those states.

may lead to excessive awards from an efficiency point of 

view.21 Several observers argue that those problems with 

implementation are manifested as random and unpredictable awards, which are an ineffective deterrent. Critics 

concerned with excessive punitive damage awards also 

note that the additional risk of being assessed punitive 

damages deters many firms from developing and selling 

products with an otherwise acceptable level of risk attached to them.

Since 1986, 34 states have enacted statutes imposing one 

or more of the following restrictions on punitive damages: 22

B Six states ban punitive damages outright. 

B Seven states allow a “government standards” defense 

for drugs approved by the Food and Drug Administration.

B Nineteen states impose a maximum amount of punitive damages that a victim can recover. Some states impose a cap equal to some multiple of compensatory 

Punitive Damages

Noneconomic Damages

Punitive and

Noneconomic Damages

21. One study used mock juries with fabricated scenarios to evaluate 

how jury-eligible individuals map offenses to punitive damage 

awards. There was substantial consensus on judgments, outrage at 

a defendant’s actions, and on the appropriate severity of punishment. However, the act of mapping punitive intent to a dollar 

amount led to erratic and unpredictable results. See Daniel Kahneman, David Schkade, and Cass R. Sunstein, “Shared Outrage 

and Erratic Awards: The Psychology of Punitive Damages,” Journal of Risk and Uncertainty, vol. 16, no. 1 (1998), pp. 49-86. 

22. Connecticut, Massachusetts, Michigan, Washington, and 

Nebraska have restrictions on punitive damages adopted by common law. 
8 THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

awards (typically three times that amount), whereas 

others set caps ranging from $250,000 to $10 million. 

B Twenty-three states require an elevated burden of 

proof for recovery of punitive damages. For example, 

many require “clear and convincing” evidence that the 

act was malicious before punitive damages can be 

awarded.

B Thirteen states have procedural reforms that make it 

harder for plaintiffs to pursue punitive damages by requiring a separate hearing. Seven states created trust 

funds that collect a percentage of punitive damage 

awards, further reducing plaintiffs’ incentives to undertake costly litigation to win such awards.23

Other Reforms

States have pursued many other types of tort reforms. In 

some cases, it is not clear whether those reforms favor the 

plaintiff or the defendant, but all are described by their 

advocates as increasing fairness. In general, the effects of 

those reforms have not been examined by the empirical 

literature, except insofar as they may have been lumped in 

the category of “other reforms.”

Contingent Fees. Several states have enacted restrictions 

on the amount that an attorney can charge on a contingent basis in medical malpractice cases. (In those cases, 

the attorney receives payment only if he or she is successful in winning a dollar award for the plaintiff.) Such contingent fees—which are typically a percentage of the 

amount awarded—create incentives for attorneys to take 

on a large number of cases, each with a low probability of 

success, with the expectation that the fees earned from 

the successful cases will be large enough to subsidize the 

unsuccessful cases. Limiting contingent fees removes that 

incentive but may, in the view of supporters of the practice, foreclose a means for low-income victims to get legal 

representation.

Statutes of Limitation. A few states have either established 

or reduced the statutes of limitation or repose for certain 

types of cases. A statute of limitation restricts the filing of 

lawsuits within a certain period after an injury occurs; a 

statute of repose restricts the filing of lawsuits within a 

certain period after the manufacture or sale of a product 

even if injury occurs outside of that period. 

Periodic Payment of Future Damages. Six states have required or allowed courts to stagger award payments over 

time. In that way, if a plaintiff’s situation changes, the 

court can alter the payments.

Prejudgment Interest. Some states have limited the 

amount of interest that may accrue on an award for compensation during the time before the court awards damages.

Victim Compensation Funds. Some states have set up nofault funds, similar to federal statutes such as the Childhood Vaccine Compensation Fund, to compensate victims of certain types of medical malpractice. Victims who 

accept compensation from those funds are limited in 

their right to file lawsuits.

Alternative Dispute Resolution. Several states’ laws provide for court-sponsored arbitration and mediation programs. Colorado, for example, recently enacted a statute 

that allows judges to refer litigants to alternative dispute 

resolution systems. That approach reduces costs by keeping cases out of the court system.

The Difficulties of Evaluating 

State-Level Tort Reforms

Researchers must contend with a number of issues when 

estimating the impact of tort reforms. They include 

these:

B There are numerous differences in tort reform

statutes. The variety in states’ approaches to tort reform makes evaluation difficult. While the general approach to tort reform has been similar among the 

states, there are important differences in the way those 

reforms have been implemented. For instance, although 18 states have enacted caps on noneconomic 

damages, those caps range from $250,000 to 

$750,000 and are applied to different types of torts 

and conditions. 

23. A. Michell Polinsky and Yeon-Koo Che present a model of an 

optimal liability system in which the defendant’s payment is as 

high as possible while the award to the plaintiff is lower. Under 

that scenario, the plaintiff’s incentive to sue is reduced—as are the 

costs of litigation—but the defendant’s incentive to exercise care is 

maintained. See Polinsky and Che, “Decoupling Liability: Optimal Incentives for Care and Litigation,” RAND Journal of Economics, vol. 22, no. 4 (Winter 1991), pp. 562-570. 
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES 9

B Tort reforms are often enacted in groups. Researchers 

are faced with the difficult task of reliably estimating 

the effects of individual reforms, a task made even 

harder by the high degree of correlation among different types of reforms. For example, a cap on punitive 

damages may have the same effect on damage awards 

as a requirement for a separate hearing for punitive 

damages. If those two provisions are enacted simultaneously, it will be difficult to determine whether an 

observed change in damage awards is caused by the 

cap, the procedural reform, or a combination of both 

factors.

