What are the first things to consider when a dispute arises?

Clearly, a major concern to a business in determining whether to engage in litigation is cost. However, cost cannot be the only factor analyzed. A business, with the help from its trusted business adviser or lawyer, must analyze the probability of its success. Success is defined by the client, which is why it is so vital to set a clear goal before filing a complaint.

After determining its goal, a company must consider all of its options. Not all options are based on the filing of a lawsuit. Savvy lawyers and businesspeople can, and should, get creative. Options are based on leverage. A business can use its leverage to obtain a successful result, without participating in an expensive lawsuit. If a company has little or no leverage, filing a complaint is a quick way to create it.

A business must also understand that a lawsuit is time-consuming. A company is going to have to use its resources responding to discovery requests, sitting for depositions and engaging in litigation strategy, which is time taken away from running the business.

A business should also weigh the impact of its lawsuit in the business community. Filing a suit will have a negative impact on the entity or individual being sued. Therefore, if this customer produces a large revenue stream for your business, it may not make economic sense to sue the customer over an issue that may have a less disruptive solution. A company should also determine whether a lawsuit could negatively impact its relationships with other clients or potential customers.

When is litigation inevitable?

If you are a defendant, litigation is usually inevitable. In contrast, filing a complaint is inevitable only after all other options have been exhausted, and it has been determined that the business cannot survive without achieving a successful result.

Furthermore, litigation makes sense when the amount of money in dispute justifies the cost of litigation. In contrast, there are situations when a business needs to make a public statement to deter future malfeasance from either within or outside the company. Sending a message can be a valid goal that has no direct monetary value. For example, a business may need to file suit against an employee who violated a noncompete agreement. This lets everyone at the company know that employment agreements will be enforced.

When should mediation come into play?

Mediation is a tool used within litigation. Mediation is a powerful device. It can be extremely beneficial when your opponent has deeper pockets. For the most part, mediation must be mutually agreed upon. Leverage is key when trying to convince your opponent that mediation is the best result. It is up to the lawyer to determine what leverage to apply, and how.

Mediation is not binding and should therefore not be treated like a mini-trial. The goal of mediation is not to convince the mediator that the business has a superior argument. It is important to persuade the mediator, but the goal is to convince the principal of the other company that it is in his or her company’s best interest to settle the case at the terms you suggest, rather than having to spend additional time and money.

Mediation is a skill. If one’s mediation style is too aggressive, there is a risk that your opponent may become defensive and/or angry, which could cause your opponent to litigate harder.

When is it best to walk away from a dispute?

Walking away does not mean forgetting about the dispute. It simply means that litigation may not be the best option. It means that sometimes you need to be creative.

If litigation is not economically feasible, business deals need to be, and should be, worked out. For example, depending on the circumstances, discounts can be provided on future deals, an exclusivity agreement can be worked out or payment schedules devised. Successful results can be achieved without involving the court system.

Some businesses file suit when there is no financial or noneconomic upside. For example, a former employee stole your customer list, but this list is not vital to your business. To file suit to enjoin your former employee from using this list may cost a significant amount of money. Again, if the lawsuit lacks financial and/or noneconomical impact for your respective company, a company should consider walking away.

What are the red flags a company should look for that may warn of litigation?

The types of red flags depend on the businesses and the particular situations involved. If you’re in the manufacturing, sales distribution or newspaper business, you may have a covenant not to compete. If the holder of that covenant, the employer, finds out that the employee may be looking for another job or that the employee already has interviewed somewhere else, and he requests a meeting with you, that could be a red flag. Or if you, the employee, receives a letter stating that you need to keep in mind that you have a covenant that prohibits you from working for a competitor or that you’re privy to trade secrets, be careful. These are warning signs.

Take another example. Maybe you’re in a trademark situation where you are using a trade name that is remarkably similar to another’s trade name, although you do not think so. If you continue to use it and get a cease-and-desist letter, that’s a warning sign you may be headed to court.

