We hear so much about the health insurance crisis faced by small business owners, which is a real problem. However, liability insurance is at least as major an issue for small business owners.
Today in testimony before the U.S. House Committee on Small Business, NFIB Legal Foundation Executive Director Karen Harned laid out a strong case for liability reform. Specifically, she argued for legal reform that makes Rule 11 sanctions (which includes sanctions on lawyers and law firms that are party to frivolous law suites) mandatory for frivolous lawsuit filers.
Harned rightly pointed out that for the small business with five employees or less, the problem is the $5,000 and $10,000 settlements, not the million dollar verdicts. She said that when you consider that many small businesses gross $350,000 or less a year, which does not include the additional expenses of running a business, such as payroll, rent, cost of goods sold, or regulatory costs, $5,000 - $10,000 can significantly impact a small-business owner's bottom line.
Harned provided examples of small-business stories of lawsuit abuse including the now famous Washington, D.C. dry cleaner's pants suit case, where the plaintiff, Administrative Law Judge Roy Pearson, is suing the family-owned dry cleaner shop for $65 million over a lost-and-found pair of pants.
What is most frustrating is that so little attention is given to liability reform in the media, while we hear a constant drum beat for health care reform. The media continues to have a bias that obscures the fact that both issues are serious threats to the future of our entrepreneurial economy. In a recent survey conducted by the NFIB, small business owners ranked the Cost and Availability of Liability Insurance as the second-most important problem facing small business today, just behind health-care costs.
