Business Litigation: How To Avoid A Company Lawsuit

Businesses get sued. It's just the way things are. Avoiding litigation in a litigious society isn't always an easy task. Most people are unfamiliar with the reality of legal action, so they consider filing a lawsuit as a routine way to get what they want. Your best defense against these kinds of potential litigants is to be as proactive as you possibly can. 

Documented Policies 

Anything likely to upset a client or a customer should be documented and established as a written policy of your company as early as possible. You do this for the same reason a hotel puts a "no lifeguard on duty" sign by the swimming pool. Later, when you are explaining to a law firm you must know how you plan to defend yourself in court. You will at least be able to say your customer or client knew your policy ahead of time. 

Reasonable Person Test 

One of the most powerful criteria for your actions as a business owner or manager is the "reasonable person" standard. Most lawsuits have at least one claim that can be denied on the grounds that a reasonable person considering the circumstances of the situation would not side with the person or persons making such a claim. 

Evaluating your policies and lawsuit-proofing your business should start with this standard. That way even if you find yourself defending something that nobody ever dreamed would end up the subject of litigation, you will have some basis for attacking the credibility of the claim. While this won't necessarily prevent you from being sued, it will make things much less appetizing for ambitious plaintiffs. 


Most plaintiffs file lawsuits expecting to win. If you can show how suing your business is going to put them up against you and three insurance companies, they may withdraw their case on the grounds they can't afford to contend with a well-prepared defendant. 

The easiest way to cover just about everything you might be sued over is to purchase an umbrella liability policy to back up any specific insurance types (like property insurance) you might have. Such a policy can be written broadly and be designed to trigger coverage if some other type of insurance you have either doesn't apply or reaches its limits. 

Another popular insurance category is errors and omissions insurance. While this is more useful for contractors and freelancers, it can have applications in businesses with physical plants, storefronts and outside sales staff. 

It's virtually impossible to immunize a business against legal action. But that doesn't mean your company must surrender every time someone makes an idle threat. Preparing for legal action is often the best way to avoid it.

I hope you enjoyed this article about how to keep your business out of a financially damaging corporate lawsuit

Interested in more articles about risk management?

Read My Posts:

- How To Cut Through The Legal Red Tape In A Startup 

- An Overview Of Worker's Compensation

Published by Michael J Schiemer
Owner of Bootstrap Business
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