STATEMENT
Of
the Honorable Nydia M. Velazquez, Chairwoman
House Committee on Small Business
Hearing on Liability Reform and Small Business
May 17, 2007

I would like to thank Ranking Member Chabot for bringing this issue to the committee and arranging for the witnesses to testify.  The issue of civil liability is clearly something that impacts small businesses in a variety of ways. 

I think we can all agree that frivolous lawsuits harm small businesses and our economy.  No one will ever defend that practice.  However, in order to have a discussion about liability reform, we must consider whether changes in federal law could have an impact on legitimate rights of action, in addition to stopping frivolous suits.

For today’s hearing, the issue of liability reform must be considered in light of the many roles that small businesses play.  Not only are they are manufacturers, but small firms are oftentimes the consumers and sellers of products. 

Our legal system must ensure that the rights of entrepreneurs are protected—both as the plaintiffs or defendants in lawsuits.  The economy depends on the ability of companies to protect their contractual rights, including their relationships and transactions with other businesses.  

I do understand, however, that we will hear about how our current legal system has its shortcomings.  If our tort system is not used properly it can and does impose costs on businesses—many times unfairly.  Determining the extent of these costs is difficult and figures are often disputed. 

My hope is that we can open up the debate today beyond litigation costs and examine the different factors that may be driving up overall liability insurance premiums. According to a study by the National Federation of Independent Business, small business owners rank liability insurance as one of their top concerns.  Law suit abuse is near the bottom of that list.

These findings suggest there are a number of factors contributing to liability costs—including insurance company practices.  As such, I believe that any approach to addressing liability issues must be multi-pronged and go beyond simply limiting the ability to sue. 

The states that have successfully handled overall insurance costs have enacted both tort reform AND insurance reform.  A number of years ago, California addressed soaring insurance costs by passing Proposition 103. 

Proposition 103 required that insurance companies rollback rates and file an application with the insurance commissioner to increase rates.  Companies were also required to hold public forums before raising premiums.  Studies showed that this was a primary driver in reducing insurance costs in the state.

A similar approach is needed to help small businesses with rising liability insurance costs.  To truly get at the major problems behind these prices, there must be greater transparency in insurance markets. While I know many of the witnesses have focused their testimony on litigation, I would be interested in hearing their experience with insurance companies when it comes to overall liability coverage.

While not always perfect, our nation’s justice system is the best in the world.  There is room for improvement, but we need to keep in mind that lawsuits can serve to protect honest small business owners who are doing the right thing.

A working legal system will ensure that the products that companies manufacture are safe, yet affordable to produce.  A functioning system fosters competition in terms of safety by rewarding companies for manufacturing safe products while penalizing those that cut corners.