NFIB Talking Points: Small Business Liability Reform

NFIB supports legal reform that will cap punitive damages at reasonable levels so that small businesses are neither destroyed nor forced to settle out of court under the threat of outrageous punitive damages.

• "Legal reform," "tort reform," "civil justice reform," "judicial reform" -- regardless of the complex terminology and "legalese," for small business restoring common sense to our nation's courtrooms can be boiled down to a few important pieces: abolishing joint-and-several liability and capping punitive damages to fair, reasonable levels.
• Joint-and-several liability is a concept that, simply put, lumps together the most responsible and the least responsible parties named as defendants into one lawsuit -- and then holds them financially responsible at the same rate.
• This flaw in our legal system is clearly unfair, as it allows negligent players to shirk their portion of responsibility, while forcing a party who is one percent liable to assume as much responsibility as the party who is 99 percent at fault.
• NFIB is urging Congress to abolish the joint-and-several liability, and instead institute a fairer, "fault-based" system, so that defendants are only held liable for their specific degree of fault.
• The issue is gaining momentum: 35 states have already abolished or modified the principle of joint-and-several liability.
• Capping punitive damages is another must on the small business checklist for legal reform. Punitive damages are not intended to financially compensate victims -- those damages are covered in "economic damages" and "non-economic damages" (also known as "pain and suffering"). Instead, punitive damages are awarded as a means of publicly punishing a defendant and/or attempting to deter future misconduct (i.e., the infamous McDonald's spilled coffee lawsuit that resulted in $2.7 million in punitive damages).
• These damages have exploded in both frequency and size, contributing to the out-of-control spiral of the legal system. Million-dollar punitive settlements abound these days.
• With the average small-business owner's salary being less than $50,000 per year, it's easy to see how one frivolous lawsuit can wipe out an entire small business.