Leo Welder of ChooseWhat.com started business in 2008. To help protect his assets, he invested in several general insurance policies, but he failed however to invest in intellectual-property litigation insurance. According to Welder, they were not exactly in the business of selling technology, so it seemed that this particular type of insurance will not be needed by them, not at that time or any event in the future. Just like those who thought that they will not be the subject of government audit and hence failed to purchase audit insurance, Welder was proven wrong when he was slapped with a trademark lawsuit by J2 Global, a company based in Los Angeles. J2 Global sued Welder’s business for using the term ‘efax.’
The lawsuit between J2 Global and ChooseWhat ended in a settlement and Welder’s company was able to survive. However, it did come with repercussions. The company owner needed to fund his defence out from his own pocket. Right after, he bought an errors and omissions policy to protect his business from future trademark issues.
According to Welder, the new policy that he purchased for his company was expensive, but not really as expensive as that of an IP lawyer’s fees, which he says could cost from $600 per hour or even more. He says that it’s not a question of being able to afford the policy but more of can he afford not to have it.
The above story is just a simple illustration of how insurance policies can help protect a business from going bankrupt. For example, the government can issue a tax audit at any time, which is why business owners need to consider paying for audit insurance. While their services may not be as expensive as that of an IP lawyer, it can still feel like a lot of money especially for small business owners. With the right insurance policy however, business owners no longer need to shell out their own money to pay for the auditor’s or other litigation fees.
Like Welder pointed out, not having enough insurance coverage could easily damage your business financially. Unless you can afford to pay for litigation and audit fees out from your own pocket, not having insurance for your business seems like a sound idea.