How lawsuits impact the average consumer

Posted by on October 26, 2009 in Investment Information

Conventional wisdom is that business booms for litigation lawyers during down times. As the money and cash flow dries up, it is harder for people to buy their way out of disputes and, ergo, cue the lawsuits. If most of us are lucky, we will never be subject to a lawsuit. But, as consumers, the cost of businesses defending or settling lawsuits hits us in direct and indirect ways.

LawPro provides errors and omission insurance coverage for over 20,000 lawyers and title insurance for purchasers of real estate. It was recently announced that LawPro is increasing its 2010 insurance premiums by 20% to slightly under $3,000 per annum.  The primary reason for the insurance premium increase is that claims against lawyers have risen from a typical range of $55-$60 million annually to an estimated $88 million in 2009. There has been a particularly large jump in real estate claims (65% increase in the last 5 years).

No one sheds tears over lawyers but how does this affect you?

Directly, increased insurance claims against real estate lawyers have resulted in an increase in the real estate levy from $50 to $65 per transaction. This levy is paid by anyone buying or selling real estate in Ontario. In other words, the cost of a real estate transaction just went up.

Indirectly, businesses do pass costs down to their clients and customers. Assuming that other industries are suffering from similar issues related to increased litigation, whether through increased insurance costs or increased cost of sales, one would assume that at least a portion of this cost will end up on the consumers’ bill.

Money Energy has commented recently that consumers are feeling inflationary pressures in some goods. While it would be extremely difficult to pinpoint how much the costs of litigation increases consumer costs, it may be a contributing factor going forward.

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