US lawsuits: why small companies from Europe are rarely a target

The biggest misunderstanding is about the type of lawsuit. Just as at home in Europe, it is crucial to distinguish between civil and criminal proceedings.

If you are sued in the USA over a breach of contract, a copyright issue or alleged damages, that is a civil lawsuit. It is a dispute between two private (contracting) parties. You have not committed a crime. In practical terms, that means:

• There is no police investigation.

• No arrest warrant is issued.

• There is no entry on a criminal record.

• You will not be arrested when you enter the USA.

Even if you don't respond to a civil lawsuit, there are no criminal consequences. It remains a civil dispute.

To assess the risk of being sued realistically, you need to understand how US lawyers get paid. Many work purely on a success basis, the so-called "contingency fee".

The "contingency fee": no money, no lawsuit

The principle is simple: the lawyer only gets paid if the client wins money in the end. The lawyer carries the entire litigation risk. That leads to a golden rule for plaintiffs' lawyers:

Where there's no money to be had, no lawsuit gets filed.

A lawyer won't bring an expensive, time-consuming lawsuit against a small European e-commerce business when the chances of success are unclear and the defendant has no significant assets to collect. The financial risk for the lawyer's practice would be far too high.

The crucial role of insurance: "follow the money"

Lawyers aren't just looking for someone at fault, they're looking above all for a solvent debtor (a "deep pocket"). In practice, that deep pocket is almost always an insurance company. A lawsuit becomes especially attractive when a large insurance policy is in the background.

A classic example:

A truck driver causes an accident. The driver of the other car complains of back pain. That driver's lawyer sues the trucking company, not mainly because of the driver or the company itself, but because he knows the company is required to carry high-limit commercial liability insurance.

The lawsuit goes straight for the insurer's money. Without that insurance, the incentive to sue would be much smaller. So for small online businesses without multimillion-dollar policies, the lack of such a "pot" makes them an unattractive target.

When does a lawsuit become financially attractive?

Lawsuits focus on cases where large damages awards are realistic. These typically include:

• Product liability with serious personal injury: for example, an exploding battery that demonstrably caused injuries.

• Trademark or patent infringement by large companies: these involve high revenues and significant economic damage.

• Medical malpractice: cases where doctors or hospitals demonstrably caused serious harm to someone's health.

• Environmental pollution by corporations: lawsuits about cleaning up massive environmental damage.

• Large-scale consumer deception: when a corporation systematically misleads millions of customers.

For the vast majority of US firms specializing in damages claims, an online coach, a Shopify seller or a small software provider is simply not worth the money.

The real financial risk for small businesses isn't a potential damages payment, it's your own legal fees. Unlike in many European countries, legal expenses insurance for businesses is not widespread. Even if a lawsuit is completely baseless, you have to hire a lawyer to formally defend against it.

A real-world example:

A client used an image on his website that he allegedly had no license for. A firm specializing in mass infringement claims filed a lawsuit. Although the image was removed immediately, the suit was already pending. The client had to hire a US lawyer for $10,000 to get the case dismissed. The case was dropped, but the legal fees remained.

The high-profile cases that shape the image of the USA are often shortened and misleadingly reported.

McDonald's "hot coffee"

The story of Stella Liebeck, who sued McDonald's, is often held up as an example of greed. The facts are different: the coffee was scalding hot at 82 degrees Celsius and gave the 79-year-old woman third-degree burns that required several skin grafts. McDonald's had previously ignored more than 700 complaints about coffee being too hot. The jury saw a clear failure of product safety.

"Red Bull doesn't give you wings"

In 2014, Red Bull agreed to a $13 million settlement because its slogan was deemed misleading. This was a class action aimed at the marketing claims of a major corporation: a consumer protection case with little relevance for small businesses.

The "monkey selfie"

An animal rights group's attempt to have copyright awarded to the monkey that took a selfie was a media curiosity. The courts consistently dismissed the case, and it shows the limits of the legal system more than any real danger to business owners.

The USA is a federal system, and laws can differ considerably from state to state. Where you form your company directly affects your legal risk.

Business-friendly states

• Texas: Considered very business-friendly, with high hurdles for lawsuits and little regulation.

• Wyoming: Offers excellent privacy and strong liability protection for LLC members.

• Nevada: Known for laws that strongly protect managers and owners.

States with a higher litigation risk

• California: Known for frequent lawsuits and strict privacy (CCPA/CPRA) and employment laws.

• New York: Home to many "copyright troll" firms that aggressively go after websites over licensing violations.

• Illinois: Has especially strict laws protecting biometric data (BIPA).

If you have the choice, form your US company strategically in a business-friendly state like Texas, not California.

Instead of freezing up out of fear, take proactive steps to minimize your risk.

1. Form a US company: an LLC or Corporation shields your personal assets from business liabilities. This is the single most important step to limit your personal liability.

2. Use licensed content: only use professionally licensed images, text and software for your website and products.

3. Get the right insurance: American general liability insurance (General Liability) and professional liability insurance (Errors & Omissions, E&O) are essential.

