The old saying “the best defense is a good offense” is really only useful in two scenarios: war and sports. If you can outgun your enemy in those situations, chances are you can come out ahead.
But if you're a small-business owner facing a professional liability lawsuit, your best defense is preparation. Act like a lawsuit is coming down the pike and you may be ready when it actually happens. Here are three pre-lawsuit strategies you might use to maximize your odds of winning.
1. Document Client Interactions
Let’s say a demand letter hits your desk today. What would your first step be? Hopefully, you would call your lawyer and your Professional Liability Insurance provider, and both will need specific information about your relationship with the client. But if you only have your memory to work with, you’re going to have trouble presenting a cohesive defense.
“The best way to prevail in these situations is to document, document, and document some more,” says Gina Bongiovi (@LawyerGina), attorney and founder of the Bongiovi Law Firm in Las Vegas. Depending on your industry, this may mean…
- Using written contracts with every client.
- Saving receipts and invoices.
- Creating scope of work documents.
- Sending confirmation emails after phone calls and meetings.
- Recording changes to contracts and proposals.
Your paper trail is your best friend, so decide what kind of recordkeeping makes sense for your business and maintain it. While you’re at it, you might also want to hire a lawyer, says Robert Stetson, an attorney with Bernkopf Goodman LLP (@BernkopfGoodman). Attorneys are trained to find “preventable mistakes that can expose a small business, especially one without insurance coverage, to significant liabilities and litigation costs,” he says.
Pro Tip: Complicated or jargon-filled documents may actually hurt your chances in a liability lawsuit. Think about it this way: the people who decide your case – either a mediator or a jury – often have to decide what each side should have known. If they can’t follow the information in a contract, they can easily assume that your client couldn’t either.
2. Work Your Professional Liability Lawyer
You and your attorney are a team. You are the authority on your business and relationship with the client, and they are expert in the law. Both parts are essential for putting together a good defense, so work with your lawyer. Listen to their advice, and help them by:
- Disclosing all information related to the case.
- Preparing summaries and timelines.
- Responding promptly to requests.
Pro Tip: You are your lawyer’s client, even if your insurance company is footing the bill, so they have an ethical obligation to act in your best interests. That said, many small-business owners feel more comfortable hiring an their own representation. If you decide to go that route, make sure it is worth it: “Two heads are usually better than one,” says Gina Bongiovi. “But two heads can cost money.”
3. Assess the Professional Liability Lawsuit Honestly
Getting slapped with a lawsuit doesn’t feel good, and your first instinct may be to fight the claim tooth and nail. However, as Bongiovi says, “For most small-business clients, it makes sense to settle, and in most situations, we find we can mediate a dispute pretty successfully because we enter the situation objectively and without the emotion that's clouding everyone's judgment.”
That’s why Robert Stetson advises his clients to perform a cost-benefit analysis. "Take a step back and view the dispute as a business problem rather than a legal problem," he says.
You might start by asking yourself…
- How will fighting the lawsuit impact my business?
- How will settling impact my business?
- Do I have the resources for a sustained legal battle?
Pro Tip: Sometimes settling is the right thing to do, especially if your honest assessment leads you to the realization that you were at least partially in error. According to David Lilenfeld (@DavidLilenfeld), intellectual property lawyer and founder of Lilenfeld PC, "You’ve got to be able to look yourself in the mirror and say, 'I made a mistake.' And not only 'I made a mistake,' but, 'I’m going to do what I can to make it right.'"
This post is part of an ongoing series on how small-business owners can navigate the professional liability claims process as smoothly as possible. Stayed tuned for upcoming posts about filing, preventing, and defending professional liability claims.