Do you think that just because you have liability insurance, you are covered if there is a problem or accident you might be held responsible for? Liability insurance claims are very tricky. It’s true that the insurance is meant to protect you from lawsuits. But you might think you have coverage when you really don’t. It often depends on what you do once the claim is made.First, what is personal liability insurance?
If you do something (or fail to do something) that harms another person and you could have reasonably done something to avoid injuring that person, you’ll probably get sued. If you have the proper liability insurance, you’ll make an insurance claim. As long as what you did wasn’t criminal, the insurance company has to consider your claim. The same is true when it comes to liability insurance for small business too.
Depending on your policy, the insurance company may be forced to defend you or they may simply have the option to defend you. This makes a big difference. The insurance company may settle with the person suing because it might be the least cost way to make the problem go away,. But you may be damaged if the insurance company settles the suit because you’re left with the smeared reputation.
On the other hand, they may want to fight the case when you want to settle. This happened to a man I know and it turned his business into mud. Jon was a manufacturer and got sued. A few years before, he bought product liability insurance even though it was hard to come by. He was just happy he had some coverage….any coverage.
When he was sued the complaint was weak and Jon wanted to settle and get on with his life. His insurance company was convinced the claim was so weak that they’d win hands down. They fought the case tooth and nail.
At the end of the day, the judge became so angry at Jon’s defense team that he awarded the person suing Jon 10 times what he was willing to settle for. On top of that, Jon lost his insurance and then had to shut down his company. This all happened because Jon listened to the insurance company’s attorneys. Don’t let it happen to you. The first thing to do is review your policy to understand what the rights and obligations of the insurance company are.
Usually, the costs associated with the legal bills don’t come out of the policy limits but sometimes they do. Again, make sure you check your policy. Outside of the duty to defend, the insurance company is obligated to pay the claims against you up to the limits of the policy.
When you get sued, you’re going to get a written complaint and a letter demanding compensation. That’s the time to shut up and get the letter over to your liability insurance company. Often the policy precludes you from admitting guilt…so don’t. If you do, you might just be kissing that liability coverage goodbye.
Assuming you have a good policy and you haven’t done anything to void your coverage, your life is in the hands of the insurance company now. The company might refuse to cover you if they think that the claim is outside the scope of your coverage. If that happens the next call to make is to your attorney. You may have to sue your insurance company to make them cover you.
Sometimes the insurance company will pull a funny one. They’ll “defend only under a reservation of rights.” That means they can
decide to pull out of the case if they later decide the claim isn’t covered after all. If they do pull out of the case, they’ll come after you for the money they’ve already spent on your defense. If this is what your insurance company wants to do, you should immediately seek outside legal advice.
Remember, when you make a liability insurance claim, your insurance company is looking out for itself. They aren’t worried about you despite all the warm and fuzzy commercials to the contrary. If the claim is large enough, don’t be shy about getting an attorney to interpret your policy and to force the company to live up to those obligations. This could be the smartest move possible.
Have you ever made a liability insurance claim? Was the insurance company fair? Did they live up to their obligations?