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
BY WILLIAM H. DONAHUE JR.
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
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.
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
William H. Donahue Jr. is an attorney practicing in New Jersey.
Copyright © 1999 by Bond Communications.