Insureon Blog

Small Business Brings $65k Lawsuit over Negative Online Review

20. April 2015 08:02

defensive dog

For small businesses, review sites like Yelp, Angie's List, and TripAdvisor are double-edged swords. On one hand, a glowing online review can bring new customers rushing to your door through the power of word-of-mouth referrals. On the other hand, a negative review could send potential customers to a competitor's waiting arms.

So maybe it's not so surprising that a small-business owner might have a strong reaction to a negative online writeup. Some even file lawsuits over one-star reviews.

The Washington Post reports that Colleen Dermott, the owner of Dog Tranquility (a dog-training business), is suing a client for leaving a bad review on Yelp about how her dog allegedly didn't receive the socialization training she paid for and didn't get a refund. Dermott is seeking $65,000 in damages, claiming the false statements harmed the business.

It's not the first time this kind of lawsuit has happened:

Regardless of what becomes of these lawsuits, they can teach you a thing or two about defamation, which policy covers a defamation lawsuit, and how to handle negative reviews.

Defamation: Nothing to Woof About? I Beg to Differ!

As we mentioned in the post "Roger Clemens' 7-Year Defamation Suit Covered by Insurance," defamation refers to false statements that harm the reputation of another person or entity. Defamation usually takes the form of:

The key word here is "false." A statement can't be defamatory if it's simply the unsavory truth. However, "truth" can be hard to pin down in these online review lawsuits because the reviews are opinion-driven.

Ostensibly, a court might agree that a public negative opinion of a business can be defamatory because of opinions are subjective. By contrast, a court might rule to protect the First Amendment Rights of the online reviewers.

Which Policy Covers These Doggone Defamation Lawsuits?

If your business faces a defamation lawsuit, you'll want to have your General Liability Insurance handy. This is the only business insurance policy that can cover advertising injuries, such as…

In Dog Tranquility's case, though, General Liability Insurance won't cover the lawsuit. That's because a business can only draw on GL's coverage when someone sues it for committing advertising injuries. You can't use any liability policy to bankroll a lawsuit you initiate against another party.

For more on how advertising injury works for small businesses, check out our eBook Tweet or Twibel: The Small-Business Owner's Guide to Advertising Injury.

Tips for Staying Out of the Defamation Doghouse

Even if the owner of Dog Tranquility wins the lawsuit, the ordeal might still cost a pretty penny in terms of lost productivity, lawyers' fees, and other court costs. Plus, the lawsuit itself might make future clients nervous about doing business with someone who sued a former client.

So if you start seeing red over a less-than-stellar online review someone left about your business, try these pre-lawsuit strategies to try to rebuild your reputation:

  1. Submit a complaint to the online review site if the review is false or misleading.
  2. Contact the customer and attempt to resolve the problem by offering a solution (e.g., a refund or free session).
  3. Keep all correspondence with customers professional and friendly.
  4. Document your interactions with unhappy clients in case litigation becomes your only recourse.

Proactive reputation management can also help you minimize the impact of negative reviews in the first place. Don't have time to watchdog what others are saying? There are service providers that can take that work off your plate, such as Reputation Rhino

Remember, there's no insurance policy that can cover lawsuits you initiate. Exhaust all your options before taking (or threatening) legal action over false statements.


Advertising Injury | General Liability Insurance | Insurance Terms Explained | Small Business | Small Business Risk Management | Tips for All Small Businesses

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