Most leaders have no idea whether or not their business or organization carries enough liability insurance. Many tell me, “I have an umbrella, so that should be fine,” and then end the discussion there. Even those who give the size of their umbrella some thought may not fully appreciate the size of injury payouts.
If you fit into this category of “umbrella purchaser,” you probably have $1 million from your general liability policy, plus the limit of your umbrella to defend you. A $1 million umbrella gives you $2 million total of insurance coverage. If the claim settles for $1.5 million, you had an adequate limit. If it settles for $3.7 million, your organization is responsible for paying the $1.7 million left after the policy limit is paid. This scenario does not take into account liability claims that may not be covered by your umbrella policy, making you responsible to pay after the general liability policy is exhausted.
What surprises most people is the amount for which claims are settled. A nationally known not-for-profit recently had an accident involving one of their 15 passenger vans, costing the organization $37 million. With owned vehicles carrying volunteers or clients, many organizations have the same potential for loss.
Even if the injured client, visitor, or volunteer does not feel entitled to a large payout, the realities of life may necessitate a lawsuit. An Arizona man lost his business when he could not work due to vertebrae and frontal lobe injuries sustained after falling from a church he and other volunteers were building. The verdict against the church sponsoring the building project was $5.9 million in 2011.
An organization without adequate insurance is legally obligated to pay the rest of the settlement. This may necessitate taking out a loan, selling assets, or even having property seized and sold at a bank auction. If these measures cannot satisfy the court judgment, your organization may need to declare bankruptcy with all assets going to the plaintiff.
All organizations need to carefully consider the implications of worst-case scenarios and plan accordingly. I encourage my clients to evaluate what assets they have to protect and how much liability insurance they can reasonably afford.
I would like to thank Robert Brown, Esq. of Ridenour Hienton & Lewis, PLLC for his contribution to this article.