How to handle a frivolous lawsuit
Even if you’ve done nothing wrong, someone can still sue your IT business. Learn how to prepare for this possibility.
What is a frivolous lawsuit?
A frivolous lawsuit is a claim based on weak evidence and questionable interpretations of the law. Also called meritless lawsuits, these cases still take time and money to resolve.
Small business owners frequently find themselves the targets of frivolous lawsuits.
Small businesses usually have far fewer financial resources to fight lawsuits than large corporations. This makes them prime targets for this type of litigation.
A person who files a meritless lawsuit hopes the small business owner will panic over potential attorney and court costs and offer a quick settlement.
With the right business insurance coverage, you will be well positioned to contest a frivolous lawsuit in court. Your lawyer may even be able to have the case dismissed without going to trial.
How to get a frivolous lawsuit dismissed
If an individual files a meritless lawsuit against your business, contact your insurance provider immediately. Your insurer will help you locate an attorney, who will try to have the meritless case dismissed.
Draft a lawsuit dismissal motion
First, your attorney will draft a pre-answer motion to dismiss the lawsuit because the plaintiff does not have a satisfactory cause to sue.
The plaintiff’s attorney has the chance to oppose the dismissal in a set amount of time, which varies by state.
Wait for the judge to decide whether to dismiss the case
Once your attorney files for a lawsuit dismissal, the case is sent to a judge.
Depending on the judge’s workload, they will typically dismiss the case within a month or schedule an oral argument within two months. The judge may dismiss the case at the oral argument or choose to decide later.
Though most judges hand down a decision within a week, attorneys caution that the process can occasionally take months.
If not dismissed, prepare for trial
If the judge does not dismiss the lawsuit as meritless, you and your attorney will need to prepare a court defense.
Your chance of winning in court depends on the strength of your defense. If your attorney can point to a similar frivolous lawsuit that failed in the same jurisdiction, you have a strong likelihood of prevailing.
Legal defense costs can add up fast depending on your location.
In New York, most attorneys charge between $300 and $700 per hour. Considering that a motion takes about eight hours to draft and each court appearance lasts three hours, you could easily end up paying more than $5,000 to fight a frivolous lawsuit.
Does business insurance cover frivolous lawsuits?
General liability insurance covers lawsuits related to personal injury and property damage
Most frivolous lawsuits filed against small businesses are general liability cases over alleged bodily injuries, advertising wrongs, or property damage.
For instance, a computer repair business fixes a client’s laptop. The technician thoroughly tests the machine and has the client verify that it works correctly before leaving the shop.
Several days later, the client destroys the laptop by spilling coffee on it. He then sues the computer repair business for property damage.
Even though the technician was not responsible for the spill, the business’s general liability insurance policy would still pay to defend it against the frivolous claim.
E&O insurance protects against claims of negligence
If a client alleges that your work was incomplete, unsatisfactory, or late in delivery, you could face an errors and omissions lawsuit.
For example, a small web development company builds a perfectly functioning e-commerce website for a client. The client decides to host the website on its own in-house server instead of the developer’s recommended hosting solution.
A month later, the client’s server crashes and its website is offline for several days. The client blames the development company for the website outage and sues for professional negligence and lost revenue.
Though the web development company was not liable for the server crash, an E&O insurance policy would pay for its frivolous lawsuit defense.
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