House OKs Business Liability Reform Bill

On February 16, by a vote of 221 to 193, the House passed the Small Business Liability Reform Act (HR 2366). This bill would limit the punitive damages that could be collected from small businesses unless the businesses intentionally caused harm. Any business with fewer than 25 employees would be immune to punitive damages greater than $250,000, or three times the reward to the plaintiff; whichever was less. The bill would also limit product liability claims against retailers. Republicans have been trying for years to limit what they consider frivolous lawsuits that are draining the economy, but President Clinton opposes such reform, vetoing a large measure in 1996 and vowing to veto this measure.

Bill sponsor Rep. James Rogan (R-Calif.) pointed out the compromises and fairness written into this bill, including the fact that the bill would not affect a plaintiff's possible compensatory awards. "This cap on punitive damages does not cap or diminish a claimant's right to sue for both economic and noneconomic losses, such as lost wages, medical bills and pain and suffering."

Rep. John Conyers (D.-Mich.) argued that the measure was not drafted to protect small businesses since it set no cap on revenue. Also, he said, "Collectively, these restrictions are likely to eliminate not only the incentive for seeking punitive damages but it also eliminates any realistic possibility of obtaining them. It sends exactly the wrong message to people with deliberate intent to do wrong, people who are not concerned with the considerations of safety in the workplace. They are being told it does not matter how harmful or malicious their action or behavior is, they will never be realistically subject to significant punitive damages, which erodes the whole concept of punitive damages."

Rep. Sue Kelly (R-N.Y.) supported the bill's efforts in promoting American small business. "Current liability law encourages many of these businesses to impose limitations on their own promise, to bypass opportunities to improve and expand. This not only conflicts fundamentally with our American character, but it is an unnecessary restraint on the livelihood of the millions of Americans who work for these businesses."

Rep. Judy Biggert (R.Ill.) stressed the gravity of legal threats against small businesses. "Small business owners face rising costs for liability insurance, not to mention the crippling cost of defending themselves should they be named in a lawsuit. Innocent or not, defending oneself is costly. The estimated cost of a business owner's defense in the average lawsuit is $100,000. Considering that the actual salary of a typical small business owner is between $40,000 and $50,000, it is easy to see that just one frivolous lawsuit can easily put a small firm out of business." Before passage, the House passed a Republican amendment that allows a judge to lift the caps in cases where there is "clear and convincing evidence" of an intent to harm, and rejected a Democratic amendment changing the definition of "small business" to include a revenue limit of $5 million (see House rollcall at left).

A "yes" vote was a vote to limit punitive damages against businesses with fewer than 25 employees and to curb product liability claims against retailers. A "no" vote was a vote against the bill.

Copyright Human Events Publishing, Inc. Mar 3, 2000
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