Are You Afraid of Lawsuits? You Should Be
A few days ago, the trusty clothes iron I used for many years died. When I plugged it in, it produced a thin trail of smoke and a strong electrical odor. Needless to say, I replaced it right away.
I was amused to see that my new iron came with numerous warnings, such as “do not touch iron while in use” and “avoid contact with flammable items.” Not to mention, “do not iron clothes while they are being worn.”
Just about any item you purchase in the US comes with a similar warning. The operating manual for my espresso machine cautions users not to put the unit in an oven. A chainsaw I once rented included a warning to keep fingers away from the chain while the unit was operating. My wheelbarrow contains the helpful advice that it is “not intended for highway use.” Once I even saw a warning label on an electric drill that instructed users not to clean their ears with it.
Most of these warnings, I suspect, resulted from someone injuring themselves by using a device improperly and then suing the manufacturer. Someone likely tried to press their shirt or trousers while they were wearing them and sued for not being warned. And yes, someone probably used a power drill to clean their ears, with disastrous results.
But lawsuits resulting from the improper use of tools and home appliances are just the tip of the iceberg. More than 15 million civil lawsuits are filed annually in the US – that’s more than 40,000 per day. Nearly 1.2 million lawyers practice in the US – about one for every 300 people. That’s by far the largest number in the world. Indeed, 80% of the world’s lawyers live in the US.
Here’s a handful of the more ridiculous lawsuits filed in US courts that I’ve come across:
- A judge in Washington, D.C. filed a $67 million lawsuit against a dry cleaning service for losing his favorite pair of pants.
- A young man who stole a floodlight from the roof of a high school gymnasium fell through it and seriously injured himself. He eventually received a settlement of more than $260,000.
- The wife of a Florida minister sued a guide-dog company for $160,000 after a blind person using the dog stepped on her toe.
In every one of these cases, the person being sued had to pony up thousands of dollars in legal fees to defend themselves. The owners of the dry cleaning service, for instance, spent more than $100,000 in legal fees before a judge threw out the lawsuit.
One reason that lawsuits are so prevalent in the US is that lawyers can take cases on contingency. The lawyer receives no fees unless money is recovered from the defendant. Anyone can sue you and risk nothing more than time and energy.
Another factor is the growing number of laws that give a plaintiff (the person suing) grounds to recover damages against employers, landlords, and other businesses. Examples include the Americans with Disabilities Act, the Fair Credit Reporting Act, the Racketeer Influenced and Corrupt Organizations Act, and many others. The Securities and Exchange Commission can sue you for insider trading, even if you receive no personal benefit from the information you pass on.
The concept of "strict liability" means that even if you're in no way negligent, you can still be liable for damages in a lawsuit. And "joint and several liability" laws may hold you fully financially responsible for a judgment regardless of your individual share of the liability. If you're 1% responsible for a $10 million loss, and you are the “deep pocket,” you might be required to pay the entire amount.
Could you be the next defendant forced to fork out hard-earned cash to settle a frivolous lawsuit? If you're wealthy, you're a prime target, especially if you display your wealth openly. Professionals — doctors, lawyers, engineers, etc. — are frequent targets. Disputes among relatives often lead to unwanted litigation, particularly after the death of a wealthy family member.
Liability insurance is a great way to protect yourself, but it’s not always enough. We recommend that clients maintain $1 million or more in liability insurance on their personal residence and vehicles. A business should have that much, or more, in general liability coverage. Retail and manufacturing businesses also need product liability insurance. Licensed professionals – lawyers, doctors, engineers, etc. – need professional liability (malpractice) insurance). Because liability insurance policies are riddled with exclusions, you’ll want to work with an experienced agent to ensure you’re covered for all of the risks you realistically face.
It’s also a good practice to avoid obvious invitations to litigation, such as offering personal guarantees. Try to isolate liabilities by using corporate entities — especially limited liability companies — to operate any businesses you own. And moving assets outside the US is a great strategy to make your wealth less visible and gain greater protection for it.
If someone like the Washington, D.C. judge ever sues you, you'll wish you had a "financial fortress" in place that can't be touched if you lose. And there are plenty of options open to you. Contact us. We can help.
Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.
Feel free to get in touch at email@example.com or call +1 (602) 688-7552 to learn how we can help you.
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