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Business Lawsuits: What to Do If You Get Sued

written by: •edited by: Ronda Bowen•updated: 3/9/2010

Many new business owners don’t anticipate a business lawsuit, but you should be prepared in case it happens to you. There are mistakes you can make as well as procedures you need to follow if you get sued.

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    Protect Your Business

    Judge Using His Gavel by IXQUICK Most lawyers will tell you that lawsuits can be expensive. The best way to protect yourself is to make sure your business liability coverage will cover your attorney expenses if you do get sued.

    Before you purchase your business liability coverage, make an appointment with your insurance broker to discuss lawsuit coverage. You will have a deductible to pay if you get sued, however, if you are covered under your insurance policy a lawyer will be hired on your behalf to defend your business and you personally. Ask your insurance broker about personal liability insurance and make sure it’s included in your policy. Often when a customer, vendor, or supplier files a lawsuit, they won’t just name your company, they’ll name you personally as well. Make sure you have enough policy limit coverage; your insurance broker can help you with this based on industry statistics and the type of your business.

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    Vendor & Supplier Agreements

    If you enter into vendor or supplier contracts, make sure a mediation clause is included. If a mediation clause is contained within your agreement that means if you do get sued by a vendor or supplier they agree to mediation first to come to an agreement. Mediation or arbitration clauses can prevent the expense of a business lawsuit.

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    If You Do Get Sued

    Getting sued is never fun and whether you offer a product or a service, you have a chance someone may jump on the lawsuit wagon. Even if you think a customer or vendor has no cause to sue you, they will still be able to find an attorney willing to take the case.

    Most new small business owners make the mistake of attempting to contact the customer who filed the lawsuit. If you’ve received correspondence from an attorney, it’s time for you to contact your insurance broker and inform them of the lawsuit or legal issue. From that point, the insurance company will hire an attorney to represent you and your business.

    Try and refrain from calling the person who filed the lawsuit and make sure you give your lawyer the name of the attorney who filed the suit. Once you hire an attorney or are appointed an attorney by your insurance company, the person who filed the lawsuit has no right to contact you nor do you have the right to contact them. The attorneys will contact each other during the lawsuit.

    Ignore nasty phone calls from the customer as hard as that may be. Don’t try and offer the customer a resolution once a lawsuit has been filed; that’s your attorney’s job. Never send emails or any type of correspondence to the individual filing a suit against your company. Emails, written correspondence and telephone conversations without your attorney’s go-ahead can often be detrimental to your case.

    If you own a franchise and are sued, contact your manufacturer representative to assist you in your defense. Most franchisors have arbitration or mediation clauses for the products they sell.

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    Review Your Business Liability

    It’s good to give your product or service a review now and again to ensure you are selling or servicing your customers with quality and assurance. Meet with your insurance broker during your annual policy renewal process and ask for their input based on prior year claims.

    Never make the mistake that your business can’t be sued. If you’re prepared upfront with the correct liability insurance coverage as well as an annual quality assurance process, you and your business will be protected from unwanted business lawsuits.