Some signs may be a little more subtle. Maybe someone suggests that there is an error in the contract’s language or asks to have a contract clause renegotiated. If they suggest that the contract is onerous or that they need relief from one or more of the obligations under the contract, this could lead to problems down the road. You have to determine if you are going to hold the other party to the exact language of the contract or provide a little bit of relief so you do not find yourself heading down the litigation trail.

Finally, if someone asks for backup regarding your billing or invoices or job progression, just them asking for it could be a warning sign that they are auditing the account and may find some irregularities or questions.

Who should be notified when litigation is imminent?

First, your business partners, management and legal counsel. They need to know what is happening and the circumstances surrounding possible litigation. Second is your insurance carrier. You need to determine if you have a covered loss, whether they will furnish you with legal counsel and whether they will instruct you on what you should or should not say.

It is important to bring in your lawyer sooner than later to interview witnesses, collect documents, preserve electronic evidence, such as e-mails, and transcribe voice mails. Once you know that litigation is imminent, you are obligated not to destroy documents and electronic data, even if your company has a records retention and destruction policy in place.

Can you bring litigation and have it backfire?

Absolutely. Litigation can be seen by the other side as the start of a battle from which there is no turning back; almost like a scorched earth policy, so to speak. Litigation is expensive and time-consuming. If the company loses a lawsuit that you advocated to be filed, the company has incurred a significant expense in having pursued the failed lawsuit in the first place. Furthermore, you could bring a lawsuit and not anticipate that the party you are suing will file a countersuit against you, which can also result in a loss to your company on the counterclaim.

Unwanted publicity is also a problem. Let’s assume you’re a brokerage firm and you want to sue somebody because you believe there are some commissions that are due and the other party does not agree. That party claims that you misled them on some investments and files a counterclaim. The next thing you know, other people you put in the same investment also are suing you because they heard or read about the original lawsuit, the investor’s counterclaim, and they decide to seek redress.

Successor liability generally describes the result of a court’s application of various legal theories to an acquisition transaction to hold the buyer responsible for liabilities the buyer did not explicitly agree to assume. Two of the significant theories of successor liability include the de facto merger doctrine and the continuity of enterprise doctrine.

The de facto merger doctrine holds the buyer responsible for liabilities not expressly assumed under the theory that the result of the acquisition is essentially a merger of the buyer and the seller. The elements of a de facto merger are 1) continuity of management, personnel, physical location, assets and general business operations, 2) continuity of shareholders, 3) cessation of the seller’s ordinary business operations and its dissolution as soon as legally possible and 4) the buyer’s assumption of the seller’s obligations ordinarily necessary for the uninterrupted continuation of the seller’s normal business operation.

The continuity of enterprise doctrine does not require proof of the continuity of shareholders. Instead, this doctrine holds the buyer responsible for liabilities the buyer did not explicitly agree to assume under the theory that the buyer has essentially continued the seller’s business. The elements of a continuity of enterprise finding are 1) continuity of the outward appearance of the seller’s enterprise, management, personnel, physical plant, assets and general business operations, 2) the seller’s prompt dissolution following the transfer of assets and 3) the buyer’s assumption of the seller’s liabilities and obligations ordinarily necessary for the uninterrupted continuation of the seller’s normal business operations.

Some courts have also found buyers strictly liable for defects in products previously manufactured and distributed by sellers under a variation of the continuity of enterprise doctrine that, in essence, holds that responsibility for such liabilities was the price the buyer had to pay for the seller’s good will and the buyer’s ability to enjoy the fruits of that good will.

What structural steps can the buyer take to minimize the likelihood of a successor liability finding?

