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The Best Way to Minimize Damage from Lawsuits? Avoid Them

  • First the bad news: If you’re a business owner, you need to prepare to be sued. But here’s the good news: Preparing for a lawsuit may help you avoid having to suffer one.

    It’s an unpleasant part of doing business, but it’s an increasingly common one: if you’re a business owner, you may very well find yourself facing a lawsuit. In fact, a recent poll found that 43 percent of small-business owners in the U.S.have been threatened with or involved with a civil lawsuit. And as luck would have it, the U.S. legal system is the world’s most costly – a report by the Small Business Association Office of Advocacy found that the cost of litigation for small firms can range up to $130,000.That’s a big bill for a small business trying to make ends meet.

    As a business owner, you might be sued by one of your customers, accusing you of providing faulty goods or services or claiming to have been injured on your property. You might also be sued by employees claiming, for example, discrimination or other breaches of HR policy.


    Prepare Now to Avoid Problems Later

    The key to avoiding such a disastrous outcome is to prepare now. There are several steps businesses should take to reduce the threat of a lawsuit.

    • Incorporate your business in a way that minimizes liability and protects your assets. Each type of corporate structure comes with its own set of advantages and drawbacks; a qualified business attorney can help you determine which structure best fits your needs.
    • Get the right insurance.Liability insurance is a must for any business, but there are several different types to choose from, including general liability as well as specialized liability policies. General liability covers a wide range of scenarios, but you can also seek advice to learn whether a more specialized policy would provide greater protection for your business.
    • Perform regular inspections.A good way to avoid lawsuits resulting from accidents on your property is to avoid the accident in the first place. Make sure that you’re frequently checking your grounds for safety hazards – and keep a record of your inspections.
    • Get as much information as you can, quickly.As soon as possible after an accident, you need to collect as much information as possible while the incident is still fresh in the minds of all parties. Collect statements from the injured party as well as any witnesses. If you have liability insurance, your policy may spell out the steps you need to take. If one of your employees was injured, follow the Workers’ Compensation protocol.
    • Develop an action plan.Make sure your employees know what to do when accidents occur on the premises – when to call 911, what forms to fill out, etc.


    What to Do if You Are Sued

    You’ve prepared all you can and taken steps to protect yourself. What do you do if the day comes that your business is served with a lawsuit? The first step is: Don’t panic. Stay as calm as possible and avoid rash reactions or public statements that may come back to harm your case later.

    • Call your attorney immediately.A business attorney is the person best qualified to advise you in the case of a lawsuit. If you have been officially served, the attorney will guide you through the legal process and the necessary next steps. If the other party has only threatened a lawsuit, an attorney may be able to advise you on how to defuse the situation with minimal legal harm to your business.
    • Call your insurance company.You also need to let your insurer know of the action against you – they will guide you through the claims process.
    • Start collecting information.Get as much information as you can about your interactions with the person bringing the lawsuit and the situation that led to the suit. You may need to present it later as evidence.

    The best way to avoid or minimize a bad outcome from a lawsuit is to have a qualified business attorney on your team from the start. The more of a working relationship you have with your law firm, the quicker they can act on your behalf should a lawsuit occur. It is much easier to begin building that relationship sooner rather than later, before you find yourself managing a crisis.