When a small business is served with a malpractice (aka “errors & omissions”) lawsuit – one that makes accusations about its professional services – owners often see a mountain of debt looming in the distance. A lawsuit can force business owners to take time off of work and lose productivity, not to mention the lawyer’s fees, court fees, and the cost of possible settlements and judgments.
(To learn more about malpractice, read “What is Malpractice?” on our blog.)
Since most small businesses don’t have large sums of cash in reserve, the prospect of a lawsuit can be terrifying. Where will you get the money? Usually when people don’t have enough money to make a big purchase, they can apply for a loan. There are such things as “lawsuit settlement loans,” but unfortunately, they aren’t for the people defending themselves against a lawsuit. Read on to learn more
Why Can’t Small Business Defendants Get a Lawsuit Settlement Loan?
Lawsuit settlement loans are designed to help plaintiffs pay for legal disputes when they’ve run out of funding for their case. Generally speaking, a plaintiff (the person bringing the lawsuit) can only receive this kind of financing when the case is likely to settle (or already in the process of settling) in the plaintiff’s favor.
(To learn more about settlements and lawsuits, read “Understanding Malpractice / Errors & Omissions Lawsuits” on our blog.)
Legal finance companies – the institutions that offer these loans – only “make bets” on plaintiffs they are pretty sure will help them make a return on their investment. In fact, legal finance companies insist that they offer “lawsuit funding” not “loans,” because if a plaintiff loses the case, they don’t have to pay back the money.
That’s the main reason why third-party companies won’t finance a defendant’s lawsuit – defendants (the person who the lawsuit was brought against) don’t ever stand to win money! There’s nothing in it for investors.
Before you start worrying that your clients, customers, or patients are plotting to destroy your business with a wallet full of Big Corporate Cash, consider the following:
- Settlements loans can only offer money. They can’t help plaintiffs find a lawyer or give them legal advice.
- Settlement loans are only offered to certain plaintiffs, such as those entangled in high-dollar personal injury cases (e.g., a plaintiff sues a drug company for adverse reactions to medication).
- Lawsuit funding can be a pretty shady business. Since the funding technically isn’t a loan, most states don’t regulate it as a loan. This means finance companies can charge extremely high interest rates and demand short repayment periods.
- Most plaintiffs don’t qualify for lawsuit funding. Remember, these finance companies only take on “watertight cases” that they are pretty sure will make them money. If your client or customer is filing an unmerited lawsuit, there is no way a finance company will offer to fund their case.
Of course, small-business owners need not be on their own when it comes to financing malpractice / errors and omissions lawsuits. That’s what Errors & Omissions Insurance is for.
How Small Businesses Can Finance an E&O Lawsuit
You may not be able to convince wealthy (and often corrupt, according to this New York Times article) investors to float your E&O lawsuits – but you don’t have to. Insurance products, such as Errors and Omissions Insurance (aka Malpractice or Professional Liability Insurance), were designed to absorb a business’s legal costs when it is faced with a lawsuit.
For a monthly fee, you can protect your business with E&O Insurance. In the event that your business is sued for malpractice or professional negligence, you will pay a deductible in order to unleash the protection power of the plan. This includes compensation for expenses such as…
- Lawyer’s fees.
- Legal investigation.
- Court costs.
Plus, most E and O policies help you find a lawyer and manage your defense. Take that, questionable settlement funding!