The buyer should obtain guidance regarding the development and treatment of theories of successor liability under the laws of jurisdictions that could potentially govern the acquisition transaction to select a reasonable jurisdiction with less expansive successor liability doctrines. The buyer should also analyze and implement potential acquisition structures with the aim of avoiding elements that contribute to a successor liability finding. The buyer may, for example, significantly reduce or eliminate common personnel and business locations since continuity of the seller’s business into the buyer’s period of ownership is a common theme in current successor liability doctrines. In addition, the buyer could require the seller to delay liquidation proceedings for a reasonable period of time to avoid a finding of prompt dissolution. While business considerations will significantly impact the acquisition structure and the integration of the acquired assets into the buyer’s operations, the buyer should remain mindful of structural components under the buyer’s control that can minimize a successor liability finding.

What contractual provisions can the buyer include to reduce the risk of successor liability?

The buyer should negotiate for an unambiguous listing of the liabilities the buyer is acquiring through the inclusion of clauses in the acquisition agreement specifically setting forth the liabilities assumed by the buyer (i.e. at the closing, the buyer shall assume and agree to discharge only those liabilities of the seller set forth on Schedule 1) and clauses explicitly providing that liabilities not assumed by the buyer are retained by the seller (i.e. every liability of the seller not assumed by the buyer shall remain the sole responsibility of and shall be retained, paid, performed and discharged solely by the seller). The terms of the acquisition agreement should clearly state that unexpected liabilities are the seller’s responsibility.

In addition, the buyer should seek to incorporate provisions in the acquisition agreement requiring the seller to comprehensively indemnify the buyer for unexpected liabilities, including liabilities accruing to the buyer as a result of a finding of successor liability (i.e. the seller will indemnify and hold harmless the buyer for any loss, liability, claim, damage or expense, whether or not involving a third party, arising from or in connection with any liability arising out of the ownership or operation of the acquired assets prior to the closing other than the assumed liabilities). The buyer should also consider including an arrangement whereby the parties will place a portion of the acquisition consideration in escrow to meaningfully support the seller’s indemnification obligations.

The buyer should consult with appropriate counsel on a case-by-case basis regarding additional and/or alternative contractual provisions to include in the acquisition agreement to further reduce the risk of successor liability.

What types of fraudulent claims are businesses most frequently exposed to?

Fraud has been defined as a deception deliberately practiced in order to secure unfair or unlawful gain. Some of the most common types of fraud businesses are exposed to include employees claiming benefits that they are not entitled to — whether it be workers’ compensation or additional compensation for time not worked — and personal injury claims by allegedly injured people on the business’s property or by someone working for the company.

Fraud usually increases as the economy declines and typically declines during prosperity.

How can a company identify its risk for fraudulent claims?

Businesses face many challenges when it comes to identifying, resolving, mitigating and preventing fraud. There is a tremendous amount of information that must be gathered and analyzed from internal and external sources.

Additionally, businesses must continually adapt detection techniques and processes to new and evolving fraud patterns. A business should identify its risk by using historical data regarding prior claims losses.

Training of personnel is key in identifying red flags or indicators of fraudulent activity. If you doubt the validity of a claim or any circumstances surrounding it, gather all information immediately and document it. Remember that proving fraud is difficult, and it is a problem that businesses constantly grapple with.

What steps can a company take to reduce its risk?

The best manner in which to combat fraud and reduce risk is to thoroughly investigate the claims where fraud is suspected and promptly and fairly pay meritorious claims and vigorously defend claims without merit.

If a clear and strong message is delivered to all individuals that fraud will not be tolerated, this can be the strongest reduction of risk. No matter how small, take the approach that all fraud will be dealt with seriously.

Additional suggestions for reduction of risk include adding surveillance cameras that record all events where suspected fraudulent events occur, such as hotspots, repeated claim sites and high-traffic areas; establish seminars to inform employees about fraud and how to deal with suspected fraudulent activities; screen employees before they are hired and use exit interviews; display fraud awareness and prevention posters or literature; and display the National Insurance Crime Bureau phone number, (800) TEL-NICB.

Also, ensure your initial response to any alleged fraudulent activity places you in a position of strength. Look for indicators of increased risk at every stage of a claim, such as aggressive behavior, suspicious circumstances such as a delayed claim or delayed medical treatment, and inconsistencies in reported events.

