Eliminating caps on noneconomic damages for lawsuits involving catastrophic injury and death, as a proposed ballot initiative aims to do, could cost Colorado $2.1 billion in annual gross product and 15,500 jobs, according to a study released Thursday.
The impact stems from the fact that elimination of caps would create higher insurance rates, which would raise the cost of goods and services and would lead to increasing business closures and discouragement of innovation, the study argues. The Perryman Group of Waco, Texas, produced the report for the American Property Casualty Insurance Association and the Colorado Chamber of Commerce.
Colorado Trial Lawyers Association, a primary supporter of a proposed November ballot question from Coloradans for Accountability to remove caps on jury awards in cases of severe injury and wrongful death, immediately criticized the report’s data and analysis. It also argued that the continued allowance of caps in these cases minimizes the value of the lives of individuals killed or irreparably harmed because of the negligence of others.
The report comes as competing sides in the debate over lawsuit damage caps appear headed for a ballot showdown on the issues.
Ballot battle
Coloradans for Accountability has submitted both the cap-removal initiative and several versions of a second measure to make peer-review communications between health-care providers open to disclosure in medical-malpractice lawsuits. Meanwhile, Coloradans Protecting Patient Access — a coalition of hospitals, physician groups, liability insurance companies and business organizations — filed two measures to cap attorney’s fees in these suits and to limit litigation expenses their clients would have to pay.
Loren Furman, president/CEO of the Colorado Chamber and a proponent of the CPPA initiatives, said the report’s importance is in its evidence that the effects of removing noneconomic damage caps would spread throughout the economy and hurt it. Combining that damage with increasing regulations being placed on employers by state government — by far the top concern of business leaders, according to a 2023 chamber survey — would leave Colorado struggling to attract or even retain jobs, she said.
“Efforts to remove noneconomic damage caps would directly impact our competitiveness as a state, making us an even more expensive place to live and do business,” Furman said. “This $2.1 billion cost would be felt by everyone, from increased prices of goods and services to reduced business activity.”
In response, CTLA offered comments from Joanne Doroshow, executive director of the Center for Justice & Democracy at New York Law School, that the report doesn’t touch upon how Colorado’s decades-old caps don’t hold the right people accountable.
“Colorado was duped in the 1980s and instituted some of the worst limitations in the country,” Doroshow said in a statement. “For 40 years, people who have had traumatic injuries or family deaths have had to bear the brunt of their situation, while the people or corporations who actually inflicted the wounds are not held responsible.”
How the cost of caps elimination was figured
To calculate the impact, Perryman first estimated the potential direct costs of removing caps on noneconomic damages by industry, based on detailed data related to insurance costs by industry, studies of outcomes in other areas and the firm’s databases. Those studies included a 2004 Congressional Budget Office analysis that found that insurers in states with caps on noneconomic damages had lower loss ratios and charged lower premiums than those in other states.
Perryman then reviewed empirical analyses of the added cost of insurance in areas without caps on noneconomic damages, such as a Robert Wood Johnson Foundation assessment that found that caps reduced awards for noneconomic damages by 23% to 31%. It then calculated both direct and indirect effects of the lack of caps before coming up with the final numbers it offered.
In addition to the big-picture numbers on jobs on loss gross product and lost jobs, the Perryman report concluded that:
- The losses from “excess civil justice costs” represent a per-person reduction in economic output of $357, or $921 per household;
- Because of the reduction in business activity, the elimination of caps could reduce tax revenues to Colorado by $101.9 million annually and to local governments across the state by $78.3 million; and,
- Future economic development could suffer in unquantifiable ways, as businesses that otherwise may have expanded in Colorado may instead locate in states with more predictable business atmospheres.
“Removing these caps will incentivize more lawsuits and encourage excessive verdicts which only intensify Colorado’s declining legal and fiscal environment,” said Lyn Elliott, APCIA vice president for state government relations, in a news release. “Unleashing more cost increases makes things harder for small businesses and consumers already overwhelmed and making difficult decisions.”
More battles coming on caps
Coloradans for Accountability leaders, however, said the economic impact predicted by the report is based on inaccurate analysis and data. It includes, for example, insurance costs such as marketing, CEO salaries, administrative expenses and payments on claims like auto collisions that don’t involve courts or lawyers, the group said in a statement.
“For four decades, Colorado lives have been worth less than in most of the rest of the country,” the statement said. “If you die or are catastrophically injured through no fault of your own, Colorado puts an artificially low price tag on your life or injury that is substantially less than almost everywhere else in the country.”
The ballot battle is not the only debate around damage caps that is expected to be held in the public arena this year.
Senate Bill 130 proposes to raise Colorado’s $300,000 cap on noneconomic damages in medical malpractice lawsuits via annual tiers until it hits $500,000 in 2029, which would be the first raise in that cap since 2003. Sponsored by Democratic Sen. Kyle Mullica of Federal Heights and Republican Sen. Perry Will of New Castle, the bill is scheduled for its first hearing in the Senate Judiciary Committee on Wednesday afternoon.