How to Avoid a Business Lawsuit Before it Costs You a Million

Paying attorney fees, and spending hours in endless depositions, discovery sessions, and trial is enough to strike fear into any entrepreneur’s heart.

Just the thought of paying thousands in attorney’s fees and the possibility facing jail time can drive anyone mad.

But knowing how to dodge the drastic effects of a lawsuit will help you avoid the agony, bad publicity, and outrageous costs that come with it. Here’s how.

5 Simple Rules to Avoid an Ugly Lawsuit

1. Provide Good Customer Service

California-based i3 Brands Inc. filed a lawsuit for $1 million in damages against Rackspace Hosting, the web-hosting company that handles their e-Commerce website.

The lawsuit claims Rackspace had inadequate and non-existent security,” which led to server crashes and security breaches, causing i3 to lose lots of customers.

Whether Rackspace was really negligent is up for debate, but there’s a big chance they could’ve avoided this lawsuit if they were proactive in helping clients solve their website problems.

For service providers, a well-trained customer service team is often enough to solve most customer complaints. Having FAQ pages, guarantees, and refund policies ready also help business owners avoid lawsuits about their products and services.

2. Maintain Professionalism

Stay quiet if you have nothing good to say. This might sound simplistic to you, but it can save you from reputation damaging lawsuits.

Keep negative remarks about co-workers, employees, customers to yourself to avoid harassment cases, sexual claims, and discrimination lawsuits.

If an employee reports a harassment or discrimination to you, don’t ignore it. You’re just as liable and guilty in the eyes of the court if the employee can prove that you didn’t take appropriate action.

3. Safety First

Craig Walters slipped on a crushed fruit in a Kroger store in 2008. The accident resulted in a serious spinal injury, which led Walters to file a slip-and-fall lawsuit against the grocery chain. After proving the store was negligent, Gwinnet County Court awarded Walters a $2.3 million settlement.

With premise liability law, customers, trespassers, and vendors who supply your goods are protected from accidents in your business premises. Employees, on the other hand, are covered by Workers Compensation law, which protects employees from shouldering the financial costs of work-related accidents.

Settlements for accidents like this can range from as little as $6,000 to $12 million or more. But whatever the amount, and whatever size your business is, I’m sure you’ll agree that paying for a settlement is expensive, especially if it could’ve been avoided in the first place.

You can easily avoid accident-related lawsuits like this by keeping your store and office premises clean. Investing in safety signs, surveillance cameras, equipment maintenance checks, and quality control checks will pay off in the accidents and lawsuits you avoid.

4. Stay True to Your Word

Charlie Smith bought a Dell computer in 2006 and paid for extra warranty that supposedly includes at-home services. But Smith didn’t receive the extra warranty he paid for when Dell refused to send a technician to his address, and asked him to pay $100 extra for supposed software issues.

Another customer, Casey Henry, got a zero-interest deal for $1150 Dell desktop. But Dell changed it from zero to 27% for some reason. According to Henry, Dell refused to refund the purchase or give her the original zero percent deal, and offered her a $200 refund instead.

Because of numerous complaints, Andrew Cuomo, then New York Attorney General, filed a lawsuit against Dell and Dell Financial Services. The lawsuit alleged that Dell fraudulently raised interest rates, failed to send technicians to customers who purchased at-home services, and a bunch of other dishonest business tactics.

Staying true to your word will help you avoid different types of lawsuit, including breach of contract cases, which are expensive. Insurance providers consider contract breaches as an avoidable risk, so they usually don’t cover it.

5. Get the Right Insurance

Having the right insurance can protect you from legal disputes, even in a lawsuit you lost.

List everything—business and personal assets—you stand to lose if a lawsuit goes bad. Then check your current insurance policies to see if you have sufficient protection. If you don’t, the following types of insurance can give your business added protection:

  • Property Insurance: protects business assets from theft, fire, storms, and other insurable events.
  • Liability insurance: protects your business from expenses and lawsuits arising from premise liability lawsuits, malpractice claims, and negligence claims.
  • Product liability insurance: covers you against any claims related to the injury or wrongful death connected to the use of your product.
  • Worker’s Compensation Insurance: is a mandatory insurance in many states. It provides medical coverage, disability benefits, and death benefits to employees who suffer an accident as part of their work for you.

Consider an Alternate Dispute Settlement (ADR)

If you really can’t avoid a lawsuit, try resolving the case through an alternate dispute settlement with the help of an attorney.

ADRS are increasingly gaining popularity as a means to resolve lawsuits outside of court. ADR processes like mediation and arbitration are often less expensive methods to solve business legal problems, such as:

  • Contract and partnership disputes
  • Debts disputes
  • Warranty, refund, repairs, and other product complaints
  • Accidents and employee liabilities

An experienced attorney can advise you on how to act in the event of a lawsuit, or negotiate a lower settlement amount on your behalf through an ADR. This will save you from paying expensive court fees, attorney hourly rates, and a bunch of other charges.

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