Protecting Yourself Against Business Lawsuits

If you're in business long enough, you'll end up being sued. Some advance planning to prepare for this inevitability is a very good thing to do.

Shield Yourself from Personal Liability Exposure

Many lawyers advise that every business should be incorporated or operated through some other type of limited liability business entity. While incorporating is no guarantee against personal liability exposure, it's certainly an effective shield against the risks and dangers inherent in operating a business. It may be a little bit more expensive to incorporate and maintain a corporation, but you will be dollars ahead in the long run.

Insurance

Having the right insurance in place is a must. At a minimum, you need a comprehensive general liability policy. Certain coverage may also be mandated by law, such as workers' compensation insurance. Other insurance may also be appropriate for your business, such as professional errors and omissions coverage, or products liability coverage. Check with your insurance agent.

An insurer has an obligation to defend you on claims where there is a potential for coverage under the policy. This means that, regardless of the outcome on a lawsuit, your insurance company may have an obligation to hire and pay for a lawyer to represent your interests in the litigation.

If you're liable for a claim that's covered under a policy, an insurance company will also have an obligation to indemnify (cover) you against any judgments up to the policy limits.

Insurance coverage questions are very complex issues. To get more specifics on what type of business insurance you should have, call your agent. Also, read your policies and ask your agent to clarify questions that you have.

Policies and Procedures

To reduce the chances of getting sued, it helps to have well-drafted policies and procedures in place. Every employer, for example, should have an employee handbook that outlines what is expected of employees in the workplace.

Continuing Education

It's helpful to have employees who are well educated on issues relating to their work performance. This promotes safety in the workplace and helps your business to comply with the law.

Corporate Compliance Programs

Establish a corporate compliance program where management routinely reviews operations to ensure compliance with rules and regulations that govern the workplace (such as OSHA).

Even if you or your company ends up being liable on a claim, a compliance program will help to lessen potential liability exposure, since it's evidence of your proactive efforts to comply with the law. It may even insulate management from criminal liability.

Don't Wait for a Lawsuit - Retain a Lawyer Right Now!

Just like auto mechanics, lawyers are fond of saying, "Pay me now or pay me later."

You could be your own worst enemy if you're drafting contracts and doing business deals without legal advice. Well-drafted documents help to prevent lawsuits and, in the long run, a continuing relationship with a good lawyer can save countless dollars that may otherwise be spent in defending a lawsuit.

You are in a much better position to defend a lawsuit if you already have a continuing relationship with a lawyer or a law firm. Once you have been sued, the clock is running and you have only a short time in which to respond (usually 30 days or less). This is not the time when you want to have to go out and beat the streets to find a lawyer to represent you.

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