THE COVERWISE BLOG

Lawsuit? What To Do if Your Business Is Served

Disclaimer: The following article provides general business advice and is not intended to serve as legal advice. Each business situation is unique, and laws vary by location. Consult with a qualified solicitor for advice tailored to your specific circumstances and jurisdiction.

Before you’re served, you may have already received a written notice that someone wants to sue your business. You’ve then had a period (depending on your state or territory) to resolve the issue or mediate a solution, but neither has happened. 

Then you’re properly served. That means you’ve been identified as the respondent in a court case and an authorised person hands you a copy of the document. 

After you’ve taken a breath, here’s what to do in three-and-a-bit steps. 

According to the Australian Small Business and Family Enterprise Ombudsman, typically these issues trigger lawsuits:

  • Contract disputes
  • Negligence claims
  • Employment disputes
  • Product liability claims
  • Intellectual property issues.

Businesses in the construction, retail and hospitality are more likely than other sectors to be sued, says the Ombudsman. Clients, customers, other companies, shareholders, members of the public, and employees can file a claim against your business.

Triage: Quick Conversations with Both Your Legal Advisor and Broker or Adviser

Before deciding how to proceed with the claim, have initial discussions with both your legal and insurance advisors (us). If your issue is covered by insurance, generally insurers will appoint lawyers to act on your behalf. This initial step can help streamline the process and ensure you have the right professionals engaged from the start.

First step: Review the claim with your lawyer

Contact your lawyer promptly to discuss the claim and check if their expertise is relevant for reviewing the case. Find out if they’ve handled similar cases, how they communicate with clients, discuss a fee schedule, and ask for client testimonials. Get a sense of how often they’ll update you on your case.

Don’t withhold information from your lawyer. Talk about your business records to understand which are useful for the case and keep them for future reference. The lawyer will want to know your business structure because it could affect your liability in the case.

Your lawyer should explain the nature of the claims, your potential liability, and costs, including for the stages of the litigation process. They’ll work with you on how to respond to the case and the expected timeline. You’ll get insights into options for handling the claim, including mediation. This will avoid court and save you energy, focus, time, and funds. Appreciate, though, that the decision to go to court may not be in your hands. 

Now that you’ve been officially served, don’t communicate with the claimant directly. However, if it’s someone you have a continuing relationship with and you do need to talk, ensure you do not discuss the lawsuit with them.

You may have been tempted to Google legal advice, but that can be expensive. As a U.S. case has shown, generative AI tools, such as ChatGPT aren’t reliable.

Second step: Inform your broker or adviser

Then, reach out to us as your broker or adviser, to see if and how one of your current policies could offer coverage. Usually, insurers want to see the suit papers asap, so we’ll ask you for a copy of those.

As each lawsuit is different, we’ll need to work with the insurer to check if circumstances mean policy coverage is excluded. If the insurer advises the circumstances may not be covered, you may have to engage your own lawyers to contact the lawyers for the other party and seek an extension of time to file a defence, or have your lawyer act on your behalf until the insurers confirm the policy responds.

Third Step: Decide how to proceed and respond to the complaint

You’ll have a deadline to work towards to respond in writing to the complaint in consultation with your lawyer. Usually it’s 30 days after you’ve been served, however this period will vary between states, territories and Court (Local, Supreme or Federal). 

Your response should include:

  • You admit or deny each of the allegations
  • Defences, counters, or cross-claims you wish to raise against the plaintiff or other defendants, and
  • Your preferences for a jury trial or other resolution, such as through mediation to reach an out-of-court settlement
  • You could file an immediate dismissal of part, or all of, the complaint instead of your response.

In arriving at your position, your lawyer and you will weigh up the possible cost of the claim if you lose, the legal costs you could incur and if counter claims are viable. Keep your broker or adviser in the loop because your policy coverage could limit your resolution options. 

Ignoring the suit is not an option.

If the case goes to court

Aim to stay focused on running your business if the case goes to court but be responsive to your lawyers’ questions during the wait. Don’t assume that because you think you’re in the right, the case will go your way. The evidence presented and legal arguments often determine the outcome.

And if it’s any consolation, although more than 99% of Australian businesses are SMEs, research about contract disputes shows less than a fifth of SMEs initiate legal proceedings. Invariably, they prefer to discuss and negotiate before it gets to that stage.

Lawsuits can be costly and take you away from working on your business. Often defendants don’t realise even if they win a case, they may still need to pay for their  legal costs. That’s why having the right insurance can be handy.

Have peace of mind knowing you may have policy coverage should you be served. Review your insurance regularly with us to ensure your business has protection against the worst-case scenario.

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