How much liability coverage is enough?
Amidst the growing litigious nature of our society and skyrocketing settlements, the importance of protecting company assets has reached the forefront of diligent leadership and management.
Here are some key considerations when determining how much Liability coverage is right for you.
Damages, and the Law
Not all damages relate to physical injury to tangible property; there are increasing numbers of claims involving bodily injury, or even death.
Remember, the consumer of your product, the recipient of your work, or any person exposed to your operations has the right to expect reasonable care, and that all goods, work, operations and the establishment are in a safe condition; even when visiting or passing by. There is the added expectation that there will be no interference with their personal property or liberties.
Your business may be held liable for General or Special Damages, such as pain and suffering, future earnings, medical fees, loss of earning capacity, funeral expenses, and extended healthcare services, to name a few. Such costs are not only unpredictable; they are difficult to control and impacted by factors such as the victim’s social and financial position.
For certain industries, the large-dollar exposures are apparent (e.g. airline, pharmaceutical or manufacturing sectors), while others require closer analysis. Regardless, exposures do exist.
It is important to be aware of court awards involving similar businesses to your own, including emerging precedents. These cases set the foundation for future settlement of similar actions.
Legal Costs and Interest
Courts can impose payment for the Plaintiffs’ legal costs, pre-judgment and/or post-judgment interest. These
costs are in addition to actual ‘damages’ awarded and can be quite substantial.
Existence of Insurance
Juries may be more generous when insurance is in place. It’s often referred to as the Deep Pockets Theory. The general concept being: those who have the greater ability to pay, should pay.
Although the existence of a liability policy is often inadmissible as evidence, a subtle inference or assumption may lead the Jury to believe one exists. This can serve as a form of psychological detachment; removing the sense of direct financial ‘injury’ to the Defendant(s).
U.S. sales or exposure? Consider the possibility that there may be less reluctance to commence a legal action
when an incident occurs south of our borders. Not to mention the exchange rate and higher costs for your
Canadian insurer to investigate, mitigate, defend and settle the claim.
Courts often give consideration to inflation – pushing awards to higher levels to compensate.
Ability to Absorb Losses
Most companies do not have the luxury of self-insuring. How many businesses possess the wherewithal to
conduct proper investigations, and the expertise to determine the best course of action with the least exposure to legal ramifications? How many have reserve funding readily available when faced with a significant liability loss?
Fact: the ability to pay an award is NOT a consideration by the Courts!
Businesses may be left with no other option but to liquidate. And, in cases where that is still not enough to cover the Judgment, there is a potential impact on future earnings and any personal guarantees posted in
association with the operations.
Fact: Bankruptcy does not necessarily absolve payment of a Judgment!
Tammy ‘fell in’ to insurance from the aviation sector. Since 1997, Tammy has navigated her way through the trucking industry as a Broker. Staying true to course and guided by her passion, she has held a variety of positions ranging from Account Executive to General Manager. Today, Tammy is the Director of Transportation at Bryson Insurance.