NCPA - National Center for Policy Analysis

LAWSUIT ABUSE HAS STRONG IMPACT ON SMALL BUSINESSES

September 7, 2004

Legal reform and the fight to rein in runaway litigation costs is often portrayed as a battle waged by big business, but a new study by the Institute for Legal Reform (ILR) suggests small business is also hard hit by lawsuit abuse:

  • Businesses with annual revenues under a $1 million incur tort liability costs of $33 billion annually.
  • Such small firms represent 26 percent of the business tort liability costs, but take in 8 percent of total business revenue.
  • Businesses with less than $10 million in annual revenues pay $88 billion every year in litigation costs; these firms generate 25 percent of total business revenue, but pay 68 percent of all tort costs.

Those businesses making less than $1 million a year in revenues pay 44 percent of their tort liability costs out of pocket instead of through insurance. This figure covers costs that arise because firms are uninsured or because they are beyond what insurance covers.

The report asserts that politicians often praise the importance of small businesses to the health of America's economy but do little to ease the burden placed on these enterprises by the steadily growing costs of litigation, says ILR.

Source: Judyth W. Pendell and Paul J. Hinton, "Liability Costs for Small Business," Institute for Legal Reform, June 8, 2004.

 

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