Companies large and small are required to have some form of business insurance. It can be in the form of a commercial auto policy for your delivery van, workers compensation coverage in case your employees have an accident while on the job, or general commercial liability and property insurance to protect your assets. Regardless of the type or size of your business insurance policy, many businesses will be sued at one time or another. 

For small businesses, a lawsuit can completely shut down operations or at least lead to a hefty expense. However, many insurance policies can help mitigate the risk and cost of a lawsuit, especially if your small business insurance provider engages a loss transfer defense attorney

What Is Loss Transfer?

Loss transfer, which is also known as subrogation, is a clause in most business insurance policies that allows your insurer to handle the legwork in the event of a lawsuit. Essentially, they compensate you (or the suing party) for your insurance claim, and the rights on the loss of that claim are then transferred to the insurer for recuperation. When working with a loss transfer defense attorney, the insurer can delegate the legal work, and rely on the attorney to execute and oversee the case to resolution. 

How Does Loss Transfer Prevent My Business From a Lawsuit?

There’s no surefire way to prevent your small business from being sued. A customer may slip and fall while walking from their table to the restroom, that patio wall your contractor recently built may not have been constructed properly and cause an accident, or your delivery van could be damaged in a hit-and-run. While these incidents are mostly out of your control, they would all be applicable for a loss transfer or subrogation case with your insurer. Even if you are sued, or you need to file a claim for damages as in the case of the delivery van example, your insurer and their loss transfer defense attorney can take over the legwork of the case. This saves you the headache of having to deal with a lawsuit, and your insurer can compensate you or the suing customer so that you can get back to business. 

How Can I Reduce the Risk of a Small Business Lawsuit?

  1. Conduct good business. Your company’s image is just as important as the actions of its employees while on the job. Don’t conduct illegal or questionable activities, don’t engage with others who do, and don’t make public announcements or post potentially defamatory or bigoted statements. If you have a customer-facing business such as a restaurant or retail store, have policies and protections in place to keep your customers as safe as you can and require your employees to provide excellent customer service. 
  2. Hire legal support. Even if you’re not currently engaged in a lawsuit, it’s a good idea to have a competent attorney to advise you as you get started with your business, and be available if any lawsuits do arise. 
  3. Set your business up correctly. While some small business owners are sole proprietorships, this is not the safest set up for you personally. In the event of a lawsuit, your personal assets could be at risk. Instead, set your business up as an LLC or have a trust to own the company to protect your personal assets. 
  4. Obtain liability insurance. Aside from missing the standard protections provided by liability and property insurance (i.e., flood and fire), you won’t be able to get claims compensation for damages or transfer the loss from a lawsuit to your insurer if you don’t have coverage. 
  5. Secure your files and records. Nowadays, most business paperwork is handled digitally, so it’s essential to have a secure computer system. This is even more crucial if you have a point-of-sale system that receives sensitive information like customer credit card numbers. Be sure to keep your antivirus and malware software up-to-date and activated, and conduct regular backups of your business records so that you don’t lose them in the event of a disaster. 

By Erica Buteau

Change Agent. Daydream Believer. Maker. Creative. Likes love, peace and Jeeping. Dislikes winter, paper cuts and war. She/Her/Hers.

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