December 5, 2022

Small Business Advice

Liability Insurance

Jerry Osteryoung | 3/24/2008

The good lawyer is not the man who has an eye to every side and angle of contingency, and qualifies all his qualifications, but who throws himself on your part so heartily, that he can get you out of a scrape.
— Ralph Waldo Emerson

In June 2007, an administrative law judge brought a $54 million lawsuit against a Washington D.C. dry cleaning company for a lost pair of pants. Obviously, frivolous suits like this need to be fended off, but unfortunately, the costs can be so high. Even though the owners of the store, Soo and Jim Nam Chung, were victorious in the battle, they had to close their business in order to cover the legal fees. While there is really nothing that you can do to prevent a frivolous lawsuit from popping up, there are numerous things that you can — and must — do to reduce their impact.

The first thing is to have a good lawyer either on retainer or one who is willing to represent you in the inevitable case that you get sued. Time is of the essence. As soon as you think that you might get sued, get in to see your attorney. There is so much that they can do to help you deal with the problem if they get involved early.

In addition, having a lawyer that is familiar with your industry and company is so important. The learning curve can be steep and expensive, so having an attorney with experience is worth any extra fee that this might entail.

One of the biggest things that can help reduce the financial cost of a lawsuit is having general commercial liability (GCL) insurance. While the emotional cost of enduring a suit is always going to be high, you can reduce the financial cost by having GCL insurance. Check with your insurance agent to make sure the amount of coverage is correct, and more importantly, consult your attorney about the level and types of insurance you should carry.

Additionally, employers should purchase employment practices liability insurance as riders to their GCL policies. Subject to a deducible, this kind of insurance covers the cost of defending against an employment law claim or suit.

Another way that you can help protect yourself against litigation-related risk is by using written contracts that specify goods and services being sold, disclaim warranties that are automatically implied under the Uniform Commercial Code, provide some limitation on liability (such as replacement cost of the goods) and require arbitration of disputes. In the case of the dry cleaner, the owners might have been able to avoid the lawsuit entirely had they included language of this kind on the claim check they gave to the customer when he dropped off the dry cleaning.

A final thing to remember is that when it comes to settling a lawsuit, you just cannot let your ego get involved regardless of who is right and who is wrong. We are dealing with a client who has been repeatedly sued by one plaintiff’s attorney for a number of very minor things. The client wants to take a hard position by taking the case to trial in an effort to stop the lawsuits. While the firm might win the case, the legal fees will likely exceed $100,000, and ultimately, this tactic is just not going to be a deterrent to being sued.

Lawsuits are inevitable. They are just the way our country operates. Now go out and make sure that you are protected by insurance to ensure that the impact of a lawsuit will be small.

You can do this!

Jerry Osteryoung is the Jim Moran Professor of Entrepreneurship in the College of Business at Florida State University. He is also the Director of the Entrepreneurship Program at FSU and Executive Director of the Jim Moran Institute of Global Entrepreneurship. He can be reached by e-mail at or by phone at 850-644-3372.

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