Liability insurance is what you purchase to protect you, or your business entity, from the allegations of injury from a third party. Luckily, most of us have not had a worst-case scenario where we face financial ruin from the results of a mistake arising from our personal or business activities. But those worst-case situations happen. Let’s look at a few claim scenarios.

Examples Of Liability Claims

1. Underage Drinking

A high school senior attends a party at a close friend’s home intending to stay overnight. Alcohol is served at the party with the knowledge of the friend’s parents under the provisions that all those drinking will surrender their keys and sleep over. During the night, the senior wakes up, walks home, and sneaks out of the house. While walking along the highway, he is struck by a vehicle and gravely injured.

While the parents took what to them seemed reasonable precautions to protect their guests, the fact is that they provided or allowed underage children to drink in their home. They will have some responsibility under the law for the injuries to their child’s friend. How much insurance is enough if you are the friend’s parents?

2. Contracting Mishap

A home improvement contractor gets a job to replace a deck for a client. The contractor purchases the lumber for the new deck from the normal supplier and purchases appropriately graded lumber for the specifications of the project. Several years after the job is completed and paid for, the deck collapses and twelve people are severely injured during a family celebration.

The home improvement contractor may have done everything correctly while building the deck, including following all township inspection requirements. However, if the lumber is found to have been defective, there is no doubt that the contractor, along with the supplier, and the manufacturer of the lumber will be held legally responsible for the injuries caused by the work that the contractor performed. How much insurance is enough if you are the home improvement contractor?

3. At Fault When Driving

The operator of a vehicle is driving on a typical crowded highway in New Jersey (this could be you, your child, or your employee driving one of your business vehicles), when the driver is distracted and does not see the line of traffic that is stopped on the highway. There are any number of events (occurrences, activities, or happenings) that you can fill in as the distraction, such as receiving a text message, spilling ketchup from the fast-food sandwich that is being consumed, or daydreaming.

Knowing that there is not enough room to stop the vehicle, the driver swerves into the right lane and then into the shoulder of the road, stopping without hitting or getting hit by another vehicle. However, the quick maneuvering causes a school bus that was in the right-hand lane to stop suddenly, causing several students to hit their heads on the seats in front of them. An ambulance takes several of these students away to receive treatment.

The owner of the vehicle whose driver cut off the school bus will have some responsibility for the injured students on the school bus. How much insurance is enough if you own the vehicle that ends up in the shoulder?

How Much Liability Insurance Would Be Necessary In These Claims?

In each of these claim scenarios, there is a high potential for civil litigation. So, the key question here is how much insurance would be enough?

While it is impossible to know in advance or to predict the outcome of these scenarios, there are a few things that we understand based on trends in our legal system.

Legal System Trends

Legal Defenses Are Expensive

The cost to defend these claims is much higher than you may think. For most liability insurance policies, the cost of defense is not part of the limit and is not subject to a dollar limitation. However, it is unrealistic to assume that an insurance company will spend more money to defend a case than it would cost them to settle it or to pay out the policy limit.

In other words, if your insurance limit is too low, you could encourage the insurance company to settle for total limits rather than defend you throughout the entire course of the claim. The insurance company does this through a “reservation of rights” notification which advises you that the case may exceed your limits and suggesting that you have your own legal representation (attorney).

Outcomes Are Unpredictable In Civil Court

Judgements in civil court have exploded over the last several years. The insurance industry trade press has dubbed this phenomenon “social insurance.” It has gotten so bad that many question the ability of the insurance industry and the legal profession to predict the outcome of civil litigation. Lack of predictability of these outcomes has been a heavy contributor to the increase in liability insurance costs over the last few years.

Are You A Target?

The legal system has built-in incentives for attorneys to seek judgements over insurance limits when the defendant in the suit has significant assets.

Guidelines To Help Determine Liability Insurance Coverage

There are several guidelines that you can use to help direct you in selecting an appropriate level of liability insurance coverage for you.

1. Consider Your Net Worth

If you have significant assets, you should have significant limits of insurance. This applies to business operations as well. If you own a building worth $3,000,000 with no mortgage and you have a liability insurance limit of $500,000, you may not have enough liability insurance.

2. Consider Your Conscience.

If a mistake of yours causes injury to another person, how would you feel if you do not have enough insurance to provide needed care to that person and their family.

3. Consider An Upgrade

If you have always carried a one-million-dollar limit, perhaps it is time to upgrade your limit simply because, over time, you need more.

4. Consider The Cost

You will be surprised how inexpensively you can increase your liability coverage.

Everyone’s Liability Needs Are Unique

In summary, there is no magic formula to determine the limits of liability insurance that work for you.

We hope this article has helped put the need for higher limits in context for you. Please contact us to discuss your limit and to find out how easy it is to increase your level of protection.