Litigation management refers to the practices put into place by a company or entity to avoid the risk and potential of a lawsuit. It may include taking specific and concrete actions to avoid being sued, such as getting a declaratory judgment as to the meaning of a contract or doing an in-depth study of whether the company's actions were in potential violation of any laws or legal principles. It may also include assessing the chances that a lawsuit will occur and purchasing liability insurance to protect against possible lawsuits.
Litigation management is part of a comprehensive risk management strategy that many companies have in place. Litigation can cost a company hundreds, or even millions or billions of dollars, so taking active steps to reduce the risk of litigation or to minimize the harm litigation can cause, is essential to the successful running of a business. It is even more important in situations where a business is prone to litigation; for example, a drug company that releases new drugs must have a comprehensive and complete litigation management system in place in case one of those drugs later turns out to be defective or to have dangerous side effects.
One of the key principles of litigation management involves exploring any potential areas of liability. For example, a retail store owner would wish to think about anything he could potentially be sued for; for example, he might be subject to lawsuits if he sells a defective product or if someone slips and falls on his premises. A manufacturer as well should consider any possible injury that might befall a user of his product that could lead to a lawsuit, but should also consider additional potential sources of litigation, such as employee injury.
Once a company has done a careful assessment of any and all situations in which it might be subject to a lawsuit, it can take steps to purchase liability insurance or protection. This is a key step in the litigation management process, as insurance transfers the financial risk of a lawsuit to the insurance company. If a company is sued, his insurer will pay the legal bills and any damage or settlement awards, up to the limit of the policy. Therefore, determining what types of insurance to purchase — from an auto insurance policy to a general or umbrella liability policy — and what amounts of insurance to purchase is a key component of business planning.