Businesses should seek to avoid disputes and lawsuits wherever possible through effective documentation, communication, risk management and alternative dispute resolution. But in our litigious American society, it is a fact of life that businesses are routinely sued, both for good reasons and for questionable ones (for example, see our blog post on how to avoid “drive-by” lawsuits).
Let’s assume risk management has failed, and your business has just been sued. There can be very serious negative consequences for the business unless certain actions are taken properly and in a timely way. This post discusses some of the critical preliminary steps, or “first aid” which must be undertaken immediately once anyone involved in the business receives notice of a lawsuit, to help improve the outcome.
We will cover three broad categories of lawsuit first aid including legal deadlines, insurance issues and information management.
Regardless of who the lawsuit is delivered to, it is critical for the person who received the papers to:
- Note the precise date of delivery
- Note the method of delivery (by hand, mail, e-mail)
- Note to whom delivered
- Keep complete copies of what was delivered
- Report to the most senior manager available
The deadline to respond to many lawsuits is measured from the date of “service of process.” In other lawsuits, the papers which are “served” or delivered to the registered agent for service of process will include a court date by which the business must file a formal response.
In our experience, the routing and delivery of the lawsuit documents to the attorney’s office is often delayed. If there’s a delay, very little time may be left to prepare a response to the lawsuit by the time paperwork gets into the attorneys’ hands. We recommend that you should not assume you know the legal deadlines, but promptly forward all documentation received to your legal counsel immediately.
One example of hidden time deadlines shows up in small claims court cases. The plaintiff in a small claims court lawsuit cannot use legal counsel, but a defendant may choose to do so. If a business chooses to use an attorney in small claims court, that decision must be made in writing and filed with the Court no less than seven days before the date included in the lawsuit paperwork. In addition, a signature of the business’s agent (not its attorney) must be affixed on the paperwork filed with the Court. That means, if the lawsuit is delivered to legal counsel only one week before a court date in a small claims court lawsuit, it is probably too late to use an attorney.
When a business is sued, it has to make a decision in consultation with legal counsel about whether to report the claim to its insurers for possible defense. Under certain circumstances it may be appropriate to delay reporting the claim, or to decide to never report the claim, but potentially significant consequences will flow from that decision.
Why? Because virtually every insurance policy requires prompt notice of claims.
Insurers can deny any responsibility if the notice of the claim is late and their ability to handle the claim has been prejudiced. In addition, it can take weeks and even months for insurance companies to make a decision about whether a claim is covered or not. But an insurance company is not responsible for the insured’s legal bills until after the insurer receives proper written notice. Therefore, a business may incur thousands of dollars in legal fees defending a lawsuit, which the insurer will never reimburse unless notice was properly given.
Most lawsuits relate to past events and circumstances. One of the challenges attorneys face in defending businesses is the fact that employees, agents and even senior managers move on to new pursuits, files are placed in storage or lost, and memories fade. As your legal counsel, we need information about the people involved and the documents involved.
Once a lawsuit has begun a business should not destroy any possibly relevant files, documents, e-mails etc. in addition to the legal obligation to preserve evidence, this information helps us to help you reconstruct the series of transactions and events at issue in the lawsuit. All document retention and destruction policies should be suspended for any issue that is in litigation.
If your business has been sued, or is developing a risk management strategy to better manage future lawsuits, please contact David Closson, attorney and head of our Business Law Group, at [email protected].