What to do When: Your Business is Sued

No matter how many times you tell yourself it’s simply the cost of doing business, being sued in state or federal court is a dilemma no business owner wants to be confronted with. Individuals or entities likely to bring a lawsuit against a business come in all different shapes and sizes: disgruntled employees, scorned competitors, or unsatisfied customers, just to name a few. The avenues available to bring legal action against a business entity only seem to be growing with no end in sight. As a business owner or member of upper management, it is critical you are aware of the steps necessary to best protect yourself and your company once your business has been named in a lawsuit.

Step 1. Get Your Attorney Involved

Although it may seem to be a self-serving piece of advice, it should go without saying that if your business is sued, the most logical first step is to take a copy of the lawsuit or complaint (in its entirety) to an attorney experienced in handling matters for business and corporate clients. It is critical an attorney advise you on what to do, avoid doing, and absolutely not do in response to being sued. The attorney will be reliant on your complete candor, so it is critical you disclose any and all information to your lawyer that pertains to the suit to enable him or her to prepare the best defense. There may be quick outs available to you with a responsive filing, such as a lack of jurisdiction or improper venue.

Alternatively, you may determine with your attorney that your business is likely in this suit for the long haul and put into place internal procedures for best preparing for this fight (especially preserving potentially relevant evidence). Please recognize that discarding or destroying records while you are in a lawsuit may be considered illegal even if you had no criminal intent. Speak with your attorney about your policy on record preservation and be prepared to put any shredding schedules on hold.

Step 2. Notify your Insurance Provider

The next step is to alert your business’s insurance provider. Here’s a good time to mention what should be obvious: if you haven’t explored obtaining business insurance for your company, now is the time. Meaning right now. Such as, stop what you’re doing and get on the phone today. Then, come back and continue reading this article.

Many claims will be covered by an adequate insurance policy. When shopping for an insurance provider, start by identifying the most likely types of legal issues that your business will confront. With this information, have conversations with potential suitors of your business insurance and receive confirmation that these types of claims will be covered by either your insurer’s general liability protection language or separate professional liability protections as required by your business.

If you already have an insurer and have determined the lawsuit against your company is or should be covered by your business’s insurance plan, get the information relating to the lawsuit against your company to your insurance provider ASAP. Even if your review of your plan demonstrates the lawsuit may not be covered, it’s likely worthwhile to tender the claim or have your attorney do so. But again, do so quickly. Many insurance provider include provisions in their contracts which allows the insurer to refuse to offer coverage if they’re not put on notice of the lawsuit in a very timely fashion. Assuming the complaint filed against your business is covered under your insurance plan, your coverage may include payment or partial payment of attorneys’ fees, settlement, and even contribution to (if not total payment of) a judgement if your business is found liable in the legal action.

The information above should drive home the reality that an adequate insurance policy is critical to protecting your business’s best interests.

Step 3. Consider Your Options and Decide How to Proceed

At this point, your attorney will likely be able to give you at least an initial indicator of the strengths and weaknesses in the action against your business. Recognize, however, that until you have fully engaged in and completed the discovery process (going through depositions, interrogatories and requests for documents), there will still be a lot left unknown.

For many business owners who took an idea and turned it into a fully functioning and profitable company, the mere thought of settling goes against every fiber of their being. However, lawsuits are expensive and uncertain. No matter how strongly you believe you are right, the reality is that all it takes is one judge or a select number of jurors to see the case differently and you’re looking at a significant saddle on your company’s finances.

This is the current model of the court system, and the sooner you are able to come to grips with it in your defense the sooner you can make the best determination for your individual situation. Frankly, it’s never too early to at least start considering other options available to your business in terms of mitigating the financial outlay required to see a case all the way through trial.

It is also critical that you and your attorney identify any other potential parties that may be financially responsible to either your business or the Plaintiff if the Plaintiff is successful. After you’ve identified these parties, your attorney will then coordinate bringing those parties into the suit if possible and lessening your financial exposure. Additionally, there is always the possibility that your business may have strong grounds to bring a counter-claim against the Plaintiff, which is another bargaining chip and provides greater protection should the Plaintiff bring the claim all the way through to trial. These decisions should always be done with the input of an attorney.

There are a multitude of other legal issues to consider when your business has been sued, far too many to include in one article. As an aside, those of you in the process of starting your own business or with the intention to do so in the future should be wary of using solely the services of an internet-based company to form and register your company without also consulting an attorney. The attorneys at Howland Hess O’Connell are experienced and well-versed in the field of business law and are available to assist you today.

Legal Disclaimer: The contents of this website are intended solely for informational purposes. They neither constitute nor imply an official legal opinion on behalf of Howland, Hess, Guinan, Torpey, Cassidy and O’Connell nor do they establish an attorney-client relationship of any kind. Howland Hess O’Connell encourages all readers to seek and consult professional counsel before acting upon the information contained on this site.


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