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10 Ways to Protect Yourself From Frivolous Lawsuits

Americans have the best system of civil justice in the world for fair and adequate compensation when they are injured. But there is also no doubt that the system is abused far too often and that just one lawsuit without the right protection and planning may lead to financial ruin.

Justice triumphed in the $54 million pants suit, but the family owned dry cleaner is still having fundraisers to meet the legal expenses necessary to win the suit. One study this year from the Pacific Research Institute says that a hidden tort "tax" costs an American family of four almost $10,000 per year. The total cost of frivolous lawsuits to Americans exceeds $865 billion a year and phony, staged car accident lawsuits can tack another $500 a year onto your auto insurance premiums.

In your lifetime there is a good chance that you, too, can become victimized by a frivolous or exaggerated lawsuit. Every day in my law practice I counsel and defend clients in crisis because of the potentially devastating effects of a lawsuit.

So I've come up with some ways to help plan your protection in advance to make sure that you're not victimized by what some see as a lawsuit lottery where the ultimate goal may be jackpot justice. Of course this is no substitute for consulting with your own attorney to see what will protect you. I talked about these tips on "FOX & Friends" and here they are:

DON'T BE VICTIMIZED BY LAWSUIT LOTTERY: 10 WAYS TO PROTECT YOURSELF FROM FRIVOLOUS LAWSUITS

1. Buy sufficient liability insurance including umbrella/excess insurance. Umbrella insurance can cost as little as $150.00 for additional $1,000,000.00 coverage for even more types of claims like defamation, false arrest and invasion of privacy. Trying to save a few dollars now can expose your home and assets. Don't be under-insured!

2. Increase your property deductible and use the premium savings to buy more catastrophic liability coverage for greater asset protection. It's sometimes smart to "self" insure the deductible and gain additional liability protection.

3. Make a list of everything you would lose in a lawsuit gone bad in order to come up with an asset protection plan. Pull out your insurance policies now and review them carefully with your attorney, insurance broker or adviser to see if you really have enough insurance.

4. If you own a business, consider forming a subchapter "C" or "S" corporation or a limited liability company (LLC) to protect your personal assets.

5. Trusts and retirement plans may protect your assets from a judgment. Federal law can protect qualified retirement plans (but depending on state law not an IRA) from creditors.

6. Try not to sign personal guarantees for your business obligations. Be wary of general partnerships which can expose your personal assets.

7. In all of your dealings, keep your word and if you have nothing good to say, say nothing. Many frivolous lawsuits start as a result of what appears to be innocent disagreement among friends. Choose business partners, employees and social acquaintances wisely. Your trusted colleague today may be suing you tomorrow for a slip and fall, what you allegedly said or wrote about them or for an oral agreement they now refuse to keep. And remember that intentional conduct and punitive damages are usually not covered by insurance — so if you're sued you're on your own.

8. Be like the big companies and start your own risk management program to reduce risks around your home and business. Fix the broken steps or sidewalk you've never gotten to. Tack the carpet to reduce falls. We know about safe proofing the house for kids. Safe-proof your home and business for the safety of friends, family and customers and for your financial safety!

9. More is better than less. Uri Gutfreund of Teaneck, New Jersey based Singer Nelson Charlmers,an insurance brokerage suggests that when serving on volunteer boards and associations — charitable corporations, condos or cooperatives, for example-make sure there is directors insurance in place so your assets are not at risk for the organization's lawsuits. Also if you're a business owner, purchase insurance for employment claims. Finally, it may seem expensive at the time you rent a car, but purchase the additional or supplemental liability insurance offered.You may be surprised at how little insurance comes with the rental.

10. Don't be a victim! Carry a camera in your car to document an accident and who was actually in the vehicle involved. Staged accidents are very common. If you have an accident call the police to take a report and report the accident to your insurance company immediately. Never try to broker a cash settlement at the accident scene. You're only buying trouble.

Over the next few weeks I'll have more to tell you about how you can protect yourself and your family!

The information contained in this column is provided as a service to visitors of FOXNews.com and does not constitute legal advice or establish an attorney client relationship. FOX NEWS NETWORK, LLC makes no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in or linked to this Web site feature and its associated sites. Nothing provided herein should be used as a substitute for the advice of your own counsel.

Peter J. Johnson, Jr., has served as a legal analyst for the FOX News Channel since 1997 and is president of Leahey & Johnson, P.C., a Wall Street law firm.