What can a company do if it believes it is the victim of a fraudulent claim?

If a business believes it has been the victim of a fraudulent crime, the most critical aspect is documentation. As time progresses, memories of events are lost, things are moved and items are replaced. Thus, it is imperative to collect as much information as close to the actual fraudulent event as possible.

Once you gather all the information, contact an attorney, and then law enforcement is critical. Law enforcement may not make the claim a high priority, and it will typically become a civil matter in which legal representation is required to attempt to recover or prevent a claim from being made.

Prepare a list of questions that will help you establish the details of the fraud. Ask for answers in writing so they can be used as evidence. Obtain the name, address and phone number of every witness. Request photographs and sketches to document the fraud and obtain medical records if it is an injury claim. As the old saying goes, ‘The devil is in the details.’

Why is it important for a company to develop an action plan with its legal team?

In dealing with fraud, the attorney is a critical part of the team. The attorney who has handled fraud either for a victim or in helping recover assets from fraud can alleviate many pitfalls and spot issues to avoid legal difficulties.

Counsel can also open avenues to law enforcement for potential prosecutions of individuals who committed fraud. The legal team is part of the entire position of any business’s approach that fraud will not be tolerated.

If a business tolerates fraud, it will only serve to be a target of more frequent activities, which will grow in scale. Typically, fraudsters will test out a business by small activities and, if undiscovered, will then grow bolder with no repercussions.

The problem is, there was a caveat in the contract that stated that if the property were ever moved into a trust, the minority owners could buy out his majority share at book value.

As a result, he’s probably going to lose control of the future of the property that he’s managed all these years.

The lesson is simple: When it comes to legal matters, it’s the little things that can get you.

The contract hadn’t been reviewed in years, and a few sentences buried in the agreement completely changed everything.

While all of us would much rather be thinking about how to grow our businesses rather than quibbling with attorneys over the wording used in the second-to-last paragraph of a contract, a simple oversight could lead to disaster.

When you are making deals, it’s easy to get excited and start overlooking the details. But over time, circumstances change. It doesn’t matter whether it is taxes, partnerships, mergers or estate planning. It pays to have an attorney review all of these documents not only before you sign them but also from time to time so you don’t make any missteps that would jeopardize the contract, regardless of whether you are a Fortune 500 company or a family business.

Spend a little money upfront to prevent having to spend a lot of money later on. You have to look at a relationship with a law firm as an investment in your company. For many mundane services, you can negotiate a flat fee to fix your costs and avoid any surprises.

If you take the time to build a relationship with a firm or firms, you can get a lot more value out of it. As they get to know your business better, they can advise you of potential risks that you may not be aware of.

Attorneys can also help you out in other areas, such as assembling a board of advisers to help guide you to your growth goals or preparing your business for an initial public offering. They also often have great connections throughout the business community and can help you network, as well. As you build the relationship, your lawyer can become a trusted member of your inner circle.

Make sure you talk about costs upfront, regardless of whether you are working with a single attorney on a routine matter or with a multinational firm on a major acquisition. A big reason why executives often avoid lawyers in the first place is because of the fear of costs. In this economy, every nickel counts, and being handed a legal bill that is four times what the estimate was is not something you want to deal with.

Try to get as many services as possible done for a fixed rate to control your costs. There are some services, such as litigation, that have to be done at hourly rates. If that’s the case, then ask for an estimate upfront and demand regular updates on hours worked and how far the case has progressed so you have a better idea of what your costs are going to be. If a firm won’t work with you on cost control, then it’s probably time to look elsewhere.

Laws are the rules that govern the game of business. While it can be expensive to make sure you are playing by the rules upfront, it can be even more expensive if you find out that you made mistakes later on. As the old saying goes, an ounce of prevention is worth a pound of cure.

Mediation takes place between the disputing parties, their attorneys and a mediator. Unlike arbitration, in which the arbitrator’s decision is binding, there is no settlement in mediation unless both parties agree.

Why would someone agree to mediation instead of going to court?

