SAN FRANCISCO (Legal Newsline) - New Jersey and New York are the two states with the highest combination of tort costs and risk, according to a study published by free-market think tank Pacific Research Institute.

The U.S. Tort Liability Index, also produced by the economic research organization Manufacturers Alliance/MAPI, ranked Alaska and Hawaii first and second, respectively, as the states with the lowest tort costs and risks.

North Carolina fared the best of the continental states, finishing third ahead of South Dakota and North Dakota.

The Index, now in its third edition, was authored by Lawrence J. McQuillan, Ph.D., director of Business and Economic Studies, and Hovannes Abramyan, M.A., adjunct public policy fellow.

"Direct tort costs account for almost 2 percent of GDP in the United States-that's the highest in the world," said Dr. Lawrence McQuillan, one of the study's authors.

"These high costs impact American businesses when firms have to divert revenue to fight lawsuits. But all of us ultimately shoulder the burden through higher prices and insurance premiums, lower wages, restricted access to health care, less innovation and higher taxes to pay for court costs."

Hovannes Abramyan co-authored the study. He said job growth was 57 percent greater in the 10 states with the best tort climates than in the 10 states with the worst tort climates.

Those 10 states, starting at the bottom, were New Jersey, New York, Florida, Illinois, Pennsylvania, Missouri, Montana, Michigan, Connecticut and California.

The bottom is mostly a reflection of venues the American Tort Reform Foundation calls "judicial hellholes" in an annual report. South Florida topped the ATRF's list in December, with Cook County, Ill., ranking third, Atlantic County and other parts of New Jersey ranking fourth and New York City ranking sixth.

The major difference is West Virginia, which ranked second in the ATRF study and topped a Harris Interactive study of corporate lawyers as the least business-friendly state. The study was commissioned by the U.S. Chamber of Commerce, owner of Legal Newsline.

West Virginia did rank 45th in litigation risks in the PRI index, but was also 14th in monetary loss to give it an overall ranking of 27th.

PRI singled out Massachusetts, Idaho, Louisiana, Arizona, Alabama, Kansas, Hawaii, West Virginia, Maryland and Colorado as states "headed in the right direction, with lower tort costs and/or tort litigation risks relative to other states."

States moving the other direction, the study says, are New Mexico, Michigan, Oklahoma, Nebraska, Vermont, Mississippi, Wyoming and Tennessee.

After No. 5 North Dakota, the top states were Maine, Idaho, Virginia, Wisconsin and Iowa.

The full rankings can be viewed here.

States were ranked based on plaintiff awards and settlements, the amount of lawsuits, tort rules and reforms like award caps, venue reforms and judicial-selection reforms. Oklahoma may have righted itself with a comprehensive tort reform package passed in 2009, the study says.

The study says Oklahoma now has the best tort laws, with neighbor Texas second.

From Legal Newsline: Reach John O'Brien by e-mail at jobrienwv@gmail.com.