B It is difficult to determine the status of state laws. To 

begin with, identifying those states that have undertaken tort reforms can be difficult. Many researchers 

rely on the records of the American Tort Reform Association, a national organization that has tracked state 

legislation since 1986, while others conduct their own 

survey of state laws. In addition, some researchers consider court decisions that change common law, 

whereas others, more strictly, consider only statutes 

enacted by a state’s legislature. Furthermore, determining whether a statute offers substantive changes to existing practices in the courts is difficult. For example, a 

1987 New Mexico statute codified a practice that was 

already adopted in 1982 by court decision.24

B The implementation lag caused by constitutional appeals complicates analysis. Uncertainty about 

whether legislation will be ultimately found to violate 

a state’s constitution or how long those challenges will 

take mitigates the effect of tort reform legislation. For 

instance, insurance companies can be slow to change 

their premiums in response to a cap on damages if 

they think those measures will be struck down or take 

a long time to materialize.

B There is a dearth of data on tort cases. Few data are 

available that include details about tort cases brought 

in the various jurisdictions across the country. Only 

two studies have overcome that problem by using detailed data about individual insurance claims. 

In addition to dealing with those data availability and 

quality issues, researchers must construct valid measures 

of the effects of tort reform. Generally, researchers compare the experience of states that have enacted reform 

statutes with the experience of states that have not (and 

compare states with themselves before and after the enactment of reforms). Implicit in that comparison is the 

assumption that the impact of reforms in nonreform 

states would be similar to that in states with reforms. But 

that assumption may not be warranted. The fact that 

some states enacted tort reform and others did not opens 

the possibility that the two groups of states were different 

to begin with and that tort reform would have different 

effects in each of the two groups.

To help account for differences among states, researchers 

statistically adjust for observed characteristics before making comparisons. However, some important factors that 

may help determine the outcome measure—the likelihood of reform and the state-level response to reform—

may be unobservable or unknown. Failing to account for 

those unobserved factors can make comparisons across 

states (and time) misleading. If there are factors that do 

not vary over time—that is, they have “fixed effects”—

then researchers may eliminate their influence by comparing the changes in, rather than the levels of, outcomes 

between reform and nonreform states.25 However, even 

in those cases, there could be remaining bias in the measure of the impact of tort reform caused by unobserved 

(or uncontrolled) factors that are suspected of varying 

over time.

A Review of the Major Studies 

of State-Level Tort Reforms

The nine studies covered in detail in this review analyze 

the effects of state-level tort reforms on the number of 

court filings and the size of awards. They also look at the 

implications of tort outcomes on economic factors such

24. The New Mexico Court of Appeals eliminated joint-and-several 

liability by decision in Bartlett v. New Mexico Welding Supply Inc.,

646 P. 2d 579 (1982). In 1987, that decision was codified in 

N.M. Stat. Ann. §41-3A-1. 

25. Researchers take the value of the outcome measure after reform 

and subtract from it the outcome measure before reform. Because 

the influence of the unobserved variables is assumed to be the 

same across time, those fixed effects are eliminated. The same procedure is done for states that did not enact the reform over the 

same time period to form the comparison group. 
10 THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

Table 1.

Major Studies of State-Level Tort Reforms Published Since 1993

Source: Congressional Budget Office based on the studies shown here (full citations can be found in the bibliography of this report). 

Note: See Box 1 for definitions of the tort terms used in this table. 

Viscusi and 

others (1993)

Browne, Lee, 

and Schmit 

(1994)

Born and Viscusi 

(1998)

Kessler and 

McClellan (1996, 

2000, 2002)

Browne and 

Puelz (1999) Yoon (2001) Thorpe (2004)

Outcome 

Measures

Insurance 

premiums and 

loss ratios for 

general liability 

and medical 

malpractice

Number of tort 

cases filed

Insurance 

premiums and 

loss ratios for 

general liability 

and medical 

malpractice 

insurers

Medical 

expenditures, 

health outcomes, 

number of claims 

filed, and claims 

costs

Number of 

automobile tort 

cases filed; value 

of economic and 

noneconomic 

awards

Awards 

recovered by 

plaintiffs in 

medical 

malpractice 

cases

Insurance 

premiums and 

loss ratios for 

medical 

malpractice 

insurers at the 

state level

Reforms 

Studied

Joint-andseveral liability; 

limits on liability; 

damage caps; 

other reforms

Joint-andseveral liabilityDamage caps; 

all other types 

of reform

"Direct" and 

"indirect" 

reforms (as 

classified by the 

authors) 

targeting 

medical 

malpractice as 

well as more 

general reforms

Joint-andseveral liability; 

collateral-source 

rule; damage 

caps; limits on 

punitive 

damages; 

sanctions on 

frivolous suits or 

defenses; 

prejudgment 

interest; 

structured 

settlements

Caps on 

noneconomic 

damages; caps 

on punitive 

damages; limit 

on wrongful 

death suits

Joint-andseveral liability; 

caps on 

attorneys' fees; 

collateralsource rule; 

damage caps

Period 

Studied

Mid- to late 

1980s

1984 to 1989 1984 to 1991 Mid-1980s to 

late 1990s

Mid-1980s to 

early 1990s

1987 to 1999 1985 to 2001

Data Set 

Used

State-level 

premiums and 

losses from 

Best's Review 

and Best's 

Aggregates and 

Averages

Number of tort 

filings at the 

state level in 19 

states; state 

characteristics 

from various 

sources

Premiums and 

loss ratios by 

state for each 

insurance 

company from 

the National 

Association of 

Insurance 

Commissioners

Hospital 

admission data 

for Medicare 

recipients; 

physician survey 

data; 

malpractice 

claims data

18,777 individual 

claims of 

automobile 

bodily injury 

disposed of in 

1992 in 45 states

Individual 

malpractice 

claims against 

physicians in four 

states

State-level 

premiums and 

loss ratios from 

the National 

Association of 

Insurance 

Commissioners
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES 11

as liability insurance premiums, insurers’ profitability, 

and the practice of defensive medicine (see Table 1). 

Many of the studies conclude that tort reform can affect 

outcomes most closely related to the tort system in much 

the same way that advocates of changing the tort system 

would claim. Those studies find that reforms in general 

have decreased the number of lawsuits, reduced awards, 

and improved the profitability of insurance providers. 

