In the past few years, there have been an increasing amount of cases where e-commerce businesses are being sued for economic damages. Operating a business online is always a challenge, but e-commerce businesses in particular run the risk of accidentally misleading potential customers through descriptions, ship times, and a myriad of other items. This can lead customers to feel slighted and unfairly file for economic damages against your business if the situation is serious enough. It's due to this that all digital businesses need to learn how to protect themselves from such risks.
Understanding Economic Losses in E-commerce Lawsuits
First and foremost, if your business is unfamiliar with the concept, economic damages are one of the common damages from personal injury lawsuit cases that arise. Economic damages are specifically those which relate to economic losses. In an e-commerce context, economic damages most often take the form of lost profits, customer compensation issues, and general reputational damage against a customer.
E-commerce businesses are most susceptible to lawsuits involving economic damages when there is product liability concern, disputes over intellectual property, or widespread data breaches. The calculations behind economic damages are extremely nuanced and will vary from case to case. However, a general roadmap is that economic damages will encompass all economic losses incurred from the time of the event to the time of the trial, in addition to any forecasted losses.
For e-commerce businesses, there aren't many cases where future economic losses come into play. However, if the situation is warranted, a court may award future damages.
The Importance of Comprehensive Insurance Coverage
Insurance isn't perfect but it will certainly help to prevent your business from smaller lawsuits. Therefore, it is a critical tool for protecting your e-commerce business from economic losses. The three types of business insurance that an e-commerce brand should think about adding to its policy include:
- General Liability Insurance: This is protection against customer injury claims or property damage
- Product Liability Insurance: This is protection against claims related to defective products
- Cyber Liability Insurance: This is protection against data breaches, hacking, or online fraud
No business is perfect and adding more insurance onto your policy isn't a sign of shadiness. Rather, it is just an extra layer of protection from a legal standpoint. To ensure this extra layer of protection stays strong, though, you need to review your insurance policies regularly to double-check that the level of coverage you have is adequate.
Implementing Robust Risk Management Practices
Keeping your business protected from lawsuits starts with you. Proactive risk management can help to mitigate potential economic losses by reducing the chance of personal injury ever occurring in the first place. On top of this, by taking these steps, you also reduce the chance of being held negligible by a court. Some clear risk management strategies you should take include:
- Clear Terms and Conditions: Ensure contracts with customers and suppliers outline liabilities and dispute resolutions
- Regular Safety Audits: Conduct audits of the business's operations to prevent accidents or breaches
- Legal Compliance: Stay up-to-date with local and international regulations, including consumer protection and data privacy laws
All of the above steps will help to minimize the likelihood of a lawsuit being filed against you. This will also further reduce the likelihood of your business needing to pay economic damages, which can be quite expensive.
How to Build a Strong Legal Defense
The best way to keep your business protected and operating as normal in the event that you do get a lawsuit thrown your way is to have a legal strategy in place. Start by consulting with legal experts, such as a business attorney, who can ensure that your e-commerce business has all the necessary legal protection in place. They can also review contracts on your behalf to ensure everything is in order.
On top of this, you should also keep a clear record of any and all business transactions, customer communications, and contracts in order to defend yourself against claims. This is also where dispute resolution clauses can be handy, as they should outline alternative resolution solutions like arbitration and mediation. These simple precautions can help to prevent lawsuits from escalating and will further minimize economic damages.
Protecting Your Reputation to Prevent Long-Term Economic Damage
Unfortunately, winning a lawsuit doesn't mean that your battle is completely over. The court of public opinion can still make a difference in the success of your business. If the entire lawsuit process isn't handled well by your business, you may be facing long-term losses of customers and revenue. During the course of a lawsuit, you should handle public relations with grace by using some of the below tips:
- Be transparent and clear in communications with customers
- Address concerns promptly to maintain customer trust
- Use PR professionals if necessary to handle negative media coverage
- Never attack the person who is filing the lawsuit against you
- Ensure everyone that your business is strong and not going anywhere
Safeguarding your reputation during and after a lawsuit is a critical step as it will ensure that you actually have customers who want to shop at your business when the mess of the lawsuit is handled. If the entire lawsuit ends up destroying the reputation of your business, you might win but then have absolutely no revenue to get things up and running again.
Safeguard your e-commerce business
Through having adequate insurance coverage, employing an effective legal defense, and actively defending your reputation, your e-commerce business can come out on top in any lawsuit. All of these safeguards should be put in place as soon as possible, though, both to protect against claims of negligence but also to ensure there are no gaps in your coverage. Staying financially protected from lawsuits needs to be the top priority of businesses around the world, so reach out to an effective business attorney if you are unsure of how to go about this process yourself.
