There have been several arguments put forward over the years for tort reform, but a new study by U.S. Chamber Institute for Legal Reform (ILR) reveals a compelling reason for tort reform in light of our faltering economy.
The disproportionate impact of government regulation and taxation on small business owners has been well documented. Well, it seems that when it comes to liability costs, small businesses are getting slammed.
The ILR study shows that small businesses shoulder a sizable liability burden, having paid $105.4 billion in 2008. One estimate suggests this amount may increase by 50% by 2011.
I can hear the mouth pieces of the trial attorneys lining up to make discrediting comments right now.
"But isn't this just coming out of "big" insurance company coffers? It doesn't really have any impact on small companies directly. Right?"
Wrong! When it comes to small business, the study finds that a third of the cost ends up coming out of their own pockets.
"OK, but this is just a bunch of litigious entrepreneurs suing other entrepreneurs."
Actually, this study suggests that this is not at all the case. Small businesses bore 81% of business tort liability costs but took in only 22% of revenue. That's right, 81%!
This study has been out for a week. Heard much about it? Me neither. I found only one reference to it in Google News.
Tort reform stories like this do not fit in nicely with the vision perpetuated by the media of weak individuals getting what they deserve from large evil corporations. However, the truth is that most often it is small business owners who bear the burden of over zealous attorneys in our increasingly "I want mine from life's lottery" culture.
So add growing litigation liability to the list of road blocks being put in the way of small businesses as they try to lead us out of this recession.
You're a bit wrong that small businesses pay for a 1/3 of the costs - they pay for all of it eventually. Insurance is not an unprofitable industry. Fees make up for the payouts. Inherently, business is paying for all of these suits. Insurance just spreads out the costs over time.
A study by National Association of Manufacturers showed that the legal liabilities of companies between insurance and actual legal costs are a higher percentage of revenue than profits. That's right, lawyers and insurance companies make more money off the efforts of manufacturers than they make themselves. And in healthcare, the impact is even worse.
Tort reform is the most badly needed piece of legislation I can imagine.
Point well made! Thanks.