(See Table 2 for a summary of the findings from those 

studies.) Moving further away from economic behaviors 

most directly influenced by torts, the literature is thin. 

For that reason, the conclusions should be interpreted 

with caution, especially insofar as they indicate how federal tort reform might be expected to affect the economy. 

Effects of Tort Reform Legislation on Damage 

Claims and Lawsuits

Evidence from several of the studies suggests that different tort reform initiatives affect the number of lawsuits 

filed, the value of insurance claims, and the value of insurance payouts for damages. A 2001 study by Albert 

Yoon, for instance, found that the enactment of statutes 

to cap damages led to a significant reduction in the 

amount that plaintiffs recovered in medical malpractice 

lawsuits in Alabama relative to three neighboring states.26

Additionally, a 1999 study by Mark J. Browne and Robert Puelz found that caps on noneconomic damages preceded a reduction in claims for those damages and led to 

a large decrease in the number of subsequent court filings.27 However, the same study found that those caps 

had no statistically significant effect on claims for economic damages and that, counter-intuitively, punitive 

damage restrictions led to an increase in court filings. The 

study also found that joint-and-several liability reforms 

led to an increase in claims for noneconomic damages but 

had no statistically significant effect on claims for economic damages. Furthermore, it found no evidence that 

joint-and-several liability or reforms to the collateralsource rule had any impact on the number of lawsuits 

filed; similarly, a 1994 study by Mark J. Browne and coauthors found only weak support for a reduction in the 

number of lawsuits filed after joint-and-several liability 

reform.

Mark J. Browne, Han-Duck Lee, and Joan T. Schmit 

(1994) concentrated on the effects of joint-and-several liability reform, the most frequent type of reform enacted 

during the mid- to late 1980s.28 The authors used statelevel data on the number of lawsuits filed from the National Center for State Courts and state economic and 

other characteristics from various sources for 19 states 

over the six-year period from 1984 through 1989. Their 

data suggest that only three of the states studied did not 

enact any joint-and-several liability reforms during that 

period. Of the 16 states that enacted reforms, three had 

total bans on joint-and-several liability in effect at some 

point.29

Controlling for economic and other factors that may influence state-level court filings, including other types of 

tort reforms, the authors found weak support for an overall reduction in the number of torts filed after the enactment of joint-and-several liability reform. In contrast, in 

the year preceding the effective date of reform, there was 

a statistically significant surge in court filings in states 

that restricted joint-and-several liability although not in 

states that abolished it.

The authors hypothesize several reasons why they found 

no significant effect after the reforms were instituted.30

Although they allowed for a lag in the effect of joint-andseveral liability reforms on court filings, the time period 

of the study did not enable the authors to detect effects 

that may have taken several years to emerge. In addition,

26. Albert Yoon, “Damage Caps and Civil Litigation: An Empirical 

Study of Medical Malpractice Litigation in the South,” American 

Law and Economics Review, vol. 3, no. 2 (2001), pp. 199-227. 

27. Browne and Puelz, “The Effect of Legal Rules on the Value of 

Economic and Non-Economic Damages and the Decision to 

File.”

28. Mark J. Browne, Han-Duck Lee, and Joan T. Schmit, “How Does 

Joint and Several Tort Reform Affect the Rate of Tort Filings? Evidence from the State Courts,” Journal of Risk and Insurance, vol. 

61, no. 2 (1994), pp. 295-316.

29. Alaska enacted a “partial” reform in 1986 and then strengthened it 

to an outright ban by 1989. In contrast, Colorado went from a 

total ban in 1986 to a partial ban in 1987. Utah enacted a total 

ban in 1986.

30. Other reasons cited are that the laws may be too weak to significantly affect court filings; the reforms may diminish the deterrent 

effect of the tort system, leading to an increase in injuries and an 

offsetting rise in court filings; or, as a result of joint-and-several 

liability reform, injured parties may need to file several claims to 

be fully compensated rather than one against a wealthier defendant. 
12 THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

Table 2.

Findings from the Major Studies of State-Level Tort Reforms 

Published Since 1993 

Continued

Viscusi and others (1993) Browne, Lee, and Schmit (1994) Born and Viscusi (1998)

Applicability General and medical malpractice General General and medical malpractice

Modifications to Joint-and-Several 

Liability

1986 reforms led to a large reduction in 

losses for general liability insurers; 1985-

1986 reforms led to a large decrease in 

general liability premiums (only the 1985 

reforms had an impact on medical 

malpractice premiums); no effect on loss 

ratios detected.

No impact on number of claims filed after 

reform but a significant surge in court 

filings before reform took effect.

Included in "other" reforms.

Repeal of the Collateral-Source Rule No effect detected, but reform was 

combined with caps on contingent fees, 

modifications of statutes of limitations, 

and other reforms.

Not studied. Included in "other" reforms.

Caps on Noneconomic Damages Large decline in losses for both general 

and medical malpractice insurance. No 

effect detected for either premiums or 

loss ratios.

Not studied. Led to increased profitability for insurers 

and a decrease in premiums.

Restrictions on Punitive Damages Decline in premiums for general liability 

insurance. No other effect found.

Not studied. Included in "other" reforms.

Other Reforms General limits on liability awards or 

established immunities from prosecution 

seem to have reduced general liability 

premiums, but no other effect was found. 

Led to an increase in insurers' profitability 

and a decline in premiums for medical 

malpractice liability. For general liability, 

little effect was found.

Comments As a package, reforms enacted between 

1985 and 1987 significantly reduced 

insurers' losses, with a less dramatic 

decline in premiums, which yielded an 

overall drop in loss ratios.
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES 13

Table 2.

Continued 

Source: Congressional Budget Office based on the studies shown here (full citations can be found in the bibliography of this report). 

Note: See Box 1 for definitions of the tort terms used in this table. 

Kessler and McClellan (1996, 2000, 

2002) Browne and Puelz (1999) Yoon (2001) Thorpe (2004)

Medical malpractice Automobile bodily injury Medical malpractice Medical malpractice

Included as an "indirect" reform; see 

"comments."