Usually, the parties agree to mediation because they think the likelihood of them being able to settle the case is better if everyone can sit down and understand each other’s position, find out what is really at issue and see if there is a way to address it informally. It is a reality of mediation that each side in a mediation often leaves the process feeling somewhat disappointed because they either gave too much or didn’t get enough or they were pushed into a place they didn’t want to go. Nonetheless, the settlement still happens, and the right thing probably happens. It doesn’t take too much pushing from the attorneys for the parties to understand that the costs and risks associated with litigation are much greater than when resolving the case at mediation.

When is it a good idea to agree to mediation?

There are two times in a case when mediation works best — one is before any work is done on the case (i.e. before discovery is taken, before attorneys’ fees begin to mount). Mediating early in the case will often allow the parties to come together to understand the dispute and try to reach a business resolution. Nothing gets people’s attention like a lawsuit, so as soon as a case is filed is a great opportunity to consider mediation. Later on, when the case is headed to trial and the company has spent a tremendous amount of money on experts, lawyers and trial preparations, settlement often becomes difficult in that the parties are by that time well vested in their respective positions. At that point, you will likely be reluctant to concede all the points that you’ve spent so much money developing.

The other time to attempt mediation is just before the major push for trial. At that time, mediation really becomes beneficial because both sides are about to pay their experts’ retainers, conduct the final rounds of discovery and dedicate the time to prepare for trial. All those endeavors can be very expensive.

What advice would you give a CEO going into mediation?

Follow the advice of your counsel and come in with an open mind. Most importantly, the CEO needs to come to mediation with the necessary authority to resolve the case. If either side requires approval from someone outside the mediation to settle the case, then the mediation often becomes a waste of time. The CEO should come to mediation with the idea that if the parties get within certain settlement parameters — whatever your objectives are for the case — they should be prepared to settle.

CEOs should take a business approach to mediation and think of the negotiations as the means to craft a business solution that provides or maintains value for the company. CEOs are accustomed to being in charge. Often, however, one side does not get to dictate the end result in mediation. Rather, mediated resolutions are often thought of in terms of the compromises necessary to reach a positive business result. All parties have to be willing to listen and concede the truth that your opponent will likely be facing the same decision points for his company.

Mediation requires you to make good economic decisions. Often CEOs find that mediation can save their companies from the disruption, cost and angst of years of litigation.

What are some benefits of mediation?

Mediation is a collaborative process that can be used in any way the parties desire to attempt to reach a resolution. Conversely, litigation is a more rigid process where the people involved have much less control because they are then subject to the needs of the court, the lawyers, juries, etc. Parties to mediation, however, can do anything they want to attempt to reach a resolution.

If the CEO wants to preserve a business relationship with his opponent or has an interest in its ongoing financial viability (e.g. critical vendors, lenders, employees, etc.), mediation may be a much better solution than causing their opponent the drain of protracted litigation.

Mediations often allow for a calmer, more thoughtful means to resolve disputes as opposed to the inherent adversarial nature of litigation. While both means are effective in their own ways, CEOs will certainly want to be mindful of nonlitigation options for conflict resolution.

What is the purpose of the deposition?

A deposition is where witnesses are placed under oath and provide testimony, often videotaped, in response to questioning by an opposing attorney. It has the same force and effect as if provided in court before a judge. The opposing side will use it to evaluate the case’s strength and value. It can be used in resolving the case at mediation. It is unlikely that opposing parties will be willing to settle without first taking your deposition. It can be used as evidence during trial and as a tool by the opposing side to obtain additional information and documents from other sources identified during the deposition.

How should you prepare for a deposition?

You need to be willing to spend the time and effort to work closely with your attorney to prepare. The more prepared you are, the less anxious you’ll be and the less stressful the experience.

Trust your attorney. He or she has likely participated in dozens of depositions and can help guide you through the process. Your attorney will review the ins and outs of a deposition with you and tell you what to expect. He or she will also review the facts of the case, pertinent documents, the types of questions that will be asked, and how to give direct, concise and honest answers. This preparation is an opportunity for you and your attorney to discuss details in confidence and develop a game plan to deal with both the good and bad facts of the case.

