As you may have read in our post “What Happens If I’m Sued? A Guide to Handling Errors & Omissions Claims,” over half of all small-business owners have been threatened with a lawsuit. Many of those claims are baseless and dismissed before the legal process can fully lurch into action. But some of them aren’t immediately thrown out on legal grounds.
If the issue can’t be resolved out of court, small-business owners must head to trial to defend their professional reputations – and their bank accounts. Each year, lawsuits that stem from errors and omissions / malpractice claims cost small businesses $105.4 billion each year. (For more staggering statistics, read Tort Liability Costs for Small Business, a report about the high price of liability lawsuits.)
Even if you “win” your E&O lawsuit, the process of dealing with it will cost your business time – if not money. Read on to learn why.
When Clients File Errors and Omissions Claims, Small-Business Owners Pay the Price
What does it mean for a small-business owner to “win” their errors and omissions lawsuit? For now, let’s say that “winning” is any outcome other than the court finding you liable and ordering you to pay the injured party a judgment.
Even if you “win” your case, the lawsuit can still be a drain on your resources. Consider the following best-case scenarios:
- Dismissed or dropped claims. When errors and omissions claims are completely frivolous, your lawyer can convince the court to dismiss the case. Notice how we’ve already mentioned lawyers – lawyers who need to be paid for their legal counsel. Every lawsuit requires an attorney’s help so you don’t miss key legal arguments in your answer to a plaintiff’s formal complaint. If you ignore the complaint, you risk paying all the plaintiff’s demands in a “default judgment.”
- Settlements. When you and the plaintiff reach an agreement out of court, it’s called a “settlement.” Usually this involves paying less money (in legal fees, damages, and lost productivity) than you would in court, which is why many small businesses (including innocent ones) choose to settle. The National Federation of Independent Businesses (NFIB), an organization that advocates for small-business tort reform, estimates that the average cost of a liability case that goes to trial is around $100,000. The threat of six figures would persuade many small-business owners to settle. But unfortunately, attorney’s fees alone can still cost between $2,000 and $5,000 (if not more) in settlement cases.
- A verdict in your favor. If your errors & omissions lawsuit makes is all the way to a jury trial and that jury rules in your favor, you’re still on the line for court fees. Sure, in some situations the plaintiff may be ordered to pay your legal costs, but that’s not always the case. Plus, your lawyer will need to be paid. Not to mention these cases can drag out for years, consume your time and attention, and ultimately hurt your business’s productivity (and its reputation). Also, there’s always a chance the plaintiff will appeal the case and the process will begin again.
How Small Businesses Can Protect Themselves from the Cost of E and O Lawsuits
Even though an errors and omissions lawsuit can cost your business money even if you win, you don’t have to play the game alone. Small business insurance policies, such as Errors & Omission Insurance, are designed to help business owners pay for lawsuit expenses – even frivolous ones. The best new? Errors & Omissions Insurance may not cost as much as you'd think. For more on that, read our Professional Liability Insurance Cost Analysis.
To learn more, check out our blog post “Your Business Is Facing a Civil Lawsuit. Now What?”