Led to an increase in the dollar value of 

noneconomic claims; no statistically 

significant effect on the value of economic 

claims or the number of court cases filed.

Not studied. Found no statistically significant effect.

Included as a "direct" reform; see 

"comments." 

Decrease in the value of both economic 

and noneconomic claims; no effect on the 

number of court cases filed.

Not studied. "Discretionary" collateral-source offsets 

(those considered at a judge's 

discretion) led to increased profitability 

(decreased loss ratios) for insurers. No 

significant difference in premiums 

found.

Included as a "direct" reform; see 

"comments." 

Decline in the value of noneconomic 

claims; a significant reduction in the 

number of court cases filed. No effect on 

economic claims.

Led to a decrease in the amount that 

plaintiffs recovered (but this reform was 

combined with a cap on punitive damages 

and a limit on wrongful death claims).

Led to increased profitability (decreased 

loss ratios) and lower premiums earned 

for medical malpractice liability insurers.

Included as a "direct" reform; see 

"comments." 

Decrease in the value of noneconomic 

claims, an increase in the value of 

economic claims, and an overall decline in 

the value of total claims; an increase in 

the number of claims filed.

Decrease in the amount that plaintiffs 

recovered (but this reform was combined 

with a cap on noneconomic damages and 

a limit on wrongful death claims).

Among "other" reforms, abolishing 

mandatory prepayment interest was 

included as a "direct" reform. "Indirect" 

reforms included imposing mandatory 

periodic payments, establishing patientcompensation funds, and capping 

contingent fees.

The presence of sanctions on frivolous 

suits or defenses, prejudgment interest, 

and stuctured settlements led to a 

decrease in the value of both economic 

and noneconomic claims and to a drop in 

the number of court cases filed.

A limit on wrongful death claims combined 

with caps on noneconomic and punitive 

damages led to a decrease in the amount 

that plaintiffs recovered.

States that enacted tort reforms had 

lower Medicare spending for 

hospitalization of elderly patients with 

heart disease and heart attacks, with no 

significant increase in adverse health 

outcomes. Those states also had lower 

malpractice claims. "Direct" reforms 

helped to lower some of the costs of 

claims, whereas "indirect" reforms 

actually increased several measures of 

claims costs.
14 THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

because the number of joint-and-several liability claims is 

only a small portion of total claims, the effect of those reforms on total court filings would naturally be modest. 

Mark J. Browne and Robert Puelz (1999) investigated 

the success of tort reform legislation in reducing the 

number of tort cases filed in court and the value of claims 

for economic and noneconomic damages. Their study 

analyzed a data set comprising 18,777 individual automobile bodily injury claims that were either paid or 

closed in 45 states.31 For each accident, the data include 

the amount the victim claimed for economic and noneconomic damages and whether the claimant also filed a lawsuit. Those data allowed the authors to use regression 

analysis to investigate how tort reforms affect damage 

claims as well as the decision to pursue a lawsuit. The 

analysis controlled for a number of other factors, including the presence of no-fault insurance rules and whether 

the claimant retained an attorney.32

Browne and Puelz postulated that tort reforms that lower 

potential awards make it unprofitable for plaintiffs to 

pursue a legal remedy in some cases. They focused on 

seven reforms enacted during the 1980s and early 1990s: 

joint-and-several liability reform, changes to the collateral-source rule, caps on noneconomic damages, limits on 

punitive damages, sanctions on frivolous suits or defenses, modified rules on prejudgment interest, and provisions for structured settlements.33 For each claim, the 

authors identified whether the case would be subject to a 

legal reform if it occurred after the date of the reform, as 

provided by the American Tort Reform Association. In 

that way, the study identified changes in tort law occurring within a given state (before and after reform) and 

across states (comparing reform states to nonreform 

ones). 

The authors estimated that relaxation of the joint-andseveral liability rule led, on average, to a 34 percent increase in the amount of noneconomic claims, with no statistically significant effect on economic claims.34 That result suggests that the plaintiffs inflated the size of their 

claims in an attempt to offset the lower expected damages 

implied by the reform. The authors also found that caps 

on noneconomic damages were associated with a 19 percent decline in the average value of noneconomic claims, 

with no statistical association with the average economic 

claim. Thus, reducing potential tort awards seems to have 

lowered plaintiffs’ expectations (or limited their choices), 

regardless of whether they retained an attorney. Furthermore, reform of the collateral-source rule was associated 

with a decrease of 14.4 percent and 15.3 percent in the 

value of noneconomic and economic claims, respectively.

Browne and Puelz also found that punitive damage caps 

led to an increase of 9.5 percent in the value of economic 

damage claims (regardless of whether they were insurable) 

and a small but statistically significant 0.8 percent increase in the value of noneconomic claims. However, 

when punitive damages were not insurable, noneconomic 

damage claims actually dropped by 29 percent. The increase in economic claims implies that victims tend to 

offset the punitive limits by inflating economic damages, 

although that implication does not seem to hold for noneconomic claims. The authors do not explain the large reduction in noneconomic claims when punitive damages 

are not insurable; however, because punitive damages are 

rare in automobile injuries, the increase in economic 

damages may offset the reduction in the value of punitive 

damages. 

For the minor reforms the authors studied, they found 

that any combination of frivolous suits or defenses, modified rules on prejudgment interest, or provisions for 

structured settlements reduced noneconomic damages by 

4.8 percent and economic damages by 5.9 percent.

In terms of the probability that a lawsuit will be filed, the 

study reported that joint-and-several liability reform and 

31. Based on a 1992 survey (conducted by the Insurance Research 

Council) of 61 insurers, representing 70 percent of all premiums 

paid for private passenger automobile insurance in the United 

States. 

