A Small Business Guide to Errors and Omissions

Chapter 1: Malpractice Lawsuits: The Basics
Part 4: What Kinds of Disputes Lead to Civil Lawsuits?

Because the goal of a civil lawsuit is to end a dispute between two parties, it's important to be aware of the "civil wrongs" that lead to these cases. Most civil wrongs small businesses encounter are called "torts." Torts are divided into several categories, including…

  • Property torts. Example: you are a pet groomer who specializes in show-dog styling. One day, you are working on a Pomeranian who falls off the grooming table and breaks two legs. The Pom's show days are over. The pet owner sues you not only for the cost of veterinary care (in this case, the pet would likely be considered "property"), but also $500,000 dollars in damages because the award-winning pooch can no longer work the show circuit.
  • Liability torts. Example: your business sells a product that ends up giving a customer a severe allergic reaction caused by an undeclared allergen. The customer files a lawsuit against your business. (For more information on this type of claim, read our blog post, "5 Tips for Understanding Potential Product Liability.")
  • Dignitary torts. Example: you are a freelance transcriber who tweets about one of your client's shoddy payment methods. Your client sues you for defamation, claiming that the tweet is untrue and damages his business's image. (Read more about this real-life case here: "How Commercial General Liability Insurance Can Protect You from an $82,630 Tweet.")
  • Infringement liability. Example: your small brewpub names a beer after Starbucks Frappuccino drink. The corporate coffee giant threatens to sue you for trademark infringement. (Seriously. Read "How to Protect Your Bar or Café from a Starbucks Lawsuit" for more on this story.)
  • Negligence. Example: you own a learning center that offers tutoring services for grades K-12. The mother of one of your students is angry because her daughter needs to be held back a grade. She claims you weren't doing the kind of job that is expected from a professional and is suing you for the cost of the tutoring and $150,000 in emotional damages to compensate for her child's low self-esteem. And this, friends, is an example of an errors and omissions lawsuit.

Unfortunately, small businesses are often the target of tort lawsuits. And some of the easiest claims to bring against a small-business owner are E&O claims. These lawsuits typically deal with negligence — the allegation that your work does not meet professional standards. Often, these cases turn into "he-said-she-said" arguments that cost business owners a lot of time and money.

How Can Small-Business Owners Win a Civil Lawsuit?

All defendants are innocent until proven guilty — and an Errors and Omissions lawsuit works no differently. This places the "burden of proof" on the person who initiates the lawsuit. Because errors and omissions lawsuits are civil cases, the plaintiff (your client) must prove they are "more correct" in the dispute than you are. In order to rule in favor of the plaintiff, juries are often told that they must be "51 percent sure" that you are guilty of the allegations.

Next: Part 5: How and Why to Prevent Malpractice / Professional Liability Lawsuits