When it comes to determining how much liability coverage a business needs, there is no set formula. But more coverage means stronger defenses for a business. A very successful business may need minimal impact if ever an incident occurs and the business is held liable. More coverage means less chance that a business will suffer from such incident. If the coverage is not sufficient, the incident may cost you thousands, if not millions, of dollars.
Reaching your Limit
Problems occur when you are confronted with a legal situation where the complainant(s) wants a settlement that goes beyond the amount of coverage you have. An example would be if the combined parties don’t want to settle for anything less than $5 million and you only have a $3 million liability policy. You can choose to either pay the difference with money from your own pocket or be forced to proceed to court. If your insurance company agrees to disburse your coverage limit to the other party and you go to court, then expect to cover your legal costs on your own, considering that the insurance company agreed to pay your maximum limit under your own policy. But if you don’t have that much money, then you may consider bankruptcy. Though I doubt that you would want to deal with the problems resulting from bankruptcy, such as disruption of your business. Furthermore, there are bankruptcy laws and you may not file for bankruptcy if you are not qualified.
Expecting Multiple Plaintiff
Cases where there are more than one person involved when a liability occurs are pretty common. For example, in the explosion that happened outside Waco, Texas, there are about 15 fatalities and over 100 injuries. Even if a business does not face the same risks as that of a fertilizer plant, there are still probable hazards that can involve multiple persons. The limit of liability coverage is not established in a per person basis. It does not take the number of the people affected into consideration. It’s a flat limit no matter what. The point is that the amount of settlement can and will add up if there are multiple people affected. The insurance company will distribute the coverage limit evenly to all parties involved. If the insurance was not able to cover everything, then you’re on your own to hire an attorney to be able to settle the remaining cases.
Learning the Numbers
More often than not, your liability policy has two numbers. The first is the occurrence limit and the second one is the annual aggregate. Occurrence deals with a single incident and the following related incidents. An example would be the Texas fertilizer plant explosion. The explosion is the occurrence. The incidents related to that are the deaths, injuries, or property damage. The occurrence limit covers those. The annual aggregate limit, on the other hand, refers to multiple unrelated incidents. When looking for your coverage amount, look at the occurrence limit.
The Umbrella Policy
You can buy higher limits through various methods. Some companies allow increasing the liability limit of each of your policies. But there is also a limit in this and it depends on the type of the policy, the policy size, and the company. Purchasing an umbrella policy is the best solution. This policy extends the limit on most, if not all, of your policies. If your policy has a $3 million occurrence limit, the umbrella policy will cover the excess after the $3 million. You may purchase umbrellas in million dollar increments. It is fairly common for businesses to purchase $10 million or more.
Deciding What Amount
Figuring out how much coverage a business needs can be done by a number of ways. Start with discussing your business, your risks, and your exposure to such with an insurance agent. It is also a smart move to discuss these with your lawyer or one that handles liability cases. You may also research on your own by visiting legal sites and reviewing incidents that occurred in businesses that are similar to yours. But the information you will obtain there are only that of the cases that went to court. This is because a gag order bounds out-of-court settlements.
Your business is your livelihood so you must be well-informed of the liability limits. No business likes being in the middle of any liability incident, especially when assets and business are put at stake. A hefty insurance policy will be of great help with such incidents and are crucial to the continuous success of your business.