32. At the state level, the authors controlled for the type of no-fault 

laws, degree of urbanization, unemployment rate, and whether the 

state allowed punitive damages to be insurable. At the individualclaim level, the authors controlled for the presence of a plaintiff’s 

attorney, the severity of the injury (as assessed by the claims 

adjuster), the length of time between the filing and the settlement 

of the claim, the age and sex of the plaintiff, and the degree of 

fault attributed to the driver (from a police report or witness interview). 

33. In their analysis, Browne and Puelz combined sanctions on frivolous suits or defenses, modified rules on prejudgment interest, and 

provisions for structured settlements as minor reforms. 

34. They estimated that joint-and-several liability reform increased 

total claims (economic and noneconomic) by 21 percent.
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES 15

reform of the collateral-source rule had no significant impact. Caps on noneconomic damages, in contrast, decreased the average probability that a case will be brought 

from 4 percent to 1.4 percent. Any combination of restrictions on the minor reforms mentioned above was also 

found to decrease the likelihood that an individual would 

file a lawsuit. Caps on punitive damages had the opposite 

effect: the study’s results indicated that those caps increased the likelihood that a claim would be filed—from 

2.7 percent to 4 percent. That rise could be explained by 

the possibility that larger punitive damages would tend to 

encourage an insurance company to make a more generous first offer. And as discussed earlier, the authors found 

that increases in economic damages would tend to offset 

the effect of the punitive damage caps.

A major strength of the Browne and Puelz study is its 

large number of observations, which enable the authors 

to separately estimate the impact of each major type of 

reform while controlling for a number of state- and 

individual case-level factors, including the no-fault status 

of the states.35 Conversely, the study is limited in that it 

focused only on injuries caused by motor vehicle accidents. The response of plaintiffs in other types of torts, 

such as medical malpractice and product liability, could 

differ markedly from the response of auto accident victims.36

Albert Yoon (2001) studied the effect of the enactment 

and repeal of damage caps in Alabama from 1987 to 

1999 on the amounts that plaintiffs recovered in medical 

malpractice litigation. The Alabama legislature enacted 

three laws in mid-1987 to cap damages: a $400,000 cap 

on noneconomic damages, a $250,000 cap on punitive 

damages, and a $1 million cap for wrongful death claims. 

However, the Alabama Supreme Court found each law 

unconstitutional—beginning in 1991 with the cap on 

noneconomic damages, then 1993 for the cap on punitive damages, and lastly in 1995 for the limit on wrongful 

death claims. 

The author compared the amounts plaintiffs recovered in 

individual cases filed against physicians insured by a single large malpractice insurer in Alabama to those of a 

control group consisting of plaintiffs filing claims with 

that same insurer in the neighboring states of Arkansas, 

Mississippi, and Tennessee, none of which had laws capping damages during the period. That comparison was 

done over several time segments, corresponding to either 

the enactment or the repeal of the caps. The states in the 

control group were chosen because of their geographic 

proximity to Alabama and their relatively similar demographic characteristics. In addition, the author statistically controlled for the particular cause of action for each 

claim (for example, surgery malpractice, a blood transfusion, and so forth).

Yoon found that the amount that plaintiffs recovered fell 

by $23,000 in the period following the enactment of 

damage caps in Alabama relative to the control states. 

Following the repeal of all of the damage cap measures, 

the amount that plaintiffs recovered increased by $48,000 

relative to the levels in the control states, more than double the estimated impact of enactment. However, two unusually high payouts in the post-repeal period accounted 

for that asymmetry: after omitting those cases, the decrease after repeal was found to be about $20,000, an 

amount in line with the increase after enactment.

Effects of Tort Reform Legislation on the Liability 

Insurance Market

A number of studies using insurance data suggest that 

some tort reforms led to reductions in several measures of 

insurance costs. Those studies also indicate that statelevel reforms had a significant positive effect on the profitability of insurers (measured by losses and loss ratios)

35. No-fault states are expected to have fewer lawsuits filed than traditional tort liability states and higher average damage awards at 

trial. In 23 states (and the District of Columbia and Puerto Rico), 

the ability or incentive to file an automobile-related tort liability 

case is restricted by some variation of no-fault rules. A no-fault 

system, in which drivers are required to carry first-party insurance 

that compensates them for certain losses regardless of fault, is 

intended to take small claims out of the courts. Only under certain conditions can drivers in no-fault states sue for severe injuries. 

Of the 25 jurisdictions with no-fault rules, only 14 have mandatory no-fault systems. In contrast, three states give drivers a choice 

of selecting a no-fault insurance policy. Ten other states and the 

District of Columbia let drivers carry first-party insurance but do 

not restrict those drivers in filing a lawsuit. See The Insurance 

Information Institute, The I.I.I. Fact Book, 2003 (New York: 

Insurance Information Institute, 2003), p. 49.

36. Relative to other types of torts, those involving an automobile 

occur more frequently and involve smaller losses. In addition, the 

preponderance of first-party insurance coverage (resulting from 

no-fault insurance laws, which are controlled for in this analysis) 

may affect the decision to pursue a tort action.
16 THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

and probably led to decreases in premiums.37 Although 

the statistical evidence on the effectiveness of particular 

reforms was scant, a few studies showed that imposing 

damage caps—especially caps on noneconomic damages—and requiring collateral offsets reduced some medical malpractice costs. Furthermore, one study provided 

evidence suggesting that modifications to joint-and-several liability and punitive damage caps led to reductions 

in losses and premiums during the mid-1980s. That 

study also suggested that broad restrictions on liability 

helped reduce premiums. Studies attempting to isolate 

other types of reforms found no significant effects.

Insurance premiums for medical malpractice, product liability, environmental liability, and general liability coverage increased significantly during the mid-1970s and 

again in the mid-1980s, accompanied by a temporary reduction in the availability of insurance.38 In both periods, many states enacted tort reforms to limit the perceived expansion in liability risk faced by businesses. The 

basic assumption was that insurers would face less underwriting uncertainty in states that had enacted reforms, 

which would translate into lower insurance premiums, 

higher profitability for insurers, and a greater willingness 

to underwrite risky lines of business. 

