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May 16, 2007

Lawsuits Drain Economy, Alter Business Decisions, Studies Show

WASHINGTON, D.C.-The tort system in the United States cost small businesses $98 billion in 2005, with the fear of lawsuits altering the way the small business owners make decisions, according to studies released at a Congressional hearing today by the U.S. Chamber Institute for Legal Reform (ILR).

“The simple fact is this: our broken lawsuit system is a serious problem for America’s small businesses, costing jobs and dampening the spirit of entrepreneurship and innovation at the very core of America’s greatness,” ILR president Lisa Rickard told members of the House Small Business Committee.

One study, conducted for ILR by NERA Economic Consulting, found that small businesses (those with $10 million or less in annual revenue) paid $98 billion in tort-related costs in 2005, the latest year for which data is available, with $20 billion coming from the assets of the businesses rather than through insurance. For a small business with just under $5 million in annual revenue, that translates into about $120,000 a year that it will pay out in tort-related costs, the study says.

“The lawsuit culture transfers billions of dollars in assets critical to the continued survival of small businesses into the bank accounts of trial lawyers,” Rickard said.

A second study, conducted for ILR by the nonpartisan market research firm Harris Interactive

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