- The Washington Times - Tuesday, June 8, 2004

Lawsuits and liability insurance cost American businesses $128.8 billion each year.

An estimated 4.4 million U.S. small businesses, with annual sales between $1 million and $4.9 million, pay more than half of those costs, according to a study released yesterday by the U.S. Chamber of Commerce.

Small businesses pay about $75.8 billion of the total bill, with larger corporations paying the other $53 billion, said the study by NERA Economic Consulting.

The U.S. Chamber, a D.C. trade association for businesses, commissioned the study to determine how much the increasing lawsuit industry was affecting business owners, said Lisa Rickard, president for the chamber’s legal-reform institute.

The study expanded its definition of “small business” to include companies with up to $10 million in annual revenue.

Under general guidelines at the U.S. Small Business Administration, a company is considered “small” if it has fewer than 500 employees or up to $6 million in annual sales.

However, Ms. Rickard emphasized at a press conference on Capitol Hill yesterday that lawsuits and litigation insurance are quickly outpacing other costs that business owners face, such as health care.

“What’s important to note is that 44 percent of these costs to small businesses are paid out-of-pocket” as opposed to paying through insurance, she said.

Carlton Carl, spokesman for the Association of Trial Lawyers of America, pointed out that the chamber represents companies in the tobacco, drug and chemical industries that have faced and lost numerous civil lawsuits.

“It’s outrageous these shills for corporate wrongdoers want to mislead American people and members of Congress,” said Mr. Carl with the D.C. trade group for trial lawyers.

Larger companies, with annual sales of $10 million, have an average tort bill of $150,000 while small businesses with less than $1 million in annual sales have an average bill of $17,000 each year, the study said.

Regardless of size, increasing litigation costs keep businesses from creating new jobs, said Thomas Sullivan, chief counsel for advocacy at the Small Business Administration.

Congress, which has introduced several litigation-reform bills this year, should pass more tort reform laws to “remove barriers for small-business owners,” Mr. Sullivan said.

“Government doesn’t create jobs, people create jobs and they need an environment where they can do that,” Mr. Sullivan said, adding that 75 percent of the 248,000 jobs added in May were by small businesses.

Isabelle Hilliard, president and chief executive officer of a Richmond nursing home facility, said at the press event her liability insurance rate skyrocketed from about $5,000 in 2000 to $35,000 in 2003. She would not specify why the rates jumped so dramatically.

Old Dominion Home Health Services, with 125 employees, had to temporarily cut back on increasing salaries and hiring new workers, Ms. Hilliard said.

“I expect the rates to go up, but I wasn’t expecting that much,” she said. She would not disclose how much the rate increase affected the company’s annual sales.

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