You’re Being Sued: A Guide to Handling a Business Lawsuit


    You hoped it would never happen, but in the back of your mind, you knew it could: Your small business is being sued. Now what?

    Whether it has been filed by an employee, client, vendor or even another business, a lawsuit against your company will likely cost you a lot of money, whether you win or lose. It’s normal to feel overwhelmed, upset and indignant, but if you want to keep your business and its reputation intact during this time, it’s important to handle every step of the process carefully.

    Business News Daily spoke with legal, human resources and insurance experts to compile a step-by-step guide to help you through your lawsuit, along with critical mistakes to avoid along the way. Please note that this article does not replace professional legal counsel, and if your business is being sued, we urge you to consult an attorney before taking any action.

    The first thing you should do when you receive the suit papers is review them carefully with an experienced business lawyer. Attorney Braden Perry of Kennyhertz Perry advised checking the caption and service information on the lawsuit to ensure that it contains the proper entity or person associated with the issues. If this information is incorrect in any way, you may move to dismiss the action in its entirety, Perry said. If it is correct, you should proceed with reviewing the allegations and put a litigation hold, or preservation order, in place. This requires the company to preserve all data that may relate to the legal action.

    “It is extremely important that you preserve all records that have any relationship to the case, no matter how tangential,” said attorney Krishna Narine of Meredith & Narine law firm. “Such records include documents, electronic material, such as email and web pages, photos, videos and voice messages. If you have a document destruction policy, suspend it until you have consulted with your lawyer. In addition, if appropriate, take pictures and/or video and be sure to include identification of the time and date of those images.”

    Many of our experts reminded business owners that anything they say regarding the lawsuit can be used against them. For this reason, you should not attempt to contact the plaintiff before you’ve thoroughly reviewed the suit. From there, all communications with the opposing side should be conducted through your law firm and the plaintiff’s.

    “Once a lawsuit has been filed, you should not communicate with the plaintiff at all,” said John R. O’Brien, a Chicago-based attorney. “The time for talking things out and resolving issues amicably ended when they filed suit, so all communication should be through your company’s attorney.

    If the plaintiff is someone that you must communicate with – a current employee or another company that you have an ongoing business relationship [with] – you should make clear that you will not discuss the lawsuit with them.”

    A variety of business insurance policies exist to cover companies in the event of a lawsuit. Ted Devine, CEO of online small business insurance agent Insureon, said third-party injury claims and accusations of defamatory remarks about a competitor are typically covered by general liability insurance. Client allegations that your work caused them a financial loss are often covered by a professional liability policy. Suits from employees may be covered by employment practices liability insurance or employer’s liability insurance, which is included in some workers’ compensation policies.

    “Should the suit fall under the umbrella of what your policy covers, it’s common for your benefits to pay for attorneys’ fees, court costs and any settlement or judgment you’re found liable for paying,” Devine said.

    If you believe one of your current policies covers the suit, get in touch with your insurance provider as soon as possible.

    “Most insurance policies require that suit papers be promptly forwarded to the insurer … to preserve any insurance coverage,” said David Turner, a partner at Schulten, Ward & Turner. “If the suit is covered, the insurer or counsel retained by the insurer will defend the lawsuit.”

    Turner noted that companies should keep their general counsel advised of any claims against them, even if an insurance company is involved in defending the case.

    Certain types of lawsuits may indeed be covered by a general liability policy, but do not operate under the assumption that this case is covered. Turner advised business owners to consult with their insurance provider to confirm whether or not the lawsuit is covered, as the specific circumstances of the suit may exclude it from the policy.

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