Chapter 3: Potential Outcomes in Errors and Omissions Lawsuits
Part 3: Why Winning an E&O Lawsuit Still Costs Money
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 being found liable to pay whatever the plaintiff requested 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 faultless 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 persuades many small-business owners to settle.
- A verdict in your favor. If your Errors and Omissions lawsuit makes it 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. Plus, 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.
$100,000 = the average cost of a liability case that goes to trial.
How Small Businesses Can Protect Themselves from the Cost of E&O Lawsuits
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 and Omissions Insurance, are designed to help business owners pay for lawsuits — including frivolous ones.
If you are interested in purchasing this coverage, contact an insureon agent. An agent that specializes in serving your industry will gather quotes from several top insurance providers and deliver them to your inbox — usually within 15 minutes.