By Maria Valdez Haubrich
If you think lawsuits against businesses only happen to big corporations, think again. According to statistics released by Bolt Insurance Agency, more than half (57 percent) of lawsuits affect companies making less than $1 million in revenue, and one out of every three small business owners has been sued or threatened with a lawsuit.
Even if your small business is not at fault and wins the suit, the cost of defending yourself can seriously deplete your business bank account or, in some cases, even be enough to put your company out of business. According to the statistics cited by Bolt, small businesses’ out-of-pocket costs related to lawsuits top $35.6 billion annually. Aside from the financial costs, nearly three-fourths of small business owners (73 percent) report that a lawsuit hurt their reputation and creditworthiness; 74 percent say it led to an increase in the cost of their products or services; and 71 percent say it forced them to cut back on hiring.
What if the worst happens and you actually are found liable? The average amount that juries award to plaintiffs in a consumer product liability lawsuit is $279,309; in a commercial product liability lawsuit, it’s $725,000; and in a medical, industrial or construction product liability lawsuit, it’s more than $1.25 million.
One area of particular concern for small businesses is employment-related lawsuits. The number of harassment claims (related to issues such as age, sex and disability) has risen by 25 percent since 2006.
The reality is, no matter what your business does (or doesn’t do), you are at risk of a lawsuit. How can you lessen that risk? Of course, buying liability insurance is one good way, but Bolt offers some other tips:
- Be prepared. Don’t assume a lawsuit can’t happen to you. Honestly assess risk areas in your business. (An insurance agent, your attorney and/or your HR team or consultant can help here.)
- Put things in writing. Don’t close deals on a handshake. Always have signed contracts in hand before starting work for new clients. Also create employment contracts for use when hiring new employees.
- Don’t ignore employee complaints. When a minor grievance between employees turns into a harassment claim, it’s often because the boss doesn’t take the complaint seriously. Investigate all complaints by your employees and document what you find. Talk to your attorney if you have concerns about a situation escalating.
- Don’t be penny-wise and pound-foolish. If you’re trying to save money by not buying insurance, or by not having your attorney create contracts or review documents, you could pay the price later.
Image by Flickr user Wikileaks Mobile Information Correction Unit (Creative Commons)