Most businesses have a variety of insurance policies to cover things like employment liability, property damage, officers and directors, commercial vehicles, workers compensation, etc. The coverage you purchase should be specific to your business, the industry in which you work, and the unique risks you and your employees face in a typical workday. In theory, your business insurance policies should cover you in the event your business is sued. The reality, however is that the amount of liability protection these policies offer may not provide enough financial protection. This can leave your business open to risk and make your assets vulnerable.
Lawsuits Are On The Rise
Our society is becoming more litigious every day. In fact, recent research shows that 89% of Americans believe lawsuit abuse is a problem. The rise in the number of lawsuits (both legitimate and not) and the size of jury verdicts impose a heavy financial burden on many businesses, large and small. Just consider some recent cases that have hit the courts:
- Pizza maker Papa Johns is the subject of a $250 million class action lawsuit over text messages it sent to customers offering discounts and coupons on pizza
- The maker of Nutella, a popular hazelnut spread, agreed to settle a $3 million class action suit that alleged it falsely claimed its product was healthy
- And who can forget the famous case of Liebeck v. McDonald’s, in which 80-year-old Stella Liebeck spilled a McDonald’s coffee in her lap, causing third-degree burns on her legs, lap, and groin area. Liebeck tried to solicit McDonald’s for a mere $800 to cover the skin grafts required for her injuries, but McDonald’s refused. Ultimately, the jury settled, awarding Liebeck $2.7 million.
Such lawsuits are not restricted to large companies like Papa Johns, Nutella and McDonalds. Take the case of Eric Nordby, who owns several small businesses in Auburn, California. He was the subject of a lawsuit alleging non-compliance with ADA requirements. At the time the suit was filed, the plaintiff in the case was been responsible for filing 140 of the 200 ADA-related cases in the Eastern District of California. Whereas other defendants chose to settle for upwards of $15,000, Nordby chose to fight the suit.
In cases like Nordby’s, there are no guarantees that the outcome will be in the business owner’s favor, and there is a very real possibility that the legal fees incurred, or the settlement, may cause extreme financial hardship for the business. This is because no matter what precautions you have taken, there may be gaps in your business insurance policies.
Why Umbrella Insurance
A commercial umbrella insurance policy can augment your existing business policy with supplementary liability protection against financial losses stemming from lawsuits and accidents. These types of policies are designed to provide increased limits of financial protection to your business from unexpected risks, and best of all, they are surprisingly affordable. That’s because the underlying policy limits are used first and your commercial umbrella coverage limits only kick in after those policies have reached their limits.
For example, if your current policy covers you for $2 million and you are successfully sued for $3 million, your business umbrella policy can pay the outstanding $1,000,000. Without umbrella coverage, this money would have to come out of your business profits.
There are a variety of things that an umbrella policy can cover. Some common examples include:
- Excess General Liability
- Excess Commercial Auto Liability
- Excess Employers’ Liability
- Excess Product Liability
- Excess Marine Liability
- Excess Energy Liability
- Excess Premises Liability
- Excess Contractors’ Liability
- Limited Excess Professional Liability
If you’re not sure whether your business should have a commercial umbrella policy, give us a call. One of our experts will be happy to review your existing policies and identify any potential gaps in coverage that a commercial umbrella policy can address.
Dave Perez is a risk advisor at Texas Associates Insurors and specializes in property and casualty risk assessments for business owners.