When litigation occurs, the principals, or clients, lose control and are the mercy of rules, laws and circumstances they don’t understand and cannot control. Lawsuits take years, not months, to resolve and are expensive, to say the least. Litigation risk management is about more than simply being honest and doing the right thing. It involves planning against the risk of being sued regardless whether you are right or wrong. It is about not being identified as a target.
Litigation risk management is the process of identifying where, how and why you might be targeted and sued by others and what can be done to manage or minimize that risk, and then protect yourself if litigation is unavoidable. For individuals, professionals and small businesses, this can be as simple as maintaining insurance. When written agreements, or contracts, with others are involved, particularly in business transactions, this can be more complicated. Sometimes much more complicated.
When I undertake a litigation risk analysis for a client, my goal is to first consider who has the money, product or valuable thing and who wants it. If my client is the one who has what others want, I want to reduce the risk of my client being sued. If my client is the one who wants the money, product or thing, I want to increase the chances that my client will be successful in enforcing their rights. Either way, whether there is an attorney fee provision in the written agreement is an important consideration, as one example. Another is whether there is insurance or other security available to help guarantee performance.
On a larger scale, litigation risk management can be substantially more complex. It can include planning to reduce the likelihood of being sued or needing to sue, planning to reduce the costs of inevitable litigation, whether with or in the absence of available insurance, and finding a balance between the cost of product development and the cost of responding to complaints of defective products; both of which affect the “bottom line.” At this level, a litigation risk assessment is intended to provide management with a comprehensive evaluation of the risks and costs associated with litigation – whether in prosecuting or defending a case. It also involves legal compliance with governmental regulations. For most people, litigation risk management is usually thought of as being important only in this larger scale context. No so.
Even personal estate planning involves, or should involve, some sort of litigation risk management. What do you have that others might want? Who do you want to provide for, to get your stuff, after you’re gone? Might there be some jealousies or rivalry? Are No-Contest provisions effective (the short answer is “No.”) A well-considered estate plan can reduce the risks of litigation. Litigation risk management is also important for any business that has employees. Ask the small business owner who has been targeted by a disgruntled employee, whether for a marginal work injury claim or accusations of harassment and discrimination. Often times, the cost of defending against a lawsuit, even a frivolous one, is greater than the risk of losing.
Litigation risk management for the average person is not provided by a legal specialist, it is provided by personal or general business counsel that has a broad understanding of the law as well as an understanding of the client’s personal and business life, including their priorities and values. A litigation risk review does not happen automatically, however, you have to request it.