Companies seek extra liability protection

Sioux Falls Business Journal
19 September 2007

Lawsuit liability can cause business owners to shell out major dollars if they aren't insured properly. Many business owners are protecting themselves with additional insurance to cover the costs.

General liability insurance is the most basic type of liability coverage to protect businesses from lawsuits. It pays losses from bodily injury, property damage, and personal and advertising injury to a business. The policies cover court fees and damages awards to the injured.

Most policies are written with a $1 million limit.

Karen Jergenson, a senior account manager at Howalt-McDowell Insurance Inc., said many companies purchase umbrella liability insurance, which provides coverage beyond the general liability insurance. Businesses can purchase one or more policies, providing several million dollars in coverage.

The umbrellas are a great way to receive additional coverage, she said.

"There's no such thing as having too much insurance," Jergenson said. "It's where the comfort level is at."

Mike Detert, an account executive at North Central Insurance, said quite a few businesses purchase umbrella insurance. The extent of coverage depends on the size of the business and how many assets it has to protect.

"A lot of people start buying more umbrellas when they have more to lose," Detert said.

The insurance has become more affordable through increased competition, good investment returns, lower losses and lower catastrophe losses, he said.

"In the last couple of years, premiums have been going down," Detert said.

Umbrella insurance premiums can range from $300 to $1,000 annually.

Dick Gregerson, an attorney at Woods, Fuller, Shultz & Smith PC, said businesses are purchasing a lot more umbrella policies because many businesses are increasing in size.

"Sometimes it's hard to judge how much liability you might have," he said.

Some of the larger companies are self-insured and don't need to purchase liability coverage.

"They're big enough they can afford it for themselves without having the big premiums," Gregerson said.

For smaller companies, workers' compensation can be expensive and the premiums continue to go up and down.

A recent study by NERA Economic Consulting determined that small businesses pay for 69 percent of civil lawsuit liability costs, although they generate 19 percent of business revenue.

The biggest challenge in staying protected is that the law is changing continually, Gregerson said. What may not have created liability in the past might be a liability today.

"Sometimes predicting what your exposure may be is difficult," he said.

Gregerson said litigation is increasing among sexual discrimination and other discriminatory cases.

Mike Hauck, the chief operating officer and vice president of business development for NAI Sioux Falls Commercial Real Estate Services, practiced law for 17 years in commercial litigation and transactions.

He said some businesses don't realize what their policies cover.

Some policies don't protect against things such as sexual harassment.

"People have to realize just because they are incorporated or formed an LLC doesn't insulate them from their own personal conduct," Hauck said.

There also are liability issues when an employer offers a retirement plan, said Neil Graff, a financial adviser for Eide Bailly LLP.

It's an employer's fiduciary responsibility to protect its employees' retirement plan or it could be sued, he said.

"One of the services we offer is we help an employer fulfill his fiduciary responsibility," Graff said. "We, as investment people, we have to make sure the employer knows what he has to do to follow his fiduciary responsibility."

Nationally, the number of lawsuits has increased dramatically in the past five years, Graff said.

"Here in the Sioux Falls area and in South Dakota, we have smaller employers, from 10 to 100 employees. In smaller environments, we haven't seen as much litigation," Graff said. "I think the smaller companies, the employer and employees have a closer relationship.

The employees can vocalize and verbalize their views."

This article has been reproduced with permission from the Sioux Falls Business Journal. (c) Copyright 2007, Argus Leader. All Rights Reserved.