If your business suffers a loss due to a breach of contract or some other injury, you have a duty to not make matters worse. This is referred to as a duty to mitigate loss. What this means is that you are required to take measures to ensure that the loss does not increase. You also have a duty to refrain from taking steps that may increase your loss. While this duty is not “enforceable” by any agency or law, your failure to uphold your duty could result in reduced damages should your case go to court. For instance, if you were to be awarded a sum of money, the judge might consider what you could have done differently to mitigate loss and prevent you from recovering the full sum of damages. In extreme cases, the judge could bar your chance at recovery entirely.
Defining “Reasonable Duty”
Your duty to take reasonable steps to mitigate damage is not held to an exceedingly high standard. However, it exists to ensure that plaintiffs did not purposefully accrue more damage to recover a greater sum of money. Defendants will often use duty to mitigate to limit the amount in compensation they must pay, which may work in some instances, but more often than not, the suggestion that a business purposefully increased damages is met with disdain by courts.
That said, if a defendant can prove that you failed to take steps that any other reasonable business owner would have taken to reduce losses, or if he or she can create the impression that you let the situation to deteriorate without any reasonable intervention, then the court will reduce damages accordingly to reflect your failure.
You Can Recover Costs for Mitigation
You may wonder why you should be punished for failing to mitigate a situation you should not have had to mitigate in the first place. After all, depending on the extent of damage, the costs of mitigation can be great. Courts incentive businesses to alleviate losses by compensating them for the costs associated with their “reasonable steps.” However, businesses must be careful about how much they spend in mitigation costs. If costs exceed a certain amount, the courts may suspect that the business crossed the line from “reasonable” to “excessive” for the sole purpose of exaggerating its loss.
The Defendant May Use “Betterment” as a Defense
Sometimes, a business’s attempts to mitigate a loss actually end up benefiting the company in the form of profits. This is referred to as “betterment.” When betterment occurs, the courts may use the profits as a sort of “credit” toward the defendant’s final bill. However, the claimant is not required to bring up the fact that betterment has occurred. That responsibility rests with the defendant. If a defendant does raise the issue of betterment, the judge will then ask the claimant to produce financial statements from before and after the damage occurred.
When Damage Occurs, Retain an Experienced Business Attorney
If your business suffered a loss, the best thing you can do to ensure a speedy and uneventful recovery is to retain the help of a knowledgeable Alabama business litigation lawyer. Our legal team at Cloud Willis & Ellis can advise you on what and what not to do to mitigate loss and obtain full financial recovery. Contact our law firm today to discuss your legal needs.