Cut Business Insurance Costs by Avoiding the Most Common Small-Business Lawsuits

25. March 2014 08:43

Man training group of employees

Many small-business owners may not realize that most lawsuits start with a small oversight. Say, for example, you didn’t train your manager on the laws governing hiring practices. If your supervisor then asks a candidate their age during an interview and doesn’t extend a job offer, the candidate can sue your business for discrimination. It’s these seemingly little mistakes that can escalate into big legal troubles.

That’s why – in addition to adequate small business insurance – your best line of defense is to be aware of how you’re exposed to potential lawsuits. When you understand the risks you face, you can take steps to mitigate your exposures. And when you implement good risk management measures, your chances of facing a lawsuit decrease.

As a bonus? A clean claims history = lower liability insurance premiums. It’s a win-win situation all around.

So in the interest of raising awareness, read on to discover lawsuits small employers may run up against and tips for preventing them:

Common Lawsuits for Small-Business Owners

Watch out for these common triggers that lead to expensive, time-consuming litigation:

1. Failure to provide appropriate training. If your supervisors or managers don’t know the circumstances that could land your business in legal trouble, you can’t be certain they won’t inadvertently make a mistake or fail to intervene when your other employees are harassing each other. If an employee is harassed or discriminated against, they could sue your business for damages. That’s why you, your supervisors, and your employees should be trained in sexual harassment, discrimination, disability, safety, employment, and wage-and-hour laws.

2. Wrongful termination of sick or disabled employees. If you have more than 15 employees, your business is subject to the Americans with Disabilities Act (ADA). In California, the state law enforces the ADA when you have five employees. Small employers can be sued if they fire employees who are sick, depressed, obese, injured, or pregnant. Even if you let an employee go for legitimate reasons, they could still threaten your business with a wrongful termination lawsuit. That’s why you’ll want to have Employment Practices Liability Insurance on hand to cover your legal costs. It kicks in when your business is sued for…

  • Wrongfully terminating employment.
  • Mismanaging employee benefits.
  • Committing sexual harassment.
  • Wrongfully disciplining or demoting an employee.
  • Committing slander or libel against an employee.
  • Discriminating based on age, gender, religion, race, or other factors.
  • Breaching of an employment contract.
  • Invading an employee’s privacy.
  • Causing emotional or mental distress.
  • Making negligent hiring or compensation decisions.

3. Worker injuries. It’s a well-documented fact that occupational injuries are a financial strain on small-business owners that don’t have adequate Workers’ Compensation Insurance. The costs associated with employee slip-and-fall accidents are approximately $168.9 billion annually (according to National Safety Council Injury Facts 2011 edition). Plus, there are lawsuits to consider. If one of your employees is injured at work, they could sue your business if…

  • They reject Workers’ Comp benefits. In some states, an employee can forego their WC benefits and sue you instead. To be awarded damages, the employee must prove your business’s negligence led to their injury.
  • The worker is not covered by your state’s Workers’ Comp law. If you employ a worker whose occupation isn’t covered by your state’s Workers’ Comp laws, the worker may sue you for damages if they are injured on the job. (Read more about your state’s laws here: Workers’ Compensation Insurance Laws by State.)
  • The injured employee’s spouse sues you for loss of consortium. If, for example, your employee sustains nerve damage because of the back injury he suffered at work, his wife could sue you for loss of consortium (marital affection).

These are only a handful of the Workers’ Compensation lawsuits your small business could face. Fortunately, a qualify Workers’ Comp policy usually includes Employer’s Liability Insurance, which can pay for your legal fees in these complicated lawsuits.

4. Miscommunication with clients. A communication breakdown is one of the foremost reasons small businesses that provide services may face Professional Liability Insurance claims. So if a client complains about your work and the problem isn’t quickly resolved – or resolved the way they wanted it to be – they may decide to sue you for the financial “losses” they suffered in paying for your services. Because these lawsuits often boil down to how your client perceives your work, be sure to keep the lines of communication open and nurture a good relationship with your clients. This extra effort can go a long way toward mitigating your liability risks. Carrying Professional Liability Insurance is always a good idea, and it can be pretty affordable, too. More on that here: Professional Liability Insurance Cost Analysis.

5. Injuries on commercial premises. Most slip-and-fall injuries are caused by slick floors. And if a visitor slips, falls, and breaks a bone, they could sue your business to recoup medical expenses and other losses associated with their injury. In addition to putting walk-off mats at your building’s entrances, be sure your keep your sidewalks free of ice, snow, and other obstacles. You may also want to install or reinforce rails to reduce the risk of falls.

Also, don’t underestimate the coverage your General Liability policy can give you. If purchased in a Business Owner’s Policy, you’ll have financial protection for premises liability lawsuits, property loss or damage, and more. Plus, you’ll pay less for your GL coverage.

Awareness + Risk Management = A Protected Small Business

Now that you know which events can lead to legal trouble, you can create a risk management plan to reduce the likelihood of these situations happening in the first place. The more robust your preventative measures are, the more you can potentially save on your business insurance policies.

For more ways to save, talk to an insurance agent about the affordable business insurance policies you may qualify for. Or if you’d rather compare business insurance rates today, apply for insurance quotes online.

This post is part of an ongoing series about saving money on business insurance. Stay tuned to learn more about how to cut your coverage costs and still keep your business adequately insured!

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