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Five Litigation Secrets

These tips can help keep your business out of court -- or possibly help you win if you get there.

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Opinions expressed by Entrepreneur contributors are their own.

Q: Why do lawyers love to go to court?

A: Because lawyers always get their money, even if theirclients lose theirs.

All joking aside, I'm sure that few business owners woulddispute the fact that being in court is a very costly "civicslesson"-not only in terms of the legal fees involved, but alsothe potential judgment or settlement that the business may have topay. On top of that, another huge cost that many business ownersare unaware of is that the litigation process robs you of valuabletime, attention and mental energy that you could otherwise use forrunning your business.

With that in mind, here are five litigation secrets that canhelp your business stay out of court-or at least increase yourchances of coming out on top if you have to go there.

1. Insert a "If I win, you must pay my attorney'sfees" clause in all your business's forms, contracts andagreements. It's a big shock to many entrepreneurs whenthey discover that the law will usually not allow them torecover their own attorney's fees from the other side even ifthey win! However, if you have a "loser pays" clause inyour business's forms, contracts and agreements, then the lawin many states will allow you to recover your own attorney'sfees from the other side if you win. What's more, the threat ofhaving to pay your attorney's fees may be enough to forestallfrivolous lawsuits and get the other side to settle for areasonable amount before the dispute ends up in court.

2. Insert a "binding arbitration" clause in yourmajor or important contracts and agreements. In many states,both sides can avoid the courthouse altogether if they have alreadyagreed to submit a dispute to binding arbitration rather than go tocourt. Many times, arbitrations of disputes are faster and lessexpensive than going to trial in court. And arbitrations areprivate matters that, unlike lawsuits, are not open to public orpress scrutiny.

3. If you are threatened with a lawsuit, check with yourinsurance agent to see if the dispute or lawsuit may be covered byyour business insurance policy. Many business owners areunclear as to what exactly is and is not covered by their businessliability insurance policy. Rather than just assuming that adispute or lawsuit is not covered, it's a great idea to checkwith your business insurance agent. If the dispute or lawsuit iscovered by insurance, then typically the insurance company isrequired to pay for the legal fees in defending the lawsuit as wellas any judgment or settlement that is within the policy limits.

4. Purchase additional liability insurance in advance tocover likely business risks. While business liability insurancemay cover a lot of territory, it doesn't cover everything. Thelast thing you want to find out after you've been sued is thatyou could have purchased additional insurance to cover thatspecific type of dispute. For example, if your business has a highturnover of employees and is likely to be the target of a suit foremployment discrimination, you should investigate purchasing whatis often known as "employment practices liabilityinsurance" to cover that specific type of issue. Similarly, ifyour business engages in a high volume of advertising, then youshould investigate purchasing "advertising practices liabilityinsurance" to cover claims in that area.

5. Insert a "limitation of liability and damages"clause in your important contracts and agreements. If you aredealing with another business, the law in many states makes itpossible to have a clause in your contract that actually limits theamount of liability and damages that you may have to incur ifsomething goes wrong. Let's say, for example, your businesssigns a $10,000 contract to install a computer system. In thatcontract, there is a clause that limits your liability to acts ofgross negligence and further limits the amount of damages yourbusiness could be sued for to $10,000. While the other side may notnecessarily agree to these types of limitations, it is certainlyworth it to ask for them in your contract negotiations.

Now that you know the five litigation secrets, you should alsoknow that implementing these is not a do-it-yourself project. Youshould discuss these with your attorney and/or insurance agent toensure that you can take advantage of these secrets in yourstate.

But don't delay. These litigation secrets can save you time,aggravation and money-but only if you have put them in place priorto going to court, not after.

Note: The information in this column is provided by theauthor, not Entrepreneur.com. All answers are general in nature,not legal advice and not warranted or guaranteed. Readers arecautioned not to rely on this information. Because laws change overtime and in different jurisdictions, it is imperative that youconsult an attorney in your area regarding legal matters and anaccountant regarding tax matters.


Chris Kelleher is an award-winning small-business advisor andattorney and the founder of The Law Firm For Businesses, a boutiquelaw firm that helps entrepreneurs solve their business and legalproblems. Contact Chris at Chris@sbtv.com.

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