The common measure used in the literature, insurance 

loss ratios, does not allow researchers to separately look at 

the cost of coverage and the amount of coverage purchased. If liability reforms worked as intended, they 

would lead to reductions in both the magnitude and occurrence of damage awards and would have an immediate 

impact on insurance losses. Any decrease in insurance 

prices would occur with a lag because insurers would have 

to obtain approval from state regulators before changing 

rates. In the long run, diminishing loss ratios would exert 

downward pressure on premiums and lead to an equilibrium loss ratio in which insurers earned a normal return 

on investment. Therefore, if the loss ratios were excessive 

before reforms took effect, then, as the results of the studies below suggest, reform would lead first to insurance 

companies’ returning to profitability before they instituted any reduction in the price of insurance.

The Office of Technology Assessment (1993) reviewed six 

empirical studies of the impact of various reforms on 

medical malpractice costs in the mid-1970s and mid1980s.39 Five of those studies used data from companies 

that sold medical malpractice insurance; one used a survey of self-employed physicians that contained their experience with medical malpractice claims from 1976 to 

1981. 

The Office of Technology Assessment (OTA) concluded 

that caps on damage awards and mandatory collateralsource offsets showed a consistent negative impact on one 

or more of the measures of malpractice costs. In particular, three of the studies found that some types of damage 

caps reduced payments per paid claim, although the only 

study that examined the effect of damage caps on the frequency of claims found no significant impact.40 Two of 

the studies found that mandatory collateral-source offsets 

greatly reduced claims payments, again with no impact

37. A loss is the amount an insurance company pays on a claim. Loss 

ratios are determined by dividing the losses incurred on policies 

written in a given year by the amount of premiums collected in 

that same year. The ratios include the costs of adjusting claims.

38. There was a reduction in the supply of funds used to underwrite 

riskier insurance lines.

39. Although those studies are included here for informational purposes, they are not reflected in Tables 1 and 2 because they had 

methodological shortcomings. See Office of Technology Assessment, Impact of Legal Reforms on Medical Malpractice Costs (September 1993). Medical malpractice costs were measured using one 

of the following indicators: the frequency of claims, the payments 

per claim, and insurance premiums or losses. The studies reviewed 

were: E.K. Adams and S. Zuckerman, “Variation in the Growth 

and Incidence of Medical Malpractice Claims,” Journal of Health 

Politics, Policy, and Law, vol. 9, no. 3 (Fall 1984), pp. 475-488; 

D.K. Barker, “The Effects of Tort Reform on Medical Malpractice 

Insurance Markets: An Empirical Analysis,” Journal of Health Politics, Policy, and Law, vol. 17, no. 1 (Spring 1992), pp. 143-161; G. 

Blackmon and R. Zeckhauser, “State Tort Reform Legislation: 

Assessing Our Control of Risks,” in Peter H. Schuck, ed., Tort 

Law and the Public Interest (New York: W.W. Norton & Co., 

1991), pp. 272-309; P.M. Danzon, “The Frequency and Severity 

of Medical Malpractice Claims, New Evidence,” Law and Contemporary Problems, vol. 49, no. 2 (Spring 1986), pp. 57-84; F.A. 

Sloan, P.M. Mergenhagen, and R.R. Bovbjerg, “Effects of Tort 

Reforms on the Value of Closed Medical Malpractice Claims: A 

Microanalysis,” Journal of Health Politics, Policy, and Law, vol. 14, 

no. 4 (Winter 1989), pp. 663-689; and S. Zuckerman, R.R. 

Bovbjerg, and F. Sloan, “Effects of Tort Reforms and Other Factors on Medical Malpractice Insurance Premiums,” Inquiry, vol. 

27, no. 2 (Summer 1990), pp. 167-182.

40. See Danzon (1986); Sloan, Mergenhagen, and Bovbjerg (1989); 

and Zuckerman, Bovbjerg, and Sloan (1990).
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES 17

on claims frequency.41 Finally, among the studies reviewed, the OTA found mixed results for various other 

reforms.

W. Kip Viscusi and Others (1993) separately analyzed the 

impact of reforms enacted in 1985, 1986, and 1987, controlling for the influence of the liability structure present 

before 1985 and for the role of insurance rate regulation.42 The study considered the impact of modifications 

to joint-and-several liability, caps on noneconomic and 

punitive awards, general limits on liability (such as establishing immunities from prosecution), and a group of 

“other reforms” on losses, premiums, and loss ratios over 

the 1985 to 1988 period for both general liability and 

medical malpractice liability.

The study found that reforms enacted in 1986 and 1987 

had, on the whole, a significant effect in reducing general 

liability losses over the period. Their results suggest that 

the 1986 reforms reduced losses by 10.1 percent, on average, and the 1987 reforms lowered losses by 4.6 percent. 

The 1986 and 1987 reforms also had a large effect on 

general liability premiums (although the impact was 

slightly less than the impact on losses), reducing premium 

levels by 9.1 percent and 4.3 percent, respectively. Although the reforms enacted in 1985 and 1986 lowered 

loss ratios, the 1987 reforms had no statistically significant effect on that measure.

The analysis also examined the effects of individual tort 

reform measures. In the case of modifications to jointand-several liability, they separately estimated the effect of 

reforms enacted in 1985, 1986, and 1987. They found a 

substantial impact in only those 16 states that enacted the 

reform in 1986—the results implied a reduction of 6.9 

percent in losses between 1985 and 1988. They found no 

effect from the joint-and-several liability reforms enacted 

in 1985 or 1987.43 According to the authors’ analysis, 

only about half of the states that enacted reforms between 

1985 and 1987 experienced any significant effect on 

losses. In addition, it is not clear that this effect is distinct 

from those earlier attributed to the entire group of reforms enacted in 1986 (the analysis controls for other reforms enacted over the entire period, but not by year). In 

the case of caps on noneconomic damages, the authors 

found that such caps led to an 8 percent reduction in 

losses between 1985 and 1988. Furthermore, the authors 

suggest that premiums were negatively affected by modifications to joint-and-several liability, limits on punitive 

damages, and limits on liability in both 1985 and 1986.

