Key Takeaways
- 43% of small businesses have been threatened with, or engaged in, litigation, according to a U.S. Chamber Institute for Legal Reform study cited by The Hartford.
- Small businesses earning $10 million or less in annual revenue account for just 20% of commercial revenues, but they bear 48% of commercial tort costs, per Institute for Legal Reform research conducted by the Brattle Group.
- The smallest businesses face roughly 7 times the tort cost burden of the largest businesses, relative to revenue, according to the same Institute for Legal Reform research.
- Nearly 1 in 5 small businesses will face employee litigation, which can cost upwards of $125,000 to defend, according to a Hiscox study cited by The Hartford.
- Of employee lawsuits that go to trial, 25% result in a judgment of half a million dollars or more, per the same Hiscox data.
- Slip, fall, and customer injury claims doubled in average cost from $20,000 in 2015 to $45,000 in 2025, a trend Hartford attributes partly to increased litigation, based on a 10-year Hartford claims analysis reported by Insurance Journal.
- 4 in 10 small businesses are likely to experience a property or general liability claim within a decade, according to Hartford claims data.
- Businesses in Washington, D.C., Nevada, Delaware, New Mexico, and California face the highest risk of employee lawsuits nationwide, according to a 2017 Hiscox study.
Frequently Asked Questions
What percentage of small businesses face litigation?
Roughly 43% of small businesses have been threatened with or involved in litigation at some point. That makes it far more common than most owners assume.
Do small businesses pay a disproportionate share of legal costs?
Yes. Small businesses generate a relatively small slice of total commercial revenue, but they absorb a much larger share of tort costs overall, and the smallest businesses face a proportionally heavier burden than larger companies.
How much more do small businesses pay in legal costs compared to large businesses?
Smaller businesses tend to face several times the legal cost burden of large companies when measured against their revenue. Large companies can spread that cost across a bigger budget and often have in-house legal support. Small businesses usually don’t have that cushion.
How common are employee lawsuits against small businesses?
Employee lawsuits are more common than many owners expect, and defending against one can be costly even before a case goes anywhere near a verdict.
What happens when employee lawsuits go to trial?
A meaningful share of employee lawsuits that reach trial result in large judgments, which is part of why prevention and clear workplace policies matter so much.
Which states have the highest risk of employee lawsuits?
Risk varies significantly by state. Some states see employee lawsuit rates well above the national average, so location can meaningfully affect a business’s exposure.
Are customer injury claims getting more expensive?
Yes. The average cost of slip, fall, and customer injury claims has climbed substantially over the past decade, even as the type of incident hasn’t changed much.
How likely is a small business to face a liability claim?
A large share of small businesses will face some kind of property or liability claim within a decade of operating, making it a realistic planning consideration rather than a distant possibility.
Ask most small business owners what keeps them up at night, and litigation probably isn’t at the top of the list. Cash flow, staffing, and sales usually win that spot. But the data tells a different story about what’s actually likely to happen to their business, and it suggests that lawsuits aren’t a rare, catastrophic event reserved for large corporations. They’re closer to a routine cost of doing business, and one that hits small businesses harder than almost anyone else.
The Odds Are Higher Than Most Owners Assume
According to a U.S. Chamber Institute for Legal Reform study cited by The Hartford, 43% of small businesses have been threatened with, or engaged in, litigation. That’s not a fringe risk. That’s closer to a coin flip.
And the financial burden isn’t distributed evenly. Research conducted by the Brattle Group for the Institute for Legal Reform found that businesses earning $10 million or less annually generate just 20% of commercial revenues, yet they absorb 48% of all commercial tort costs, amounting to an estimated $160 billion in 2021. Put differently, small businesses are paying nearly half the tab for a legal system they represent only a fifth of economically.
The disparity gets sharper the smaller the business gets. The disparity gets sharper the smaller the business gets. A business earning around $1 million a year in revenue can expect to spend roughly $35,000 on average in tort-related costs. A business earning $50 million or more spends proportionally far less, about seven times less relative to its revenue than the smallest businesses.”
