Minimizing Losses During a Business Lawsuit: What to Do

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The best way to prevent financial losses in a lawsuit is to work proactively in avoiding a case in the first place. However, no amount of careful planning and safeguarding can make your business immune to suits, especially when it comes to accidents that occur within your legal premises.

Naturally, one of the biggest concerns when it comes to business lawsuits is financial losses. If you lose the case, you likely have to pay a settlement plus damages, lawyer fees, and other legal expenses. And if you’re a small business, paying for a lawsuit can put a significant dent in your business funds—not to mention derail your cash flow entirely.

That said, it is imperative that you know how to minimize your losses in case a lawsuit comes your way. Before you get sued, here’s what you can do:

1. Get insurance

You likely already have the essential types of coverage for a small business, such as general liability insurance, workers’ compensation coverage, and commercial auto insurance. But apart from these types of insurance, it won’t hurt to have:

  • Commercial property insurance protects your business’s physical location and other property such as equipment, tools, furniture, inventory, etc., in case of natural disasters, vandalism, and other types of damage.
  • Business income insurance helps replace lost income from theft, fire, storm damage, and other covered losses. If you have to cease operations temporarily, this type of coverage can help supplement your lost revenue.
  • Professional liability insurance helps protect your finances in case you or your employees make a mistake in professional services. It is also commonly known as errors and omissions insurance.

2. Have a business attorney on standby

Hiring an attorney only when you’re already dealing with a lawsuit is one of the worst mistakes a business owner can make. For one, finding a reputable civil litigation lawyer that fits your needs and budget takes a lot of research. Moreover, the time it will take you to hire one can make it difficult for you to respond to the lawsuit promptly and accordingly.

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That said, find a good attorney and have them on standby. Aside from helping you handle business-related legal matters and make business decisions, they can easily spring to action in case someone threatens to sue your business (or already files a lawsuit against you).

3. Put all agreements in writing

Verbal agreements don’t mean anything in court. If, for example, a client sues you over mismatched expectations, you will have a hard time defending yourself if you don’t have the agreement in writing.

Ensure that all critical agreements are converted into signed formal contracts. Aside from serving as strong evidence in the court in case you get sued, having a contract that you can pull out at any time can help prevent a lawsuit from occurring in the first place; if a client has a dispute, go over the contract and reiterate its contents.

How to minimize your losses if you are already getting sued

If you already receive a subpoena or a letter of intent in the mail, it may be too late to perform the previous tips. Nevertheless, there are still a lot of ways you can downsize your financial losses from the lawsuit.

4. Gather as much evidence as you can

Having good, reliable evidence against the other party can help turn the case in your favor. With that in mind, it is imperative that you gather as much evidence as you can once you receive a letter of intent (although receiving one does not necessarily mean that the case is already going to court).

For example, if a customer sues you about a slip and fall accident, gather CCTV recordings, witness statements from employees and other customers, information about the accident, pictures of the accident site, and other pieces of evidence that may be useful for your case.

5. Avoid actions that can make the case against you worse

The actions that you take after getting a letter of intent play a significant role in the outcome of your case. That said, avoid doing things that can grow your financial losses, such as:

  • Talking about the lawsuit to friends, family, etc.
  • Speaking directly to the other party
  • Attempting to lie or hide information
  • Hiding or destroying evidence
  • Hiding or transferring assets

Not only can these actions increase your expenses, but they can also land you in deeper legal waters.

Financial loss is just one of the things that can happen to your business in the event of a lawsuit, but it is often the most impactful. To avoid or minimize your losses if you get sued, keep these things at the top of your head—even before a lawsuit occurs.

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