The U.S. Chamber of Commerce Institute for Legal Reform (ILR) has released a report detailing the rise in commercial tort costs for American businesses, revealing that these escalating costs disproportionately affect small businesses.
According to the ILR's report, between 2020 and 2021, commercial tort costs rose almost twice as much as commercial revenues. The report indicates that during this period, commercial revenues saw an increase of 6.3%, while commercial tort costs escalated from $291 billion to $347 billion, marking a 19.24% increase. The report attributes $160 billion of the total $347 billion to small businesses.
The report describes a business's cost of tort liability as being dependent on the size of the business and the cost of risk. Factors contributing to a business's cost of risk include industry, compliance procedures, and the "liability climate in which the firm operates." Although larger companies typically incur higher tort costs "in absolute terms," it is small businesses that end up allocating a larger share of their revenue towards tort costs.
In 2020, according to the report, the cost of risk for a business was approximately $6.79 for every $1,000 in revenue. In 2021, this figure rose to $7.63 for every $1,000 in revenue - an increase of 12.3%. The ILR suggests that at least part of the 19.4% growth in commercial tort costs between 2020 and 2021 can be attributed to these higher costs of risk.
The ILR states in its report that across all industries, small businesses bear a higher cost of tort liability than larger companies do. The ILR notes: "while small businesses accounted for just 20 percent of business revenues in 2021, they bore 48 percent of commercial tort costs." According to the ILR's findings, small businesses are considered vital pillars within American communities and economic growth, and policymakers are keen to protect them from "excessive tort costs that fall disproportionately on their shoulders." The report states that the United States is home to 35.4 million small businesses, which employ 44% of private sector workers.
The ILR is an advocacy organization working at state, federal, and international levels to promote "economic growth" and a "fair legal system", as per the organization's website. The ILR holds the belief that a fair legal system benefits both customers and business owners alike. Among the ILR's objectives are "repairing" the class action lawsuit system and combating over-enforcement.
