One night when I was a child I was sitting upstairs watching tv. My parents were out for the night. It was just me and my big sister. All was calm when from the basement we heard a loud crashing sound. I jumped. My heart was pounding and my mind immediately went to the worst case scenario. I thought someone had broken into our house. We quickly went out the back door and to our neighbor’s house who came back with us to the home to check out what had happened. It turned out that a heating duct had come loose and crashed to the floor. Nothing doing.
It’s human nature to imagine the worst case scenario when faced with the unknown. I see this with business owners. One of their biggest fears is litigation. They imagine losing everything in a lawsuit. Is this concern realistic?
It’s not. Most companies never go to court. If they do, they most often settle before actually going to trial. The settlement is typically covered under insurance. If they go to trial, they often win. If they lose, then they can appeal. If they lose the appeal, then insurance normally covers the losses. If insurance doesn’t cover the losses, then the winner has to go through lengthy processes to get at the assets. If you have an LLC it will often protect your personal assets. The very last resort is to file for bankruptcy where you’re allowed to keep a portion of your assets such as some equity in your home.
There’s another layer to this. Even if you lose, tort reform limits damages. There are three types of damages. The first is non-economic damages. This includes things like pain, suffering, inconvenience, physical impairment, disfigurement, and loss of enjoyment of life. Before tort reform, this category was the biggie. With tort reform the amount is limited to $400,000 for most cases and $1 million for the worst cases.
The next category is economic damages. These are actual out-of-pocket losses such as past and future medical expenses, loss of past and future earnings, loss of use of property, costs of repair or replacement, the economic value of domestic services, and loss of employment or business opportunities. If you harm Bill Gates or Mark Zuckerberg, this will hurt. Otherwise, these should be covered under insurance.
The final category is punitive damages. Just don’t be reckless or do something really bad and you shouldn’t have to worry about these.
So there you have it. Just as the crashing sound in my basement turned out to be harmless, so does most litigation. There’s no need to spend so much emotional energy worrying about litigation. Just do your best, treat your customers well, be conscientious about safety, and you will be just fine in almost all cases.