October 20, 2020 | David McKnight and Paul Hinton, the Brattle Group.

Tort Liability Costs for Small Businesses

Small businesses are facing an existential threat when it comes to COVID-19, and excess liability costs are another risk factor they can’t afford. Unfortunately, it’s a risk they’re forced to take.

A new study from ILR and The Brattle Group shows that small businesses (those making less than $10 million in annual revenue) faced $182 billion in commercial tort costs in 2018, even though they only brought in 19% of the revenue. Just as shocking was the fact that the entire commercial tort liability bill for 2018 was $343 billion—which means small businesses are paying more than half (53%) of the commercial liability costs in the tort system.

Breaking it down further, the smallest and most vulnerable businesses (those making less than $1 million annually) bore 39% of the commercial tort liability cost—almost $135 billion. And on a per-dollar-of-revenue basis, these numbers look even worse, with the smallest businesses shouldering a burden almost ten times as large as those making over $50 million.

Taken together, these stats build on the findings from ILR’s 2018 study (Costs and Compensation of the U.S. Tort System), showing that the tort system is out of control. But more than that, this study clearly illustrates that the businesses that can least afford it are the ones that pay the most.

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