In everyday life, we all take steps to avoid the worst effects of potential misfortune. We practice reasonable caution in our daily lives, carry car and home insurance, and steer clear of situations that may leave us at a disadvantage.
The same should hold true as a business owner. Are you prepared for the negative results that can follow legal action against your business? Getting sued can be a nightmare of legal fees, paper work and court costs — even if you prevail in the court.
Even lawsuits that are frivolous,with little or no legal basis, still take valuable time and resources from of what you poured your heart and soul into growing into a profitable concern.
Keep in mind that 36% to 53% of small businesses in the U.S. are sued each year, and 43% are threatened with lawsuits, according to reports by business leaders like Forbes and Small Biz Daily. In addition, 90% of all businesses will be sued at least once during their time doing business.
So the best protection against the worst consequences from a lawsuit is to know the right steps to take when a lawsuit is filed against your business.
Critical steps to prepare for a business lawsuit
The most common lawsuits filed against businesses relate to discrimination, personal injury like a slip-and-fall accident, violation of employment laws and breach of contract.
If your business is served with notice that a lawsuit has been filed claiming any of these actions, there are several important steps to take:
Contact a business attorney
An attorney experienced in small business litigation can review the case against you with the legal knowledge required to defend you and your business. Your attorney will also make sure that the court papers served to you don’t contain any procedural errors and if they do, will move to dismiss the lawsuit.
Don’t communicate with the plaintiff
As the defendant in a lawsuit, anything you write or say about the lawsuit to the party who initiated it can be used against you. Here, the time for mediation has passed, since a court proceeding has started, so let your attorney do the talking.
Of course, there may be circumstances where you must talk to the plaintiff. Perhaps the lawsuit is employment related and the plaintiff is still your employee. In this case, be clear that you won’t discuss any matter related to the lawsuit. Instead, refer them to your attorney.
Let your insurance provider know
As a business owner, you carry insurance policies to protect your business in the event your business is named as a defendant in a lawsuit. General liability insurance usually cover third-party liability claims — like that slip-and-fall accident— while employee lawsuits may be covered an employer liability insurance policy. Professional liability insurance may cover your business if a client alleges your work caused financial losses or for breach of contract.
Depending on the specific coverage, these policies may cover attorney fees, court costs and any settlement the court awards. Because these policies generally include notification requirements, let your insurer know as soon as you are served court papers for the lawsuit.
However, don’t assume that your insurance will cover all or any of your costs. There may be certain circumstances your policies exclude from coverage. This is another reason to quickly contact your provider, so you know if your policy covers the specific circumstances of the suit.
Create a plan of action and then respond to the complaint
All lawsuits have a specific time period in which you have to file a written response to the complaint. In California, you’re given 30 days, including weekends and holidays, after the date you’re served.
Your written response should include:
- Admittance or denial of each allegation.
- Any defense and counter- or cross claims against the plaintiffor against any other defendants named in the lawsuit.
- Whether you seek a jury trial or an alternative, like an out-of-court settlement.
Your business attorney will likely advise you not to admit to any level of fault at the outset of the lawsuit as this can and probably will be used against you in any future business litigation.
Here at LawPLA, our experienced and skilled business attorneys are here to walk you through the steps that will best prepare you for the entirety of the lawsuit. Contact us today for a free consultation.