Is Your Insured Business Entitled to a Defense of a Lawsuit Filed Against It?

Buying Business Liability Insurance | Allstate

Assume that your business is sued for multiple claims including negligence, defamation, and fraud arising out of the same event. Most likely, your business has a commercial general liability policy of insurance that provides coverage for negligence claims, but not intentional torts. What protections does that policy actually provide?

Although intentional acts are typically excluded from insurance policies, your business’s insurer would have a “duty to defend” your business from the negligent and intentional acts in this hypothetical. This means that the insurance company must appoint an attorney for your business at the insurer’s expense (less any applicable deductible) to defend the suit. Although a duty to defend may exist, the insurer ultimately might not be required to pay (indemnify) your business if the plaintiff were to recover a money judgment against the business for those claims based on the intentional acts. This is because Illinois law is clear that an insurer’s duty to defend its insured is broader than the duty to indemnify the insured.

As for the duty to defend, if the facts alleged in the underlying complaint fall within, or potentially within, the policy’s coverage, the insurer’s duty to defend is triggered. The insurer’s duty to defend is triggered even if the allegations in the complaint are groundless, false, or fraudulent, and even if only one of several of the plaintiff’s theories is within the potential coverage of the policy. In the hypothetical lawsuit, even if some of the claims alleged against your business ultimately are not covered, the insurer likely has a duty to defend against both the covered and uncovered claims. However, the duty to indemnify only arises if the insured has a judgment against it on an underlying claim and that the insured’s activity is covered by the policy. Thus, if judgment is entered against the business on an uncovered claim, the insurer will not have a duty to pay that judgment entered against your business even though its appointed attorney defended the claim.

Having an experienced attorney evaluate your business’s insurance policy for coverage is critical. For more information regarding these or similar issues, please contact Roenan Patt at rpatt@lgattorneys.com or (312) 368-0100.

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Is Your Business Litigation Proof?

The heading of this blog is a misnomer. There is no such thing as being litigation proof. Anyone can sue your business for any reason and meritorious or not, you will still have to defend the claim.

Still, there are many important steps a business can and should take to reduce its exposure and put itself in an advantageous position in the event a lawsuit is filed. Here are two simple actions that every business, large and small, should take in order to be a little bit more secure in today’s volatile world.

1. An Updated Employee Handbook

Employee handbooks set forth company policy for all employees to follow. Handbooks are useful reference materials that employees can rely upon to guide their day to day activities. They are also evidence of a company’s practices that can be introduced in the event of a lawsuit.

As a business grows, it should be mindful that different laws will apply to it. For example, once a business employs 15 employees, that business is now subject to the provisions of the Americans with Disabilities Act (“ADA”). Once that happens, an employee handbook should be modified to include language related to the reasonable accommodations that the business will make to comply with the ADA. If an employee with a disability were to file a claim under the ADA, a company with a handbook containing reasonable accommodation language would have a stronger argument that its practice is to comply with the ADA, than a company without such a policy in its handbook.

Also, business owners must be mindful that the law is constantly changing. For example, Illinois just enacted a law that requires an employee’s existing sick leave be granted to employees not only while they are sick, but also to care for sick family members (read more about that law here – https://lgattorneys.com/illinois-employee-sick-leave-act). Illinois businesses should amend their handbooks to reflect the change or discuss the pros and cons of moving away from sick leave/vacation time to paid time off that does not differentiate between sick leave and vacation time.

2. Record Retention Policy

If a company becomes involved in litigation, regardless of the issue, there is going to be a records request for all relevant documents in anyway related to the underlying lawsuit. This often involves emails and other electronic communications.

Having a records retention policy is important for several reasons. First, it ensures that all documents are kept for the optimal amount of time to conduct business without clogging servers or storage spaces. Second, it ensures that a company isn’t holding any documents for longer than legally required. Should a business be subject to a records request, a business is required to produce the documents in its possession. A plaintiff in a suit cannot use a document against you if you do not have it (and are not legally required to have kept it). Third, there are many record retention laws specific to different areas of business. A record retention policy can make sure a business does not violate the law by getting rid of documents too soon.

It is important that the business in question follow its policy universally and not on an ad hoc basis. As long as there is not a litigation hold in place requiring a company to keep all related records, then the company is free to follow its record retention policy without inadvertently destroying evidence and leading to a claim of evidence spoliation.

By consulting with an attorney and preparing an employee handbook and records retention policy, a business can take important first steps toward avoiding litigation, or at least being better placed to withstand a lawsuit if one comes its way.

For more information about developing an employee handbook or record retention policy appropriate for your business, please contact:

Robert Cooper at:

rcooper@lgattorneys.com or 312-368-0100.

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