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  • Writer's pictureLeslie A. Farber

Protecting Your Business from Customer Lawsuits

Updated: Jul 3, 2019

There are inherent risks in running any business, and as an owner, you are responsible for protecting your facilities, assets and employees. Ensuring the health and well-being of your business also means limiting the chances and subsequent impact of a customer lawsuit.

Regardless of whether a customer’s claims are legitimate or false, taking the necessary steps upfront will help protect your business and mitigate potential damage from a lawsuit.

Purchase Insurance Coverage

Business owners can purchase insurance coverage for virtually every kind of legal liability they might encounter. For example, if you run a brick-and-mortar business, obtaining liability insurance will protect you in cases where a customer is injured on your premises.

Professionals such as insurance agents and independent consultants might consider errors and omissions coverage for protection against client accusations regarding a mistake or failure to fulfill a contract. If your business is large or has a formal board of directors, it might be wise to purchase directors and officers liability (D&O) insurance to protect their personal assets in the event of a suit against the company.

When purchasing liability insurance, make sure you understand the terms of the policy, particularly as it relates to reporting potential legal claims. You may be required to report all customer threats, even those that are false.

Establish a Solid Reputation

Make it a priority to conduct business in a professional, honest and ethical way. This means avoiding things like making slanderous statements, doing business with unscrupulous individuals or engaging in questionable business practices. A solid reputation will serve your company well in the face of negative publicity or legal claims.

Separate Yourself From Your Business Many small businesses are structured as sole proprietorships. In the event the company is sued, the owner's personal assets, such as their cars or home, may be attached in a court of law.

One way to limit the possibility that your individual assets might be targeted in a lawsuit is to incorporate your business. Incorporating or forming a limited liability company (LLC) creates an independent legal entity, thereby separating your company's finances and legal responsibilities from your personal wealth and property. But to protect yourself after incorporating or forming an LLC, your company still needs to follow the corporate formalities in order to insulate you from personal liability.

Keep Good Records

Having well documented records my serve as a deterrent in the face of potential customer conflicts. Take the time to put important day-to-day dealings in writing and invest in establishing an effective customer relationship management system.

Evaluate the Seriousness of the Claim

It is important to evaluate whether a threat is benign or serious before you decide to take action. People often act out of anger or frustration, and they will rethink things when their feelings subside.

If it is unclear whether the threat is serious, take a report from the customer that includes contact information, a summary of the complaint and the factual basis of the claim. Allowing a customer to feel heard is sometimes all that’s needed to avoid legal action and a disruption to your operations.

Partner with a Trusted Attorney Con

sider having competent legal counsel in place the day you open your doors. A trusted attorney will be able to advise you on how to respond quickly to customer issues and what to do if you are sued.

If the customer has a legitimate claim, an attorney can help you decide whether or not it is wise to settle. If you suspect that a claim is fraudulent, your attorney will know the procedures available for getting it dismissed. Your attorney also may advise you on how to handle the claim with your insurance company.

Do you have questions about how best to protect your business from customer lawsuits? I am here to help. Please contact me. at 973-509-8500 x213 or email me at:

The contents of this writing are intended for general information purposes only and should not be construed as legal advice or opinion in any specific facts or circumstances.

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