What can you expect to happen at your deposition?

Expect a very thorough and tenacious attorney on the other side asking tough questions. Expect the unexpected — your deposition will focus on all aspects of the case as well as other information that may not be directly related to the case but still relevant. Don’t underestimate your opponent.

You need to listen carefully to the questions and stay focused. A deposition could last several hours or span several days, depending on the circumstances. Allow your attorney an opportunity to object before answering questions. Remember that a deposition is a legal record, and your attorney’s ability to object before you give an answer, or possibly instruct you not to answer, is crucial.

Remember to answer the question asked, not the question you may want to answer. A deposition is not necessarily the time for you to tell your story. If you cannot answer a question because you don’t know the answer, make sure to state that instead of guessing or attempting to ‘wing it.’ Answer truthfully and don’t attempt to cover up bad facts that you believe may hurt your case.

Maintain your composure and control your emotions during the deposition. Also make sure not to argue with the opposing attorney. Your body language, tone, dress and attitude are all important, because the deposition may be videotaped and later played to a judge or jury.

Do you always need to prepare for a deposition?

Some attorneys may recommend that you not prepare, review important documents or refresh your memory on key facts so you can then testify that you ‘don’t remember’ anything. You have no legal obligation to prepare, and if you truthfully don’t recall something, that’s a correct answer.

Some attorneys believe pretrial discovery is about gamesmanship and keeping your cards face down on the table. They try to keep the other side in the dark as long as possible, which can happen if you don’t prepare for a deposition. Some clients prefer to prepare ‘on the cheap’ and will only meet with their attorney on deposition day to prepare. There are potential benefits to not fully preparing, but in my experience it is typically better to prepare when weighed against the downsides:

• You may look foolish and potentially untruthful regarding key issues.
• You will be less able to put context or spin on important documents, events or incriminatory circumstances.
• You may want to be specific in your testimony at trial and rebut allegations in the case, but a skillful attorney can crush your credibility when you try to change your testimony and explain why you couldn’t recall something at deposition. After all, if you couldn’t remember anything during deposition, how is it that years later at the trial you somehow remember everything?

How do depositions fit into the overall course of litigation?

All parties to a lawsuit have a period of time after the suit is filed to conduct discovery, which simply means the discovery of the facts about the case in order to prepare for trial. Discovery is accomplished through interrogatories, which are answers to written questions under oath, and through depositions of witnesses. A deposition is testimony under oath, and there is no judge present. The deposition will be taken in an attorney’s office, with lawyers present for all parties. A court reporter will administer the oath and will prepare a transcript of the questions, answers and objections.

Remember that this is an adversarial proceeding. The opposing lawyer is not your friend, and this is not an opportunity to tell your side of the story. The opposition is represented by an attorney whose sole purpose is to persuade a jury that his client is right and that you are wrong. The deposition is not for your benefit; it is to afford the opposition a chance to question you regarding your actual knowledge and evaluate you as a witness, including whether you appear truthful and if a jury would like you.

It is important to be properly dressed in business attire. Wear something that you would wear to a meeting with upper-level management. Avoid trendy clothes, and dress neatly and professionally.

How should you prepare yourself or an employee prior to a deposition, and what materials should be reviewed?

At a minimum, you must review any and all documents or records that were authored by you that pertain to the subject matter of the litigation. Don’t forget to review with legal counsel any e-mails, written statements or taped statements on the subject. There is a problem if your deposition testimony is inconsistent with prior statements, records or e-mails that you have authored.

Additionally, you should review any interrogatories that have been answered by you or company representatives, in addition to discussing plaintiff’s legal theory and the alleged facts that support that theory.

If you have not been asked to bring any documents but believe that you have documents within your possession or control that might be helpful, discuss this issue with counsel prior to your preparation for deposition.

