Small businesses learn to deal with liability lawsuit threat
Mark Alesse For The Business Review
As tort reform becomes an increasingly important topic of political debate, a recent National Small Business Poll on liability issues conducted by the NFIB Research Foundation deserves attention. The survey explores small business owners' views on liability issues.

Overall, it reveals that the number of small businesses being sued has remained about the same since the mid-1990s, but small business owners are finding new ways to deal with the issue and do not worry about it as much as they once did.

The actual number of small businesses hit with a lawsuit has remained constant, but small business owners are not spending as much time worrying about it as they did in the mid-'90s. This might be because they are more worried about the economy, or because they have taken additional steps to limit their exposure.

Changes in state liability laws may also be a factor. Although the national rate of lawsuits remains the same, fewer small business owners report being sued in states that are less friendly to liability suits.

Additionally, the survey results contained several interesting highlights:

Sixteen percent of small business owners are "very" concerned and another 31 percent are "somewhat" concerned that they will be defendants in a liability suit in the next few years.

The primary reasons for their fear are the vulnerability of their industry, a belief that they can be dragged into suits in which they have little or no responsibility and the overall frequency of lawsuits occurring nationwide.

Thirty-six percent of owners are "not too" concerned and 17 percent are "not at all" concerned that they will be defendants in a lawsuit. Those not concerned cite steps they have taken to minimize a suit and the belief that a suit is only a remote possibility.

Eleven percent of small business owners were defendants in a liability lawsuit within the last five years, virtually identical to the rate found in a similar survey of small business owners in 1995.

The most common types of liability suits filed against small businesses are product or professional liability and premise liability (personal injury) suits. Customers are the most common plaintiffs.

Most cases do not go to court. By a 9-to-1 margin, owners said they are settled before trial. However, about half of these small business owners feel that they are pushed into settlement by their insurer when they would prefer to fight the suit.

More than 20 percent of small business owners spend more time on liability issues than vital business activities such as introducing new technologies, evaluating changes in employee wages and benefits, obtaining or repaying business loans, evaluating the competition or looking for ways to cut costs.

Increasingly, most small business owners take multiple steps to protect themselves against the possibility of a liability suit. Among the most common are educating employees about ways to prevent a suit, checking with insurance agencies or brokers about the adequacy of insurance, and seeking legal advice. More than 40 percent changed operations, products or services to limit their exposure to liability suits.

And finally, by an 11-to-1 ratio, small business owners believe that liability law is tilted in favor of plaintiffs.

Small business, the creator of the majority of all new jobs, is often hit the hardest by the deficiencies and excesses of liability law. As the debate over tort reform proceeds, it would be well to consider the experiences of small business owners.

MARK ALESSE is the state director of the National Federation of Independent Business in Albany.