Large companies can absorb that kind of hit. They typically have in-house legal counsel, dedicated budgets for defense costs, and enough scale to treat a lawsuit as a line item. A small business rarely has any of that cushion.
Where the Risk Actually Comes From
Two sources tend to generate the most litigation exposure for small businesses: employees and customers.
Employee lawsuits carry a real price tag. A study cited by The Hartford found that nearly 1 in 5 small businesses will face employee litigation, and defending against it can cost upwards of $125,000. For the cases that actually go to trial, the outcomes get worse: 25% result in a judgment of half a million dollars or more.
A separate, earlier Hiscox study also found meaningful geographic variation in this risk. Businesses in Washington, D.C. face the highest exposure to employee lawsuits, 81% above the national average, followed by Delaware and Nevada (55% above average), New Mexico (50% above average), and California (46% above average). That same research found that 1 in 10 businesses nationally will face an employee charge, taking an average of 318 days to resolve, and that without employment practices liability coverage, the average payment for defense and settlement runs about $160,000.
Customer and premises claims are shifting too, and getting more expensive. A 10-year analysis of Hartford small-business claims data, reported by Insurance Journal, found that slip, fall, and customer injury claims rose from 10% of all claims in 2015 to 20% in 2025, while the average cost of those claims more than doubled, from $20,000 to $45,000. Hartford attributed part of that increase to what it described as the growing influence of litigation and legal system dynamics driving higher settlements and costlier verdicts.
Fire damage claims saw an even steeper cost increase over the same period, climbing from $35,000 in 2015 to $80,000 in 2025, making it the single most expensive category of small-business claim, even though it represents only about 10% of claims filed.
This Isn’t a Someday Problem
It’s tempting to file all of this under “bad things that happen to other businesses.” The data doesn’t support that framing. Hartford’s own claims analysis found that 4 in 10 small businesses are likely to experience a property or general liability claim within the next decade. That’s not a remote possibility sitting at the edge of a risk assessment. That’s a meaningful chunk of the small business population that will deal with this, whether or not they’ve planned for it.
The pattern across all of this research points to the same underlying issue: small businesses tend to be reactive about legal and litigation risk rather than proactive, and the cost of that reactivity is measurable. Waiting until a customer is injured, an employee files a charge, or a fire damages the property means absorbing costs that a large competitor would have already priced into its operations through insurance, legal counsel on retainer, and documented policies.
What Small Business Owners Can Do With This Information
None of this means every business will get sued. But it does mean legal risk deserves more attention up front than most owners give it. Here’s where that attention tends to pay off:
- Employment practices matter more than they seem to. With employee lawsuits representing a meaningful share of small-business litigation exposure, clear, documented workplace policies and employment practices liability coverage are directly relevant to managing this risk.
- Premises and customer-facing risk is rising in cost, even if the frequency looks stable. The near-doubling of average slip-and-fall claim costs over a decade suggests that even routine incidents are becoming more expensive to resolve.
- Geography and industry affect exposure. Businesses in higher-risk states or customer-facing industries may want to weigh their litigation exposure more heavily than a business in a lower-risk category.
- Insurance coverage should be reviewed against actual claims data, not assumptions. The gap between what an owner expects to face and what businesses like theirs are actually experiencing tends to be where coverage gaps show up.
The businesses that fare best in this data aren’t necessarily the ones that avoid litigation altogether. They’re the ones that treated the possibility of it as a planning question well before it became an active one. And to be clear, none of this is meant to alarm anyone into overreacting. It’s meant to replace a vague sense of risk with an actual picture of it. A 43% chance of litigation and a 4-in-10 odds of a liability claim within a decade aren’t hypotheticals reserved for someone else’s business.
If you’re a small business owner in Florida and this data has you wondering where your own business stands, contact us today at Forward Law Firm, and let’s start that conversation.