How should someone testifying at a deposition respond to opposing counsel’s questions?

Remember, this is an adversarial proceeding. Your purpose at deposition is to respond to specific questions, assuming that there is no objection by your counsel. This is not the time to volunteer or provide the opposition with any additional information beyond what the question calls for.

The goal can be accomplished by listening carefully to the question and answering only the question that is asked. If you have any doubt about what you are being asked, tell the opposing counsel that you do not understand the question. If you can answer the question with a simple ‘yes’ or ‘no,’ do so.

It is imperative that you do not guess or testify about matters that are not within your personal knowledge. If you do not remember, say so. It does not help anyone if you speculate. Testify to facts, and never give an opinion unless asked for it. This would be voluntary information, and in the vast majority of cases, it is not helpful to your side.

If you are asked about a specific document, ask to see the document prior to answering. Also, if your counsel begins to speak, stop testifying. Your counsel will advise you if you can continue your answer.

The opposition may attempt to summarize your testimony or interrupt you. If the summation of your testimony by the opposition is not exactly true in all respects, say you do not agree with the summation. If you have been interrupted while giving an answer, advise counsel that you have not finished your answer and insist upon finishing. At least make the record clear that you have not fully answered the question.

At any time during the deposition, you may request to consult with your attorney. However, this should be done only as a last option.

It is best to be polite and courteous to the opposition. If the opposition is rude or discourteous, let your lawyer handle those issues. Your job is to stay focused, listen to the questions and provide brief and truthful responses. The failure to tell the truth not only exposes you to potential criminal prosecution for perjury but also will undoubtedly seriously damage your case.

What are the first steps to take if your business receives a letter?

Acknowledge the letter right away. Read it carefully. Call your lawyer and your insurance broker. Many types of commercial insurance policies specifically require notification of any claim or potential claim. Perhaps you are worried that your rates will go up if you submit the claim. Your broker can advise you on this matter. He or she will consider factors such as the size of the claim and your prior loss history to determine how the claim will affect underwriting and the ramifications of reporting it. You and the agent can then decide together if you must submit the claim.

Will your rates go up if you file a claim?

This depends on many factors. Again, talk to your agent or broker. Communication is the key quality of a good agent. An agent is not helpful if he or she is not responsive and does not return your phone calls. Try to develop and maintain a good relationship with your agent so that when things go wrong, you can feel confident knowing he or she will be there for you.

Why is it so important to act promptly?

There are two types of policies:

• An occurrence policy. Coverage triggers the date the loss occurs. This type usually has a requirement that the incident be reported promptly or as soon as practical or possible.
• A claims made policy. This coverage triggers when the claim is actually reported to the insurer. If you know there is a claim out there, you should report it right away. If you wait, and during that time your policy renews, you may not be covered because it was not reported in time. If you delay, you are jeopardizing coverage.

What if the claim is filed and coverage is denied?

There are many different reasons an insurer can deny coverage, but each should be based upon the specific facts of the loss and the carrier’s interpretation of the policy. In the context of our discussion here, we are hoping to avoid a situation where the carrier takes the position that the insured failed to provide a timely notice of the claim. If that is the case, the insured could file a declaratory judgment action (lawsuit) asking the court to determine each party’s rights and obligations under the insurance contract. In a case where the insurer contends notice was late and, as a result, there is no coverage, it will be up to the insured to show that the delay in notifying the insurer did not prejudice the rights of the insurer. Generally, the longer the delay, the better the insurer’s chances are of prevailing in this type of lawsuit.

For instance, if the insured does not notify the carrier of the claim until after a trial, the insurer has lost its rights to manage the defense of the case, to participate in the trial and/or to settle the case.

What happens if the business is served with a lawsuit instead of a letter?

Plaintiffs’ lawyers often put language in the complaint that will trigger insurance coverage. If you are served with a lawsuit, notify your lawyer and insurance agent immediately. It is also very important to retain any documents related to the subject matter of the litigation. In Ohio, there is a separate cause of action called spoliation of evidence. This arises if one party willfully destroys evidence after it has knowledge that litigation may ensue and the other party would have relied on that evidence.

