A study released just last week by the U.S. Chamber Institute for Legal Reform found that small businesses bear a disproportionate burden of tort liability costs. This is the second study (I reported on an earlier study two years ago).
This study evaluated small businesses with less than $10 million in annual revenues and at least one employee in addition to the owner, and found that:
- Small businesses bear 69% of business tort liability costs but take in only 19% of business revenues. This is up from 2002, when small businesses paid 67% of tort liability costs on 19% of revenues.
- The cost of the tort system to individual small businesses is $20 per $1,000 of revenue. In other words, a small company with $1 million in annual revenues will pay, on average, $20,000 in annual tort related costs.
- Small businesses pay $20 billion of their tort costs out of pocket, as opposed to through insurance. This is up from $18 billion in 2002.
And you may be wondering, “What’s a tort?” It’s not some rich chocolate dessert. Tort is a legal term that refers to most kinds of legal liability other than a breach of contract or a criminal act. Tort liability might include slip-and-fall cases on business premises, product liability, professional malpractice, slander and libel, trademark infringement, patent infringement — the list goes on.
I would add this: certain types of businesses tend to attract tort liability claims more than others. Businesses with fleets of company vehicles; tech businesses that generate considerable intellectual property such as software; professionals such as doctors, lawyers and accountants; and retail establishments such as stores and restaurants that receive members of the general public — all tend to get more tort claims than businesses that primarily consist of office workers. Maybe one of you lawyers out there can shed light on other kinds of businesses that tend to be subject to tort liability.
Read: Tort Liability Costs for Small Business