Running a business requires some taste for risk. Sure, all small business owners know that there’s never a guarantee that a venture will succeed, and most are ready for that possibility, as unsavory as it is. But few business owners anticipate getting sued—even though it’s a reality for many.
Unfortunately, when a small business owner gets involved in a lawsuit, the financial impact can be devastating. Attorney fees alone can cost thousands of dollars, and those big numbers only increase depending on the complexity of the case.
Although small business insurance is a necessity to help pay for these legal costs, as a small business owner, you’ll also want to be aware of the incidents that lead to lawsuits in the first place. These five lawsuits are the most common that small business owners encounter. If you know about them, you can help prepare yourself—and hopefully avoid them outright.
1. Third-Party Injuries
If, for example, a client slips on a wet floor at your business and is injured, their medical expenses are your responsibility. (Yikes.) Depending on the severity of the injury, the business owner could be sued to pay for the client’s:
- Medical bills
- Physical therapy/rehabilitation costs
- Lost wages while they’re out recovering
These lawsuits get expensive quickly, which is why most business owners carry general liability insurance. This policy can pay for legal expenses related to third-party injuries.
2. Employee Injuries
Occupational injuries and accidents are often both unpredictable and costly. When employees are hurt at work, small business owners need workers’ compensation insurance to cover employee medical expenses and partial lost wages.
Many states require employers to purchase this policy as soon as they hire their first worker. However, even if it’s not required by law, it’s still a good idea for businesses to protect employees and business operations with this coverage. Otherwise, injured employees could sue to pay for their medical bills.
3. Defective Products
No matter where a small business falls in the chain of commerce—manufacturing, distributing, or selling—it can be held responsible for the physical harm that products cause. Whether it’s a faulty chair that breaks and injures a customer, or a food product that caused an allergic reaction, a consumer can sue over the related medical expenses and damages.
Product liability insurance, which is typically included in general liability policies, can pay for lawsuits related to claims of defective products. It can also pay for attorney fees, the injured party’s medical bills, and any settlements against a business.
4. Breach of Contract
If a business signs a contract with a client to provide services, and then doesn’t make good on that contract, they could be on the receiving end of a lawsuit. It could be sued for:
- Delivering late or incomplete work
- Not meeting the terms of the project
- Not completing the work at all
Although professional liability insurance can cover lawsuits over professional errors, it might not cover breach of contract. Coverage varies from carrier to carrier. So, you’ll want to check with an insurance agent to confirm if a specific liability insurance policy can address this kind of lawsuit.
5. Discrimination and Wrongful Termination
Discrimination lawsuits can take many forms, but most often, they involve employees are who face discrimination on the basis of their:
- National origin
Federal laws prohibit these types of discrimination, so whether a worker was racially insulted or a supervisor behaves inappropriately toward an employee, these incidents are the business owner’s responsibility to mitigate and correct. Even if that happens, an employee can still sue for damages.
These federal discrimination lawsuits can extend to job applicants, too. For example, if a 50-year-old woman isn’t hired for a job, she could file a lawsuit claiming she was discriminated against because of her age and sex.
Many small businesses don’t have an HR department, which makes them especially vulnerable to these claims. Employment practices liability insurance offers protection by paying for legal costs associated with discrimination and wrongful termination lawsuits.
Helping to Protect Yourself from Lawsuits as a Small Business Owner
Although you can never predict the future—if only—you can certainly take steps to prevent certain surprises. Making sure you have the right small business insurance policies and knowing exactly what they do (and don’t) cover will mitigate costs you could save in the event of a lawsuit down the line.