It is usually advised at the beginning of litigation, or when a claim is filed, to take the proper steps to ensure that no information that has anything to do with the matter is destroyed, such as all of the information in computer systems, including metadata and deleted information.

Any final words of advice?

Make sure you have complete copies of your policies with endorsements and keep copies of your old policies indefinitely. You also should have a basic understanding of what types of claims are covered and what types are not and a good grasp of the amount of your deductable. Above all, if you receive a letter or are served with a lawsuit, act right away.

As a creditor, prejudgment remedies are options you have for maximizing the chances of recouping at least some of the money that is owed to you. These remedies are often used in instances where there is a danger that the debtor will not have the money or property by the time a final judgment is rendered. Because they indicate to the debtor that you are serious about collecting what is owed, in many instances, the dispute may be resolved quickly.

What is the purpose of prejudgment remedies?

First, they put pressure on the account debtor to pay what is owed to the creditor.

Second, if the pressure is not motivating enough, then the remedy provides the client the ability to procure a lien on assets of the account debtor so that when the client ultimately receives a judgment, it will stand ahead in priority of other creditors.

What are the most commonly used prejudgment remedies?

The most commonly used prejudgment remedy is an attachment lien, whereby a lien is sought that attaches to both known personal and real property of the account debtor. An attachment lien is only as good as the knowledge you have as to where the assets exist. If you are a creditor, you should know where the debtor banks and you should have an idea of where other assets — like real estate and other tangible property — are located.

A prejudgment freeze or injunction is an option that prevents the debtor from transferring or otherwise converting assets. It is commonly used when the debtor has intentionally been involved in some wrongdoing.

The third possible remedy is a receiver, who handles disbursement of the debtor’s accounts receivable and may administer other assets for the benefit of the creditor. The receiver can also control the debtor’s real property to maintain and preserve its value and to collect rents.

All three tactics are very invasive because they impact the debtor’s cash flow and ability to transfer assets.

Is there a point to threatening a prejudgment remedy before actually using one?

You might want to threaten — but on the other hand you might not, because you may not want to tip off the account debtor. When a debtor becomes aware of prejudgment remedy intentions, it could move its assets or find a different way to manage cash.

What are the risks of using a prejudgment remedy?

The main risk is that your action may put the debtor out of business and you will never get all the money owed to you. But if the company is that fragile, it is unlikely that you will ever get paid anyway. Some of these remedies can be obtained without giving any notice whatsoever to the debtor. As a result, there are safeguards built into the process that allow a debtor to recover damages if the creditor does not proceed with care. So you have to have your ducks in order from a legal prospective to get what you’re asking for.

Of course, there are legal fees. Seeking a prejudgment remedy is not incredibly expensive, but the expense is not insignificant.

What are the procedural hurdles?

Prejudgment remedies work as well as the creditor’s knowledge of the account debtor’s assets. The better the knowledge, the better they work.

Prejudgment remedies are also very fast to implement. If you can demonstrate that there’s some nefarious conduct by the debtor (for example, secreting assets, moving accounts or converting collateral of creditors), then you can seek the remedy through the courts on extremely short notice — 24 to 48 hours. If you cannot show any questionable conduct, two to three weeks’ notice of the proposed action will be required. It really depends on the local rules, and it depends on the facts and exigencies of the case.

What is the key to procuring a prejudgment remedy?

The key is demonstrating to the court that you are likely to succeed on the merits of your collection action. To get a prejudgment remedy, you have to file a lawsuit to commence the action. The lawsuit must be based upon a contractual relationship with the debtor. Then you are asking through a motion to the court for the prejudgment remedy so that you can perfect an interest in some personal or real property prior to getting the judgment.

A prejudgment remedy is a provisional remedy. Immediately after final judgment, you then ask the court, again through a motion, to release the assets that you attached to satisfy the judgment.