A new ILR economic report, Tort Costs for Small Businesses, looks at how America’s small businesses shoulder the skyrocketing commercial liability costs of our lawsuit system—bearing $160 billion of the total price tag in 2021. There are 35.4 million small businesses (which our study defines as those making $10 million or less) in the U.S., accounting for 99.1 percent of all firms and 44 percent of private sector employees. For these businesses to thrive, there must be a fair and balanced legal system that promotes economic growth and opportunity.
Tort Costs for Small Businesses found that U.S. commercial liability costs in 2021 totaled $347 billion—a 19 percent increase in just one year from $291 billion in 2020—and small businesses bore nearly 50 percent of them. Beyond the sticker shock of the overall price tag, the report reveals how the smallest businesses face a disproportionate share of the liability burden. In proportion to revenue earned, the costs of the lawsuit system are seven times greater for businesses making $1 million or less in annual revenue compared to businesses that make $50 million or more.
Our lawsuit system burdens small businesses and poses an existential threat, hindering growth and survival. Small businesses have few ways to defend against abusive lawsuits since budgetary constraints often prevent them from employing legal or compliance staff. A real-world example from recent ILR research looks at this phenomenon in the context of Americans with Disabilities Act (ADA) lawsuits, which have risen sharply since 2013 and have disproportionately impacted small businesses. Opportunistic plaintiffs’ lawyers and serial “tester” plaintiffs, those who file complaints against businesses but do not intend to actually purchase goods or services from those businesses or visit their premises, exploit the ADA to pressure small businesses into paying huge settlements.
Recognizing the need to prevent abusive lawsuits, a new national poll conducted for ILR by Echelon Insights shows that 72 percent of likely voters believe policymakers should enact legal reforms to ensure small businesses can focus on growing their business and not worry about spending time and money on litigation.
Small businesses should not be disproportionately paying for our lawsuit system. As innovators and employers, they are a vital part of the U.S. economy. ILR will continue to fight for an effective legal system that helps businesses of all sizes thrive.