NCPA - National Center for Policy Analysis


July 16, 2010

Small businesses shoulder a sizable burden of the nation's tort liability costs, having paid $105.4 billion in 2008 -- a third of it out of their own pockets, according to a new report from the U.S. Chamber of Commerce. 

Other findings: 

  • Small businesses bore 81 percent of business tort liability costs but took in only 22 percent of revenue.
  • Small businesses ($10 million or less in annual revenue) paid, collectively, $35.6 billion of these costs out-of-pocket rather than through insurance. 

The study was conducted for the Chamber's Institute for Legal Reform (ILR) by NERA Economic Consulting.  Noting that small businesses have created 64 percent of all net new jobs in the United States over the past 15 years, ILR President Lisa Rickard says the tort system is costing jobs.  "As America struggles out of this current economic downturn, this study shows that our lawsuit system continues to be a drag on job-creating small businesses," she says. 

The NERA also examined the costs of the medical liability system for doctors in small groups and small medical labs: 

  • For these small businesses, the liability price tag totaled $28 billion in 2008.
  • This is 94 percent of the total costs of medical malpractice ($29.8 billion).
  • When medical malpractice costs are added to all other tort liability costs, the total for small businesses reaches $133.4 billion. 

According to the report, the litigation liability costs for small businesses are expected to continue to grow.  NERA forecasts that by 2011, small businesses, including small medical businesses, will be paying $152 billion in tort costs. 

"Our lawsuit system is increasingly burdening owners, workers and our entire economy," says Rickard. 

Source: Observers, "Small Businesses Pay 33 Percent of Rising Tort Costs Out-Of-Pocket," Insurance Journal, July 9, 2010. 

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