Losses or loss ratios for medical malpractice were not significantly affected by the reforms, the authors found, except for limits on noneconomic damages, which reduced 

losses by about 14.7 percent. However, the 1985 and 

1986 reforms overall led to average reductions of 17.3 

percent and 13.4 percent in medical malpractice premiums, respectively.

Patricia Born and W. Kip Viscusi (1998) investigated the 

effect of state-level tort reforms enacted in the 1985-1987 

period, both overall and separately for medical malpractice and general liability insurance lines.44 Their data, 

from the National Association of Insurance Commissioners (NAIC), showed the premiums earned and losses by 

each insurance company in each state from 1984 to 

1991, allowing the authors to measure the effects several 

years after the reforms occurred. In all, the data contained 

more than 8,000 observations for medical malpractice 

and 67,000 observations for general liability insurers.

The study tested whether the mid-1980s tort reforms had 

their intended effect by measuring insurers’ loss experience following the reforms.45 They restricted their analysis to whether a damage cap was imposed or whether 

some other type of reform was enacted. Overall, they 

41. See Zuckerman, Bovbjerg, and Sloan (1990); and Danzon (1986). 

After including discretionary offsets in the measure, Danzon 

found a significant reduction in claims frequency.

42. W. Kip Viscusi and others, “The Effect of 1980s Tort Reform 

Legislation on General Liability and Medical Malpractice Insurance,” Journal of Risk and Uncertainty, vol. 6 (1993), pp. 165-186.

43. There was some overlap between states enacting reforms over the 

three years: the authors list Colorado as modifying joint-and-several liability in all three years; Connecticut and Missouri were 

listed for 1986 and 1987

44. Patricia H. Born and W. Kip Viscusi, “The Distribution of the 

Insurance Market Effects of Tort Liability Reforms,” Brookings 

Papers on Economic Activity: Microeconomics (1998), pp. 55-100.

45. To the extent that insurers were unprofitable before the reforms, 

analysts may have expected to see a larger impact on profitability 

than on premiums, as some insurers would return to profitability 

before they would reduce their premiums. The methodology used 

in the analysis allowed the authors to measure losses before and 

after the reforms in states that enacted reforms and also allowed 

them to compare the changes in losses between those states that 

enacted reforms and those that did not.
18 THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

found that damage caps and other reforms reduced insurance companies’ costs and the premiums they charged, 

which at the same time increased profitability. The analysis also found that the least profitable insurers—those 

with the highest loss ratios—experienced the greatest improvement in their profitability after the enactment of reforms. In addition, the authors noted that both large and 

small firms benefited equally from tort reforms. Those 

findings were consistent across the medical malpractice 

and general liability insurance sectors for damage caps. 

For general liability insurance, however, the presence of 

other reforms generally did not have any significant effect, although in a few of the models the most unprofitable firms tended to perform even worse after those reforms were enacted. 

Kenneth Thorpe (2004) used NAIC data to study statelevel trends in insurance premiums earned and loss ratios 

experienced by insurers for 1985 to 2001.46 The author 

compared the trends for those states that capped noneconomic damages, modified joint-and-several liability, 

capped attorneys’ fees, or changed collateral-source rules 

with those that did not. In addition, he controlled for a 

number of state characteristics, including the degree of 

competition in the state’s insurance market and the number of practicing physicians.

In line with the other studies examined in this section, 

Thorpe’s study found that insurers in states that adopted 

caps on noneconomic damage awards experienced lower 

loss ratios while earning lower premiums than insurers in 

other states. In particular, loss ratios were 11.7 percent 

lower and overall premiums were 17.1 percent lower in 

states that capped noneconomic damages. The author 

also found that those states that allowed “discretionary” 

collateral-source offsets (those considered at a judge’s discretion) experienced a 13.3 percent lower loss ratio compared with other states but did not experience any significant difference in premiums. Thorpe found that no other 

tort reform was associated with lower premiums or loss 

ratios.47

Effects of Tort Reform Legislation on Medical

Malpractice and Defensive Medicine

The risk of a medical malpractice lawsuit gives health care 

providers incentives to take precaution against medical 

errors.48 Whether or not those tort incentives are optimal 

depends on a number of factors. Many analysts argue that 

medical malpractice is not clearly defined and tends to be 

inaccurately judged—that is, malpractice lawsuits do not 

properly reflect providers’ actions and too many weak 

lawsuits are brought. One study of medical malpractice 

torts found that only 1.5 percent of people classified as 

likely victims of medical error sued.49 Although providers 

are by and large insured against medical malpractice, a 

lawsuit brings other penalties: the embarrassment of being sued, loss of reputation, and time and stress involved 

in resolving the case. 

The risk of a lawsuit may also lead providers to act too 

cautiously by performing excessive tests and procedures 

that have minimal medical benefit. That practice of “defensive medicine” is done strictly to avoid poorly assigned 

liability by demonstrating that the provider took all possible actions—even beyond what would be considered appropriate.50 If defensive medicine is practiced, reforms of 

the medical malpractice system that better align actions 

with consequences or reduce the number of weak lawsuits 

could improve efficiency.

46. Kenneth E. Thorpe, “The Medical Malpractice ‘Crisis’: Recent 

Trends and the Impact of State Tort Reforms,” Health Affairs—

Web Exclusive (January 21, 2004), available at http://

content.healthaffairs.org/cgi/reprint/hlthaff.w4.20v1.pdf.

47. In an earlier unpublished paper, Thorpe found that punitive damage caps were associated with lower premiums earned and that 

caps on contingent fees were associated with lower loss ratios. He 

also found that noneconomic damage caps, punitive damage caps, 

and caps on contingent fees were associated with lower claims payments by insurers. Those findings, however, were based on data 

from 1993 to 2001. They were presented at a conference titled 

“Medical Malpractice in Crisis: Health Care Policy Options,” held 

by the Council on Health Care Economics and Policy in Washington, D.C., on March 3, 2003.