4. Have your contracts reviewed: terms and conditions, client contracts and terms of use should be drafted or reviewed by a US attorney.

5. Avoid misleading advertising: be careful with guarantees of success, exaggerated promises or health claims.

6. Keep clean books: accurate bookkeeping and on-time tax returns signal that you are a serious business.

If you are used to insurance back home in Europe, the US market can come as a shock. Premiums are much higher, policies are more complex and the whole approach is fundamentally different. Understanding these differences is key to protecting your US business properly.

The big question most founders ask: why is everything so much more expensive? The answer isn't greedy insurers, it's the unique legal and economic environment of the USA.

Why is business insurance more expensive in the USA?

• Litigation culture: as discussed, people in the US are far more willing to sue. Attorneys who work on a success basis (contingency fees) have a strong financial incentive to look for possible grounds for a lawsuit. For insurers, every lawsuit carries a potentially large payout risk, and that flows straight into how premiums are calculated.

• High jury awards: in civil cases, juries can award enormous damages, including so-called punitive damages. These are meant to punish a company for particularly negligent conduct and can run into millions of dollars. Insurers have to price this unpredictable risk into their premiums.

• Each side pays its own attorney: unlike much of Europe, where the losing party usually pays both sides' legal costs ("loser pays"), in the US each party generally pays its own legal fees, whatever the outcome. That makes it much easier to file a lawsuit, because the financial risk for the plaintiff is lower.

• A broader view of liability: US courts often interpret liability more broadly. Companies can be held responsible for things that would not create liability under European legal thinking.

By comparison, the legal environment in Europe is far more predictable. Statutory rules, capped damages and fewer lawsuits create a more stable risk environment and therefore lower insurance premiums.

Buying insurance in the USA is not a quick online process. It takes care and an understanding of a few key concepts that differ from what you know in Europe.

1. Your insurance broker is your most important partner

In Europe you often buy directly from an insurer, but in the USA an independent insurance broker is indispensable. A broker doesn't just shop around for you, they act as your advisor and advocate with the insurance companies. A good broker understands the specific risks of your business model and can translate complex policies so you know exactly what you are buying.

2. The application is the foundation of everything

US insurance applications are extremely detailed. You need to give precise information about your revenue, business practices, contracts and risk management processes. Complete honesty and transparency are essential here. Any misstatement, even an unintentional one, can lead the insurer to deny coverage ("void coverage") when you make a claim.

3. Key policy details to watch

• "Claims-made" vs. "occurrence" policies: this is a critical difference many Europeans are not aware of.

  • Occurrence: covers damage that happens during the policy period, no matter when the claim is reported. This is the better protection, but it is less common and more expensive.

  • Claims-made: only covers claims that are reported during the policy period. If you cancel the policy, your cover ends immediately, even for incidents that happened while it was in force. To stay protected after the policy ends, you need expensive "tail coverage". Most policies for service providers (E&O) are claims-made.

• Coverage limits: the limits that are typical in Europe are dangerously low for the USA. One million euros may sound like a lot at home, but in the US it can be used up quickly.

  • Minimum: $1 million for General Liability and E&O.

  • Recommended: $2 million or more, depending on your industry and risk. An additional "umbrella policy" (excess liability insurance) can raise your limits at low cost.

• No standalone "legal expenses insurance" A common misunderstanding concerns legal expenses insurance. It doesn't exist in the US in the form many Europeans know. Instead, defense costs are a core part of your liability insurance (for example General Liability or E&O). If a covered lawsuit is filed against you, the insurer pays the attorneys who defend you. These costs can far exceed the actual damages.

What this means for you as a business owner

Buying insurance in the USA is a strategic process that costs more and demands more attention than in Europe. Don't see it as a chore, see it as a fundamental investment in the security and stability of your company.

1. Budget for higher costs: insurance premiums are a significant and necessary line item in your US budget.

2. Find a specialist broker: work with someone experienced with international businesses.

3. Read and understand your policy: take the time to understand the details, especially with claims-made policies.

4. Choose high limits: don't cut corners here. In the USA, being underinsured is a risk that can sink your business.

This article gives general guidance. But every business model is unique, with its own risks and opportunities. There is no one-size-fits-all solution.

If you want a clear roadmap tailored to your situation for a legally sound and successful start in the United States, a personal consultation is the next step. Together we can analyze your plans, assess the risks and design the best legal and tax structure for your company.

The fear of being sued in the USA is real, but it isn't rational. If you are prepared, work professionally, get good advice and set up your company structure wisely, you have nothing to fear.

The US market offers huge opportunities for growth, internationalization and entrepreneurial freedom. Don't let exaggerated, unfounded fears take that away from you. Your enemy isn't America's appetite for lawsuits, it's the paralysis that fear creates. Read our guide on how to protect the liability shield of your US LLC; for US LLCs without a US place of business, see our sister site zerotax.llc. You'll find more articles under News.

Consultation & implementation

If you'd like to find out what this means for your own situation, the best step is to book a consultation.