What Steps to Take if Your Business Is Sued

If your small business is sued, it can be an overwhelming and difficult process. A lawsuit may be filed against your business by another business, vendors, clients, or employees. However, regardless of who filed the lawsuit, or if you win or lose the case, the situation can cost you a lot of money.

While facing a lawsuit can be challenging, there are steps you can take to protect yourself and your business venture. Keep reading to learn what those steps are.

1. Review Your Case with a Business Attorney

When you receive the lawsuit paperwork, you need to review them carefully with a business attorney. It is important to check the caption and the service information to include the proper person or entity associated with the situation.

If the information is inaccurate, you should ask your attorney about making a move to dismiss the entire action. If everything is correct, move forward and continue to review the allegations. At this point, it is also necessary to put a preservation order or litigation hold in place. With this, the company must preserve all the information and data that relates to the legal situation.

You must take steps to preserve all records related to the case, regardless of how unrelated they may seem. Examples of the records you must keep track of include electronic material, documents, videos, voice messages, photos, and web pages. If you have a policy in place related to document destruction, now is the time to suspend these actions. Talk to your lawyer, who will let you know when you can move forward.

2. Avoid Communicating with the Plaintiff Directly

The only time you should speak with the plaintiff is during the trial when a judge and court reporters PhoenixOpens in a new tab. are present. Even then, it is best to leave communication with your attorney.

Remember, anything you say to the other party may wind up being used against you. As a result, it is best to avoid contacting the plaintiff completely.

After the lawsuit is filed, eliminate all contact with the individual. At this point, the time to resolve things amicably has passed. If the plaintiff is a person that you have to communicate with – such as another company you have an ongoing relationship with or your employee – be sure to make it clear that you will never discuss the lawsuit with them.

3. Let Your Insurance Provider Know About the Complaint

Multiple business insurance policiesOpens in a new tab. are in place that will cover your business if you have a lawsuit filed against you. Your general liability insurance policy usually covers a third-party injury claim and an accusation of defamatory remarks about a competitor.

Any client allegations that the work you provided resulted in a financial loss that can be covered by a professional liability policy, as well. A lawsuit filed by an employee may be covered by your employer’s liability insurance policy or by an employment practices insurance policy, which is often included with a workers’ compensation policy.

If your insurance policy covers the lawsuit, it will likely cover court costs, attorneys’ fees, and the judgment or settlement you are ordered to pay (if any). If you think you have a policy that may cover the suit, be sure to contact your insurance provider right away.

Most of the policies offered today require that the lawsuit papers be forwarded to the insurer right away. If the lawsuit is covered, then the retained counsel or insurer will work to defend the case.

Any business must keep its general counsel aware of claims filed against them, even if the insurance company is working to defend the situation.

4. Never Assume Your Insurance Will Cover the Lawsuit

While your general liability policy will cover some lawsuits, you should never assume this is the case. You need to consult with your insurance provider to determine if the lawsuit has been covered because the exact circumstances of the situation may result in it being excluded from the policy or situation.

5. Figure Out How to Proceed or Respond to the Complaint

When you receive notification of a lawsuit, you will be given a deadline to respond in writing. Usually, this must be done within 30 days; however, it can vary from one state to another. Your answer needs to include denial or admittance to each allegation, defenses, and counter or cross-claims, and if you prefer to have a jury trial or a different resolution.

Before responding, there are several things to consider.

You need to make sure you fully understand the nature of the claims made against you and the exposure and liability to your business. This will help you make a smart business decision regarding how to move forward. Litigation costs can go up quickly, so if the claim is just for money, or if there is a non-monetary method to settle the dispute, it may be a good option for your business.

It is a good idea to talk to your lawyer to make sure you understand the litigation plan and possible exit strategies. They can also help you know the costs at various stages of the legal process. You need to talk about if it makes sense to offer a different dispute resolution if that is possible.

Make sure to discuss the pros and cons of moving forward with the lawsuit. While you may not be to blame or may not have violated any laws, you may still need to settle – this could be in the best interest of your business.

The amount of insurance coverage you have could impact the options you have for a resolution, too. For example, if you have a claim that is not covered, it is necessary to find out how much it will cost to build a defense and to pay the judgment if you happen to lose. Sometimes counterclaims may be beneficialOpens in a new tab., too.

Talk to your attorney to find out if you have any other options. For example, if you have a customer suing you because a product was not delivered on time or because it was defective, it may be a supplier that actually caused the problem. Your attorney will be able to get to the bottom of the issue and ensure the right steps are taken to ensure a successful outcome to your case.

6. Never Ignore a Lawsuit

If you do not respond to a lawsuit within the specified amount of time, the plaintiff in the case may file a Request for Default. This means they win the case, and the judgment the court determines will be enforced. You can avoid finding yourself in this situation if you take the right steps and respond to the lawsuit within the specified time period.

7. Find an Attorney to Handle This Legal Situation

When it comes to your legal rights, there are many things you must consider. The information here will help you make the right decision, regardless of what is going on or the potential consequences you and your business face. Being informed and knowing what to expect are the best ways to handle any legal claim. Keep this in mind as you approach your lawsuit and take steps to protect yourself and your business during the legal proceedings that will follow the case’s filing.

Steve Todd

Steve Todd, founder of Open Sourced Workplace and is a recognized thought leader in workplace strategy and the future of work. With a passion for work from anywhere, Steve has successfully implemented transformative strategies that enhance productivity and employee satisfaction. Through Open Sourced Workplace, he fosters collaboration among HR, facilities management, technology, and real estate professionals, providing valuable insights and resources. As a speaker and contributor to various publications, Steve remains dedicated to staying at the forefront of workplace innovation, helping organizations thrive in today's dynamic work environment.

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