Avoid Getting Your Mother or Your Business Sued

Are you being smart in protecting your business against lawsuits and liability? One lawyer and owner of a custom integration firm highlights tips, loopholes, and laws you should be aware of.

A mother sends her 10-year-old to 7-11 for milk. In the store, the little guy drops the milk and causes a famous Hollywood tough-guy actor shopping there to slip and tweak his little toe. The actor collapses in a heap, sobbing uncontrollably before he is carried off by three bodyguards. The actor sues Mom and wins at trial. (The son vows he will never go to the movies again.)

Is this scenario possible? It sure is: under a theory of agency liability. Now, think about all those times you sent workers to pick up parts before work or during lunchtime.

In fact, think about what your workers just might be doing during lunchtime when they travel away from your job site while wearing your company shirt and/or driving: creating liability for you. (Instead, why not keep your workers safely on-site and bring lunch in? They get a free meal, you get a 100% tax deduction and no one is ever late back from lunch. Ask your accountant if you meet the required conditions.)

Now that you have your employees comfortably corralled and fed… do you know if you are complying with the law (warranties, shipment risk, defective goods, etc.) governing the transactions of the goods you are selling? It is known as the Uniform Commercial Code, aka the UCC. It applies to the sales of anything moveable, including jumbo jets, farm animals (born and unborn) and yes, audio amplifiers, even the transaction between two teenagers for a used guitar on Craig’s List. On the other hand, you might need to know more about the common law, which governs your company’s trade labor. There are usually state and federal statutes that apply to this labor.

Related: 6 Steps to Legal IT Services Success

But what if your contract is for both materials and labor? Then welcome, my friends, to the “predominant purpose” and “gravamen” tests, which are two different methods of analysis used by courts to determine whether the UCC or the common law applies to performance and enforcement of a mixed goods/labor contract.

At this point, it would be understandable if you felt compelled to jump out a window. But hang on, because more fun is coming.

Good thing you have insurance. Speaking of commercial liability insurance, do you know the difference between “occurrence,” and “claims-made” policies? No? Don’t feel bad, many lawyers don’t know, either. Ask yourself this: would you rather have insurance that continues to cover your business’ past acts even after the policy expires, or would you rather have insurance that covers you for claims only during the current policy period? Remember, once a claims-made policy expires, from an insurance perspective you are completely naked against past claims. If this ever happens to you, try not to be out in public.

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I’d rather obtain an occurrence insurance coverage for three reasons that immediately come to mind: (1) I’d never have to worry about any lapses or exclusions in a current claims-made policy that could doom me because a claim suddenly arises from work done years earlier; (2) in an unfortunate year, claims against me would not add-up in excess of the limits of my claims-made policy; and (3) buying a new occurrence policy will theoretically be cheaper, because any new occurrence policy insures only for future acts and not for any past acts, as a claims-made policy does.

Lawyers in California are stuck buying claims-made professional liability policies: the longer an attorney is in practice (meaning, they have more cases in their past), the higher the risk a claim on their past work could be during their current claims-made policy period. This higher risk equates to higher rates. Who said insurance companies can’t stick it to lawyers?

Okay, let’s take a breath: now you can jump out the window. But unless you’re on the first floor, there is a better way ahead, and it doesn’t require that you to become an attorney. It is this idea: integrators need to obtain a cursory knowledge of the law as it applies to their field. It’s not as grueling as you think, and doing so will put you in the advantageous position of knowing what you don’t know. You cannot help but become better at knowing when you need to seek the help of a lawyer or a tax expert. (Or if you jump out a window, a doctor.)

So stay tuned. Maybe next time we’ll discuss the UCC’s Statute of Frauds. Generally, it requires any transaction in goods over $500 to be in writing, or the transaction is unenforceable. Unless, of course, one or more of its several exceptions apply.

Instead of jumping out of windows, I instead urge you to jump in with me, and start acquiring legal knowledge every integrator should know.

DISCLAIMER: If you do not contact your own attorney to obtain advice with respect to any particular issue or problem, you will later feel compelled to jump out a window and justifiably so. Remember, this column is for general informational purposes only and not for the purpose of providing legal advice.

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