When you started your business, it probably never crossed your mind that you may have to defend yourself from a lawsuit. Getting hit by a lawsuit, however, is one of the potential dangers of running a business and should be high on your priority list.
In fact, a business that is not properly prepared for litigation can wind up going out of business rather quickly; you could even wind up paying awards from your personal savings depending on the judgment. “In some situations, a successful plaintiff can ‘pierce the corporate veil’ and go after personal assets of business owners,” says attorney and author Elura Nanos. “Furthermore, some kinds of lawsuits may name both the business and the individual as defendants.”
Protecting your business from lawsuits means more than just preparing for litigation. It also means taking steps to make sure you do not give people a reason to sue you. Negligence is something that takes up the largest portion of lawsuits against businesses. This means that the company did (or did not do) something and caused harm to someone, and verdicts for these lawsuits do not come cheap.
Doing Things Right Helps Keep You Out of Court
Deloitte & Touche was recently ordered to pay $118 million for negligence over the failure of live-theatre company Livent Inc. As the company’s auditors, the court found that Deloitte failed to perform its duties and caused a financial loss to investors. The Ontario Court of Appeal upheld the decision and now the company is on the hook for more than one hundred million dollars.
“[The company] seemed to turn a blind eye to warning signs,” ruled Justice Gans in the decision. So in reality, the negligence stemmed from the company failing to do its duty (e.g., warning investors). Seems like a small thing, but turned out to be an expensive mistake.
Preparation is one of the best ways to protect yourself from litigation: know the law and make sure you follow it. The health-care industry offers an excellent example of the importance of being prepared.
Health-care providers must be prepared for litigation due to the complexity of the business. Without proper preparation, health-care providers would be going out of business as quickly as new providers opened their doors.
“Being prepared means proper care,” says Lawrence J. Buckfire from Buckfire & Buckfire P.C. “Health-care facilities must provide the proper training to its staff and proper care for its patients. Without it, the chances of negligence increase.”
Buckfire is familiar with such litigation; he represented the plaintiff in a recent $5 million wrongful death verdict in Southfield, Michigan.
Prepare for the Worst With Liability Insurance
As a business owner, you already have numerous insurance policies; however, you need to make sure that you have a policy that covers you for lawsuits. Depending on the policy you choose, you could protect yourself from paying out in the event you lose a lawsuit. This is similar to car insurance policies that protect you in case you get sued for being involved in an accident.
A recent article on Business.com outlines numerous situations where business insurance is absolutely necessary. Scott Gerber recommends such insurance to make sure “you and your company are protected before hitting the next milestone.” In other words, you will be unable to grow if you are stuck in litigation without insurance.
Florida attorney James Gassenheimer recommends having an attorney assist you when you buy insurance. He says, “Things to think about when buying insurance include, having a lawyer to help you look at exclusions to coverage, and whether you would have the right to choose your lawyer or if you would have to accept a lawyer appointed to you from the insurance company.” It only makes sense to have your own legal counsel advice you on the type of insurance for, well, legal counsel.
Never Go Alone in the Event of a Lawsuit
Let’s assume you did everything right, and even have insurance, but you’re sued anyway. This does not mean you are out of the woods. You must still make sure you have proper representation during litigation. Handling litigation on your own could wind up costing you for failure to follow court rules, including the filing of timely documents.
Many insurance companies will provide you with a lawyer in the event of a lawsuit (after all, they are on the hook if you lose), but do not settle for that. Hire your own attorney to help oversee everything that happens, including the conduct of the insurance company’s attorney. This will not only help you in the litigation process, but also help protect your personal assets in the event the insurance attorney does not represent you properly.
“Your litigation strategy is put in the insurance company’s hands and they control who they hire, and the strategy/settlement negotiations,” adds Kansas City attorney Braden Perry. This reiterates that although insurance companies can cover you in the event of a lawsuit, they still have their own interests in mind. So again, hiring your own counsel, even when you have an insurance company attorney assigned, can be a good idea.
While all these suggestions are not foolproof, they will help put you on a path to stay out of litigation, or prepare you for litigation when it happens. As with all aspects of a business, lawsuits must be factored into your game plan. Failure to do so can lead to loss of business and personal assets which is not why you started a business in the first place.