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Avoiding Professional Liability Lawsuits

How To Reduce Business Liability Exposures

Even minor business liability exposures can lead to a lawsuit, putting your company’s reputation and future at stake. But everyone makes mistakes, even the savviest business owners, so how can you ensure common errors don’t expose your business and blindside you with a lawsuit? Read on to learn how.

Key Points

In this blog, you’ll learn more about:

Common Business Liability Exposures That Can Lead to a Lawsuit

Several small, common errors can expose your business to professional liabilities and potentially lead to a lawsuit:


Misunderstandings happen every day in the business world, and more often than not, result in a lawsuit. Let’s say you run a small business consulting firm and describe an upcoming workshop in detail on your website, including what participants will learn, pricing, and the expected outcomes after applying your business strategies to their company processes. Several months after the workshop, an attendee’s company goes bankrupt, and a lawsuit is filed against you because the participant claims they used best practices taught in your workshop to save their business—and it failed. This is just one example of a business liability exposure that can lead to a lawsuit when a customer’s expectations of a product or service don’t materialize the way they anticipated.

Clerical Errors

Clerical errors are another business liability exposure that can lead to a lawsuit. For example, you’re the owner of a mid-sized cold storage warehouse. A few weeks ago, you received a significantly large order from a new customer, and it was supposed to be at their facility—yesterday. However, after taking a look at the invoice, one of your employees entered the wrong shipping address for this important deliverable. Along with incorrect shipping information, clerical errors in contracts and emails can also result in a lawsuit.

Failure To Disclose

Failure to disclose important information or instructions to a client that results in financial loss or hardship is another business liability exposure that can lead to a lawsuit. Let’s say you own a small real estate company, and one of your agents failed to disclose water damage in a new home listing. The buyer opts out of a standard home inspection because it’s not required to purchase the home, and they’re on a tight deadline to move in. Months later, the home owner’s basement is leaking, and you’re hit with a lawsuit for failing to disclose the damage.

Missed Deadlines

Missed deadlines can also expose your business to professional liabilities and potentially lead to a lawsuit—even if the error is out of your control. For example, you’re the owner of a medical device manufacturing company and just landed a contract to design and manufacture a new surgical instrument. You partner with a nearshore supplier to provide you with materials and device components at an affordable price, but due to a bottleneck in the supply chain, the materials you ordered to finish the instrument are on backorder, causing you to miss the device’s time-to-market deadline.

How To Protect Your Business From Liabilities

Minor errors happen, and mistakes are inevitable, but you can protect your business from liabilities by using the following business best practices:

Use Contracts and Keep Records

Signed contracts, agreements, and good recordkeeping can protect your business from liabilities by clarifying the rights and obligations of each party if you’re sued. An attorney can advise you on different types of contracts and formal agreements needed for your business, but keeping a record of important details related to business transactions is crucial for preventing business liability exposures that can lead to a lawsuit.

Get Everything in Writing

Be sure to document all communication with your clients. If you often discuss business with them over the phone, follow-up on your conversations via email. Leaving a well-documented paper trail of customer expectations and solutions you provide can clear up potential disagreements in the future, protecting your business from liabilities.

Protect Your Reputation

Misrepresenting your business’s products or services can result in lost business and potential lawsuits. Your business is fueled by a good reputation, so it’s crucial that you operate with integrity to protect your business from liabilities. If you make a promise to a customer, stand by your word and keep it.

Did you know that your general liability policy contains a coverage gap that could leave your business vulnerable?

Enforce the Right Employment Policies

There are many state and federal laws that govern the workplace, such as harassment, discrimination, and employee privacy rights. Be sure to recognize which laws apply to your organization, creating and enforcing employment policies that support them. Employment practices liability insurance can also help protect your business from liabilities in the event of a lawsuit alleging discrimination, sexual harassment, failure to promote, wrongful termination, invasion of privacy, and other employment-related misconduct.

Separate Your Finances

It’s common to operate a small business as a sole proprietorship, since it’s the most cost-effective way to set up and run a company. However, as the owner, operating your business as a sole proprietorship means you’re personally liable in the event of a lawsuit. You can protect your personal assets from any lawsuit related to a business liability exposure by structuring your business as a limited liability company (LLC).

Consider Your Insurance Coverage Options

Despite your best efforts to reduce business liability exposures, a dissatisfied customer can still decide to take legal action and hit you with a lawsuit.

Commercial general liability insurance covers negligent acts caused by your employees, products, services, or work functions, but professional liability insurance covers a wide range of legal costs in the event of a lawsuit, including:

  1. Lawyer fees

  2. Administrative expenses

  3. Court fees

  4. Expert witnesses

  5. Settlement costs

  6. Court judgments

Protect Your Business From Liabilities With Southpoint

At Southpoint Insurance, we’re dedicated to helping our customers reduce business liability exposures, thanks to our wide range of first-class insurance solutions. We offer various professional liability policies that help protect your business, from cyber liability to dentist malpractice. We also offer commercial umbrella coverage to provide you with an additional layer of protection beyond your primary liability coverage. Contact us today to partner with an award-winning agency that helps reduce business liability exposures with superior insurance policies for all types of organizations.

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