As a litigator, I often meet clients who come to me with serious problems that could have been easily avoided if they had involved me earlier in the process. For example, I’ve handled numerous commercial lease disputes that might never have escalated if I had been consulted to review the lease before it was signed or brought in at the first sign of trouble. Similarly, I’ve dealt with employee embezzlement and fraud cases that could have been prevented—or minimized—with better internal controls.
While it is understandable that businesses aim to minimize expenses, including legal fees, the reality is that litigation is expensive. A 2007 study by Joni Hersch and Kip Viscusi highlighted the costs of litigation:
“Insurer costs to defend claims in which a suit was filed average $35,000 per claim in 2004 dollars… Total transaction costs for each dollar received by claimants average $0.75 for all claims and $0.83 for claims in which the claimant retained an attorney and a suit was filed.”
When adjusted for inflation, that $35,000 figure becomes approximately $58,000 today for tort-type claims like automobile liability or medical malpractice. However, businesses defending against more complex litigation—such as contract disputes, commercial fraud, or intellectual property claims—should expect significantly higher costs due to extensive document discovery and the complexity of legal issues.
Why Prevention is Better than Cure
Most businesses lack access to the lower-cost, in-house attorneys often used by insurance companies. For the average company, engaging outside counsel for defense can become a substantial expense. This is why the old adage, “an ounce of prevention is worth a pound of cure,” rings particularly true for businesses.
Investing in proactive legal measures can save significant time, money, and stress. For instance:
- Contract Reviews: A thorough legal review before signing can avoid costly disputes later.
- Fraud Prevention: Implementing strong internal controls can deter fraud and embezzlement.
- Intellectual Property Protection: Ongoing monitoring and assessment can safeguard your competitive edge.
These preventative steps require minimal investment upfront compared to the hundreds—or even thousands—of attorney hours required to resolve a full-blown litigation case.
The Hidden Costs of Litigation
Beyond financial costs, litigation brings intangible risks:
- Business Distraction: Legal battles divert time and focus from core business activities.
- Reputational Damage: Public disputes can harm your brand and relationships.
- Unpredictable Outcomes: Even with a strong case, litigation outcomes are never guaranteed.
The Value of a Legal Regimen
Just as maintaining a good health regimen helps prevent serious medical issues, establishing a proactive legal regimen can prevent severe litigation costs. Consulting a trusted legal advisor at key points in your business operations is not just prudent—it’s a smart investment in your company’s future.
While early legal involvement may not be the most exciting expenditure, it is one that pays dividends by reducing risk, safeguarding your assets, and ensuring smoother business operations.
