We have all heard horror stories of ridiculous, frivolous lawsuits against a small business. Reading news reports of some cases can leave us shaking our heads in disbelief. Business Insider published a list , “Top 10 of the Most Ridiculous Lawsuits of 2013” and some of the claims made by the plaintiffs might shock you.
Coming in at No. 1
Prison inmates in Idaho sued eight breweries because they believe they were improperly warned about the dangers of alcohol and argued that since alcohol played a role in their poor judgment that led to committing various crimes, the brewers are responsible.
Other notable frivolous lawsuits against a small business that made the list include a graduate student suing her school over a poor grade, two men suing Subway for its footlong subs coming in one-inch shy of a foot, and a man suing his parents for not mortgaging their home in New York to help him open a pizza franchise.
While many frivolous lawsuits against a small business are dismissed, some slip through the system and make their way to high courts. Other cases, even if they are dismissed or ruled in the favor of the business owner, still have the potential to rack up costly legal fees and affect a business’ production.
Not-So-Frivolous Lawsuits are a Threat, Too
In a perfect world, a legal entanglement would only arise if someone intentionally did something wrong. Unfortunately, an unintentional lapse in judgment or an honest mistake can affect one’s business assets and in some cases, personal assets as well. For example, The Cook County Record published an article  regarding a claim filed against a restaurant for serving food containing shellfish.
The plaintiff, who has an allergy to shellfish, is suing the establishment for $50,000 in damages plus legal fees. While it is unknown whether the restaurant is actually negligent, this case could easily amass tens of thousands of dollars in legal fees before a court ruling.
The threat of a lawsuit to your small business is real. Over 100 million cases are filed in US state courts every year costing business owners upwards of $91,000. It’s important now, more than ever, that businesses understand what liability insurance is and how it can help prevent frivolous lawsuits against a small business.
What is Liability Insurance?
Liability insurance is a specific type of business coverage that protects against events such as property damage, personal injury, bodily injury, false advertising, and slander or libel. This type of insurance covers your legal responsibility to a third party as well as legal fees and settlements.
In the event of a personal injury suit where medical and legal bills can stack up, liability coverage can certainly offset significant losses and debt. Liability insurance, in addition to the legal protection of an LLC or other forms of incorporation, helps entrepreneurs protect their personal wealth and financial assets from lawsuits, too.
How Business Liability Insurance Can Help
The Small Business Administration encourages business owners to evaluate their legal risks and consider purchasing liability coverage for additional protection, especially those who operate within the service, hospitality, and retail industries.
When an entrepreneur takes out business liability coverage, it is a precautionary measure that offers financial protection if legal issues related to liability arise. Since liability can also pierce the “corporate shield” and affect the personal assets of business owners, this type of coverage protects businesses and personal wealth.
How to Shop for Liability Insurance
According to  Trusted Choice, an organization that represents independent insurance agents, if a business is shopping for liability insurance, it may be a good idea to follow these simple tips:
- Review the insurance company’s financial standing
- Know what coverage limits you’re buying, and what they mean
- Know how your policy treats legal costs
- Know what the insurer requires you to do if you receive a claim against your business
The founders of the Web consulting firm Less Everything can testify  to the importance of professional liability coverage. According to their business guide, a former client was sued for various liability claims and the settlement cost thousands of dollars.
The lesson learned: Bite the bullet. Buy liability insurance.
It should only cost you a couple hundred dollars a year. You’re buying peace of mind. If you do business long enough, you will be sued.
Purchasing liability coverage really boils down to the wise concept of preparing for the worst and hoping for the best in order to prevent frivolous lawsuits against a small business.
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