Judge Roy Pearson’s lawsuit against his drycleaners for losing his pants induces an equal amount of outrage and mockery, but it’s important to remember that this kind of legal excess is not that unusual. U.S. businesses and citizens are constantly bedeviled by litigious cranks and cranky litigators. Small business owners are especially vulnerable to frivolous but destructive lawsuits.
There is a mistaken assumption that a small proprietor slapped with a lawsuit simply lets his insurance company handle it. Wrong. Many business owners shoulder the costs themselves out of fear of higher premiums or the risk that their insurance company will cancel their coverage. Some start-up businesses simply cannot afford liability insurance. In fact, the [Institute for Legal Reform] study shows that, in 2005, small business owners paid $20 billion out of their own pockets for court costs and out-of-court settlements.
Finally, the smallest businesses, those with revenues of less than $1 million, paid $31 billion in lawsuit-related costs. Let’s put that in perspective. These businesses, which represent just 6 percent of total business revenues, paid more than 20 percent of the national tort tab. These lawsuits really do hit the “little guy” who struggles to make ends meet.
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