Business Law

Protecting Yourself Against Business Lawsuits

Chances are over time that your business will face a lawsuit. Plan ahead and be ready. A quick response can make the difference in the outcome of a possible lawsuit, and in any event, makes it easier to handle when you're ready.

Protection against lawsuits includes how you structure and run your business, and having needed backup, such as insurance and a good relationship with your business law attorney so you're ready to respond.

Business Structure and Avoiding Personal Liability

The form of your business matters in a lawsuit, and many lawyers promote structuring a business to shield you from personal liability. Options include corporations or limited liability companies.

Choosing one of these business forms provides protection from many types of claims. There are costs to setting up and maintaining a corporation, but the protection and peace of mind are worth the cost.

Running Your Business and Risk Management

Remember risk management when running your business with the result of stopping possible lawsuits. Look at your company's policies and procedures, keeping employees trained and educated, and using corporate compliance programs.

Policies and Procedures

Having well-drafted policies and procedures in place helps reduce the risk of a lawsuit. Employee handbooks are a good example, covering common scenarios and letting employees know what is expected of them at work. With rules, routines and responses to follow, you keep control of situations.

Corporate Compliance Programs

Take corporate compliance programs seriously, and review areas needing compliance coverage. Programs ensure that workplace rules and regulations for areas such as workplace safety and employee conduct are followed and enforced. Employees know what's expected of them, how to deal with problems and how to get help from management.

Compliance programs help reduce liability even if there is a claim. Existing programs show that your business takes proactive steps to follow the law. Compliance programs can even insulate company management from criminal liability.

Continuing Education and Keeping Up Credentials

Support your employees' knowledge as it relates to work performance. Providing or paying for continuing education or credentials related to their jobs or even the business as a whole is smart. Your business benefits from well-educated and trained staff, which may add to workplace safety and help your business comply with the law.


Insurance is a key component in planning against business lawsuits. At the least, you need a comprehensive general liability policy. Other types of insurance may be required by law, such as workers' compensation insurance. Added insurance coverage may be needed, depending on the type of business you do, such as professional errors and omissions coverage, or products liability coverage.

One of the main protections an insurance policy provides is a legal defense for claims that may result in payment under a policy. The duty to defend means the insurer may have to hire a lawyer to defend your business in a lawsuit and pay the legal bills.

Indemnity is the other main insurance benefit. If your business is liable on a claim, the insurance company must pay for judgments up to your policy's limits.

Insurance coverage questions are very complex issues. Your insurance agent is the best resource to review your business's needs and make sure you have the right coverage. Also, read your policies and ask your agent to clarify questions that you have.

Your Business Lawyer and Your Prevention Plan

Use your lawyer's services and advice at the front end of your business transactions, and you may stand the best chance of avoiding lawsuits. You may save money you don't have to spend defending lawsuits when your business documents are well-drafted and planned. Work with your lawyer to spot possible risks, and steer clear of them.

An ongoing relationship with your lawyer or a law firm puts you in control if your business faces a lawsuit. Your legal team knows something about your business and can quickly respond to trouble. If your business is sued, the law sets clocks running, and you have a limited time to respond, often 30 days or less. It's a tremendous relief to have legal help you can turn to and trust.

Questions for Your Attorney

  • How do compliance programs relate to the size of a business? Are there exemptions for small businesses? Do such programs help avoid liability in a civil lawsuit?
  • My business is being sued, but the insurer says there's no duty to defend. Do I have to sue the insurance company over defense and coverage issues?
  • I have a small business, a corporation. Can you review my business policies and procedures to make sure I'm not at risk personally?
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