Incorporating or electing to conduct business in another statutory business form, such as a limited liability company, can do much to protect your personal assets from being called upon to satisfy a company liability. However, the limitation of liability afforded by statute is most effective in contract actions (see related article on properly disclosing your company’s status) and vicarious tort liability claims.
The protection afforded by conducting business as a corporation or a limited liability company does little to protect the company from tort (negligence) liability and thus the “value” of the company which you have grown may be in jeopardy.
Negligence claims brought against you individually during the course of employment, or against your company can place you or your company’s “wealth” at risk. Initially placed proper insurance coverages which are then reviewed at least annually can be a sound way to protect your investment in your company and your personal assets.
The basic business liability coverage in Missouri is through a “Commercial General Liability” policy. In general terms, the standard liability policy provides third party defense and indemnification for bodily injury and property damage. There are endorsements for incidental contracts, libel, slander and wrongful eviction.
With over 900 liability classes, you should know if your company is properly classified. A different classification can mean a reduced premium. If you are a tenant, the insurance portion of your lease should be reviewed so that a “mutual waiver” can be negotiated between landlord and tenant. There should be no, or little, cost for the waiver.
The administration of employee benefits has become very complex, and therefore you should consider employee benefit errors and omissions protection. Also, protection may be available for discriminatory hiring practices or employee relations, including sexual harassment.
Use of your automobile for business creates insurance risks as well, whether you are the business owner or only an employee. (If your business is incorporated, you are an “employee,” even if you own stock.) If employees drive their personal automobiles for company business, your company needs non-owned automobile liability coverage. This coverage protects the company’s vicarious liability, not the employee’s liability. If employees rent cars for business, “Hired Car Liability and Physical Damage Coverage” should also be included on your policy. If the business owner or key employees do not have personal automobile insurance for the reason they only use company cars, “Drive Other Car Coverage” may also be necessary. The standard commercial auto policy excludes liability protection for the business owner should an employee allege negligence (“Deletion of Fellow Employee Exclusion”). The company may be able to avoid this gap in coverage by “buying back” this exclusion. Although “Uninsured Motorist Coverage” is mandatory in Missouri, “Underinsured Motorist Coverage” can generally be purchased for a reasonable premium.
“Crime Coverage” is generally available, but first the employer needs to put in place preventative measures, generally including: (1) at least two individuals performing different segments of internal bookkeeping functions; (2) disbursements made by check and countersigned by an owner or manager; (3) bank account reconciliation performed by someone other than the person authorized to make deposits or write checks; and (4) the owner should make, or arrange for, tests of the bank account or surprise audits of various accounting phases.
Regular review of the insurance coverages should be conducted with your agent and, in certain situations, your attorney. Special coverages which might be warranted include inland marine, exhibition floaters for merchandise and displays, salesperson’s samples coverages, contractor’s equipment and installation floater, bailee’s coverage, important papers and computer coverages. In certain circumstances, an umbrella coverage may be advisable, thus more effectively protecting the asset value of your company.