Michigan's Legal System Hits Rock Bottom
Ranked 8th Worst Litigation Hotspot in the Nation
Living or operating a business in a litigation hotspot can present significant challenges. Jurisdictions like Michigan, ranked the 8th worst hotspot in the U.S. in 2024, often foster environments of legal and economic instability, impacting businesses and residents alike. Here’s why making the list is so damaging:
Litigation Abuse
- Nuclear Verdicts: Exorbitant verdicts exceeding $10 million are common in hotspots, driving up litigation costs and creating uncertainty for businesses and insurers. Such verdicts inflate settlement expectations and destabilize the legal system.
- Third-Party Litigation Funding (TPLF): TPLF exacerbates the problem by financing plaintiffs, prolonging lawsuits, and increasing settlement amounts. This raises defense costs and results in higher premiums for consumers, as outlined in a previous K&A update, Justice for Sale: Third Party Litigation Funding
Economic and Financial Burden
- Higher Insurance Premiums: Litigation hotspots encourage more lawsuits and larger settlements, leading to increased insurance claims. Insurers respond by raising premiums, burdening policyholders with higher costs.
- Job Losses: Excessive litigation costs result in significant economic damage. Michigan loses approximately 97,167 jobs annually due to these issues, along with $6.76 billion in personal income. (American Tort Reform Foundation)
- Business Flight: Businesses often relocate operations to avoid the financial risks associated with litigation-heavy environments. This reduces local employment opportunities and tax revenue, further straining the economy.
Impact on Small Businesses
- Michigan's Supreme Court has been criticized for rulings that expand liability and impose burdensome compliance regulations on small businesses. For example, Mothering Justice v. State of Michigan (resulting in the Minimum Wage and Earned Sick Time Act) has reshaped the state's employment laws with significant long-term consequences.
Consumer Consequences
- The costs of litigation abuse are passed down to consumers through higher prices for goods and services. Excessive liability also discourages innovation and economic growth, making hotspots unattractive places to live or do business. In Michigan, excessive litigation costs translate to an annual "tort tax" of $1,046 per resident. (American Tort Reform Foundation)
Addressing and Overcoming Challenges in a Litigation Hotspot
Protect your interests and assets through a combination of proactive measures and expert guidance while addressing the challenges posed by litigation hotspots.
Proactive Risk Management
- Implement strong risk management practices to minimize liability exposure.
- This includes maintaining safety standards and thorough documentation.
- Utilization of the Loss Control services offered by your insurance carrier.
- Are you leveraging these resources effectively?
- Is your advisor assessing your risks, setting the loss control training agenda, and managing/monitoring the process to completion?
Maintain Strong Documentation
- Audit compliance with written company policies and procedures.
- Preserve detailed records of safety training, certifications, and operational procedures.
- These records can serve as evidence to counter frivolous claims, demonstrate responsible management, and serve as your defense against allegations of negligence.
- Train and educate your staff on the importance of proper policy protocol and documentation.
- Explain "why" it is necessary, these documents are essential in your defense, not useless paperwork.
- An advisor familiar with your industry can help ensure your policies, processes, training, and documentation will aid in your defense.
Evaluate Insurance Coverage
- Ensure you have appropriate liability insurance to protect against potential lawsuits.
- Do you have an advisor helping you evaluate whether your current coverage adequately addresses the risks associated with operating in a litigation hotspot?
Educate Stakeholders
- Raise awareness about the impact of litigation hotspots on businesses and consumers.
- Reports like the "Judicial Hellholes" series by the American Tort Reform Foundation highlight abuses in specific jurisdictions, encouraging public and legislative action.
Consult with your Attorney
- A company’s communications, such as mission statements, websites, training manuals, policies, and handbooks, can create potential litigation issues.
- Your attorney should review all documents.
By taking these steps and ensuring you have a trusted advisor guiding your risk management strategy, you can better navigate the challenges of litigation hotspots while providing financial security for your business assets.
Is your advisor offering solutions or leaving you with more questions?
Koppinger & Associates - Keeping you informed on issues that matter
Take Control of your Challenges - Contact Us