Looking at Liability

Managing:Legal Issues

Looking at Liability

In November 1998, Professional Jeweler's article on premises liability explained what the law requires of store owners and how to decrease your risk. This month, we look at insurance to protect you from claims that could arise anyway


Because personal-injury lawsuits are so unpredictable, there's no easy way to know your exact risk of liability. The most important thing to consider after reducing the risk of injury at your store is whether you have enough liability insurance. Your insurance agent can discuss risk factors such as your volume of customers and the loss history for your area and type of business.

Also consider excess or umbrella coverage. This is high-limit, usually relatively low-cost coverage you can buy from the insurer that wrote your basic policy or from another insurer. Excess coverage is designed to protect you from catastrophic claims because in these times of spiraling medical costs and jury verdicts, even minor accidents can lead to verdicts or settlements worth millions of dollars. Bring this up with your agent or broker.

Other Considerations
While determining the right policy limit for your store is important, there are other considerations. Under your business liability insurance, your insurer will provide you with a lawyer to defend any lawsuit filed against you and will pay the settlement or jury verdict up to the policy limit you chose. Because of this, your insurance coverage really has two parts:

  • Defense or legal costs.
  • Indemnity, the amount paid to a claimant after a settlement or verdict.

In a serious case, defense costs can be tens of thousands or even hundreds of thousands of dollars. In smaller or frivolous cases, defense costs often exceed the amount paid to the claimant. You need to know whether legal costs are part of the policy limits or in addition to them. If defense costs are subtracted from your policy limits, you have a lot less insurance coverage than you think.

Most liability policies have a deductible, the amount you have to pay before your insurance company pays anything. Determine whether your deductible applies to defense costs or only to settlements and judgments. You may have a liability policy with limits of $1 million and a $10,000 deductible. If the deductible applies only to claims paid and a lawsuit against you is dismissed or won, your insurance company would pay for the defense – you would pay nothing. If the deductible applies to defense costs also, that same lawsuit would probably cost you $10,000.

You also need to know whether your premiums will go up after a claim. Many jewelers are so afraid of what a claim will do to premiums and insurability they reach a settlement without involving their insurers. Others say their insurance companies settled frivolous claims and then raised their rate or canceled their policy. Your insurance policy determines how and when your insurer can settle claims and whether it needs your consent. In most states, however, insurance regulations determine what a company legally can put in its policy; every state has laws and regulations concerning how and when an insurer can raise your rates.

You should understand clearly your options and your insurer's (including canceling your policy). You can get this information from your agent or insurance company.

William H. Donahue Jr. is an attorney practicing in New Jersey.

Copyright © 1999 by Bond Communications.


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