48. See Congressional Budget Office, Limiting Tort Liability for Medical Malpractice, Economic and Budget Issue Brief (January 8, 

2004).

49. A. Russell Localio and others, “Relation Between Malpractice 

Claims and Adverse Events Due to Negligence,” New England 

Journal of Medicine, vol. 325, no. 4 (July 25, 1991), pp. 245-251.

50. The OTA formulated a working definition of defensive medicine 

as “the ordering of tests, procedures, and visits, or avoidance of 

certain procedures or patients, due to concern about malpractice 

liability risk.” See Office of Technology Assessment, “Defensive 

Medicine and Medical Malpractice,” OTA-H-602 (July 1994). 
THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES 19

Daniel P. Kessler and Mark B. McClellan (1996 and 

2002) focused on detecting the practice of defensive 

medicine and measuring the effects of tort reform related 

to medical malpractice.51 They found that Medicare inpatient hospital spending for patients with acute myocardial infarction or ischemic heart disease was reduced in 

states that enacted certain tort reforms, with no significant increase in adverse health care outcomes. That finding suggests the existence of defensive medicine. However, as reported in its cost estimate for H.R.5, the 

Congressional Budget Office (CBO) has found no evidence that tort reforms reduced medical spending when 

it applied the same methods used by Kessler and McClellan to a broader set of ailments. CBO did, however, find 

support for a reduction in medical malpractice premiums.52

Kessler and McClellan matched the admission records of 

all elderly Medicare patients who were hospitalized with a 

heart attack or heart disease in 1984, 1987, or 1990 with 

the patients’ demographic information. They focused on 

the elderly because heart disease leading to adverse outcomes is relatively common in that population. That robust data set allowed detailed analysis of the initial treatment and two health outcomes—rehospitalizations and 

mortality rates. 

That study categorized tort reforms as either direct reforms or indirect reforms. Direct reforms included 

changes in laws that specify statutory limits on or reductions in malpractice awards (caps on damages, reform of 

the collateral-source rule, abolition of punitive damages, 

and abolition of mandatory prejudgment interest). Indirect reforms included changes that the authors believed 

affect awards but only indirectly: reforms that impose 

mandatory periodic payments, caps on attorneys’ fees, 

joint-and-several liability reform, and patient-compensation funds. 

The authors found that the adoption of direct reforms led 

to a 6 percent drop in hospital expenditures for heart attack patients and a 9 percent decline for heart disease patients, with no significant change in mortality rates or 

cardiac complications. However, after controlling for the 

impact of managed care organizations, their estimates fell 

to 4 percent for both types of diseases. Those effects occurred three to five years after enactment of the reforms. 

The authors speculated that it may take additional time 

for the complete impact of the reform to be felt. However, indirect reforms were not associated with any significant change in either expenditures or outcomes, except 

for some significant short-term increases in expenditures. 

On the basis of their calculations, the authors suggested 

that if direct reforms were implemented throughout the 

United States, expenditures on cardiac disease would fall 

by more than $450 million annually for the first two 

years and by $600 million annually three to five years after adoption, with no significant decline in health outcomes. 

Daniel P. Kessler and Mark B. McClellan (2000) attempt 

to explain the mechanism by which tort reform would 

lead to the differences in outcomes found in their earlier 

work. In so doing, they estimated the impact of tort reform on a number of measures of “malpractice pressure”: 

the frequency of malpractice claims; the likelihood of a 

prolonged duration of claims resolution; administrative 

and legal expenses incurred in defending against a claim; 

and the amount of any settlement or award to the plaintiff.53 They supplemented their earlier data with physician-level malpractice claims data from 19 states covering 

the 1984-1994 period and a nationwide survey of physicians covering the 1987-1997 period. As in their earlier 

work, the authors controlled for differences across states 

that do not vary over time, 14 categories of physician specialties, and states’ political and regulatory environments. 

Using survey data on the United States as a whole, the authors found that physicians in states that enacted either 

direct or indirect reforms experienced lower trends in 

malpractice claims rates than physicians in states that did 

not enact reforms. Physicians in direct-reform states experienced a 1.4 percentage-point decrease in claims rates, 

51. Daniel P. Kessler and Mark B. McClellan, “Do Doctors Practice 

Defensive Medicine?” Quarterly Journal of Economics, vol. 111, no. 

2 (May 1996), pp. 353-390; and Kessler and McClellan, “Malpractice Law and Health Care Reform: Optimal Liability Policy in 

an Era of Managed Care,” Journal of Public Economics, vol. 84, no. 

2 (2002), pp. 175-197.

52. Congressional Budget Office, Cost Estimate for H.R. 5, the Help 

Efficient, Accessible, Low-cost, Timely Healthcare (HEALTH) 

Act of 2003 (March 10, 2003).

53. Daniel P. Kessler and Mark B. McClellan, “How Liability Law 

Affects Medical Productivity,” Working Paper No. 7533 (Cambridge, Mass.: National Bureau of Economic Research, February 

2000), available at www.nber.org/papers/w7533. 
20 THE EFFECTS OF TORT REFORM: EVIDENCE FROM THE STATES

while those in indirect-reform states had a 1.1 percentage-point decrease, compared with a 7.4 percent claims 

rate for the population as a whole. However, using the 

claims data from the 19 states, the authors found no statistically significant effect on claims rates.

Among measures of the resolution of medical malpractice 

claims in the 19 states for which data were available, the 

authors found mixed results. Those reforms grouped as 

direct reduced the number of claims paid, the number of 

claims incurring legal expenses, and the time it took to resolve claims. However, the reforms had no statistically 

significant effect on the value of claims or legal expenses. 

Among those states enacting reforms grouped as indirect, 

the authors found a statistically significant increase in 

most of their liability measures. In particular, they found 

that indirect reforms increased the number of claims 

paid, the number of claims incurring legal expenses, and 

the value of the legal expenses. However, they found no 

statistically significant impact on the value of the claims 

paid or how long it took to resolve claims. 
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