A study conducted by business insurance carrier The Hartford last year found that reputational damage is the most expensive type of harm that can happen to a small business, with an average price tag of $50,000 per incident. While that’s alarmingly high for most business owners, it comes with two pieces of good(ish) news:
Here’s a closer look at how small-business owners can manage the risks associated with reputational harm.
Reputational harm happens when someone’s good name is damaged. For example: one used car dealership claims in a commercial that his competitor pours sawdust in the engine and runs the odometers backward with a power drill, à la Mr. Wormwood.
Obviously, such a ding to someone’s name can translate to lost money if customers stay away because of the negative press. If that money loss spurs the harmed party to sue, it can become a problem for everyone involved.
Depending on your industry and the context of the claim against your business, three small business insurance policies may help cover your costs if you’re sued for reputational harm:
In the age of social media, it’s easier than ever to inadvertently commit libel or slander – as soon as you post online, your words, images, or videos can have an impact well beyond your business. That’s why the best prevention here is proceeding with caution.
According to James Goodnow, attorney at Lamber Goodnow Injury Law Team, “the overarching rule in this area is don’t say any comments that you know aren’t true. Hyperbole, exaggeration, and mischaracterization are the keys to ending up in court.”
Goodnow specifically cautions against speaking too cavalierly about your competitors. Mischaracterizing a competitor is not only defamation, he says, “but also a civil claim called ‘tortious interference with business relations’ – meaning you have damaged a business relationship.”
He also offers one more word of caution: beware of emotionally charged situations. “If a business feels attacked,” he says, “it may mean it is more likely to speak with counsel and serve you with a lawsuit.” Translation: keep your banter civil, and you’re less likely to end up in court.
To summarize, Goodnow recommends that small businesses avoid reputational harm claims by:
This post is the first in a series about how various small business insurance policies can help you manage the risks that pose the greatest threat to small businesses. Check back for more!
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