Friday, May 9, 2014

Getting sued

     Free daily tips, information and advice for people in small business
     from someone who has been there, done that in several small operations.

     Everyone, it seems, is lawsuit happy in today's world. And it's only getting worse.

     Examples: The homeowner is sued by the burglar who slipped on the hallway rug and broke his leg. The store owner is sued by a customer who claimed that a can of beans fell off a high shelf and hit her head, resulting in continuing headaches. The computer expert is sued because the website he designed does not work as promised.

     If you are in business today, plan on getting sued. Some lawsuits are frivolous and never amount to anything other than wasting your valuable time. Others are more serious, and the likelihood of getting sued increases daily.

     What to do? How do you protect yourself, your personal assets, and your business?

     1. Separate your personal life from your business life. Make your business into a legal entity in its own right--incorporation, limited liability, partnership, etc. See a lawyer, or Google the word "incorporation" and go through the results to find something that works for you. Personally, I no longer recommend a "doing business as" or DBA type of business--it can expose you personally to anything that happens in your business.  

     2. Make sure you have a good insurance agent. The law insists that businesses carry workers comp insurance. Business-owned vehicles must carry insurance, and some businesses must post bonds for work to be done. But what about other types of coverage?

     Liability insurance is written to cover broken legs, cracked skulls and other mishaps. Make sure the amount of liability insurance you carry is consistent with a reasonable reading of today's jury awards. What is your exposure? If you are an artisan whose only exposure to the public is at art shows, this is one thing. On the other hand, if you are a shop owner where people are constantly browsing, the exposure is greater--slipping on wet floors or icy sidewalks is not uncommon. 

     Another type of liability insurance is the excess liability type. Think of it as an umbrella that protects over and above existing policies. This has become more popular as higher jury awards have occurred. 

     Flood insurance covers businesses located in flood plains. It used to be cheap, but the federal regulations have recently changed, resulting in much higher premiums. If you haven't checked it recently, it's time to call your insurance agent and get updated.

     Key person or partner insurance is a type of life insurance. Each partner is insured so that, if one partner is deceased or becomes incapacitated, the amount of insurance is sufficient to buy out the remaining partner or partners. The business can continue without being cluttered with heirs who might have other ideas about business. 

     Insurance can help you better sleep at night. A serious conversation with your insurance agent can help you decide what's appropriate in your situation. 

     Questions? I retired when I turned 75. You can email me at with your questions.
     Put BLOG in the subject line. Quick answers from my 40+ years of experience founding and running        small businesses. Your privacy is always respected. 



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