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Is liability threatening business?

Yes, say respondents to Financial Executive's July/August One-Minute Survey. Eighty-four percent say they are very concerned about the effects of liability on the ability of U.S. and Canadian businesses to compete, and an additional 13 percent say they are somewhat concerned.

Over half (58 percent) of the 31 respondents say that their company has been a defendant in a lawsuit in which it could have been liable for damages significantly in excess of its share of responsibility. (Twenty-six percent say they have not been, and 16 percent don't know.) Even more alarming, 83 percent say they are either very concerned or somewhat concerned that the continued viability of their companies may be threatened by liability suits.

Given the extent of respondents' concern about the effects liability suits will have on their own businesses and on business in general, it is not surprising that nearly all would strongly support legislation under which each defendant's share of damages in a lawsuit would be proportionate to its share of responsibility. In fact, one respondent says, "We need the loser to pay in all cases, even when the loser is the EEOC or the EPA." But, cautions another, the defendant's responsibility must be clearly defined. "At present," according to this respondent, "courts are following the ACC rule--'anything close counts'." A third has yet another suggestion: "Consider the New Zealand approach to liability. The public has agreed to forego litigation and, in the event of injury, the government pays all costs through a special tax on all products."

[We note that the concept of proportionate liability is incorporated in the Product Liability Fairness Act, which, even though it did not make it in the Senate in early September, will come up again in the next session of Congress.]

Nearly all respondents to the survey--94 percent--would support legislation to require losing plaintiffs to pay the costs of litigation. But a Canadian respondent sounds a cautionary note: Even though he would support such legislation, he explains that it's automatic application might be unfair in some cases, and he suggests that any such legislation require "equity" approval by the court hearing the case.

The majority of respondents are from smaller companies: 52 percent say their companies have annual revenues under $100 million. But 19 percent of the respondents are from companies with revenues of $100-$499 million; 6 percent are from $500-999 million; and 19 percent represent companies with revenues of at least $1 billion.

Twenty-nine percent of the respondents are from manufacturing, 19 percent from retail or wholesale, 19 percent from service organizations, and 6 percent from banking and finance.

Some financial Executive readers may share the plight of a respondent who retired recently from his position as president and COO of a small manufacturer of road machinery. He describes his company's situation this way: "Over a period of 20 years, the cost of insurance, of covering our deductibles, and of litigation went from less than 0.1 percent of sales to 3 to 4 percent. This is a problem in an industry in which 8 percent of sales is considered a good return. This didn't count the cost of the 25 percent of my time that I had to spend on matters related to litigation."
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Title Annotation:One Minute Survey Results
Publication:Financial Executive
Date:Sep 1, 1992
Previous Article:What have you done for me lately, CCR?
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