Category Archives: General Liability

4 Ways You Can Assume The Liabilities of The Company You Are Purchasing

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While in most cases the company that purchases the assets of another company does not inherit the seller’s liability, there are four exceptions every buyer should be aware of that might transfer liability to buyer or purchasing company.

  1. Examine the purchase agreement carefully.  It may require the buyer to assume the predecessor’s liabilities.
  2. The transaction might be viewed as a merger.  In a merger, the selling company or predecessor’s rights and liabilities transfer to the buyer or surviving entity.
  3. If the company buying the other company is a similar business to the company they are buying, it may be viewed as a continuation of the seller’s operation.
  4. If it is determined that the transaction was fraudulent or for the purpose of the seller to avoid liability, liability could be transferred to the company that purchased the assets.

If any of the above possibilities exist, I recommend that you not only carry a product liability policy with higher than average liability limits, but that you also carry a product recall policy for added protection of you assets.

How Accidents and Your Independent Subcontractors Can Bring Your Business Down

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Do you assume that because you are using independent subcontractors that you are insulated for most, if not all, of the wrong doings of the independent subcontractors you hire?

 

You may find that your independent subs are not as independent as you think in the eyes of the courts and that your independent subcontractor is, in fact, an employee.

 

It is extremely important for businesses to understand that when there is a catastrophic accident, large medical expenses and lawsuits are almost a given in today’s litigious environment and the search for deep pockets by attorneys of injured parties are sure to follow. If, after an accident, your independent sub contractor is found to be an employee, you could be responsible have to pay out of pocket for Worker Compensation benefits such as lost pay and medical expenses and incur lawsuit expenses such as defense cost, settlements and judgments.

 

This is why it is so important to understand if you independent subcontractor could be classified as an employee and take the proper risk management steps to protect your business.

 

To better determine if your subcontractors could be classified as an employee, I recommend that you read Cary Christian’s article “Employee vs. Subcontractor Issues” by going to http://www.peakconsultinginc.com/Articles/employee_vs_independent_contract.htm.   

 

Under most state laws, when there is liability for an auto accident the order of responsibility to pay is as follows:

 

  1. The owner of the vehicle (possibly uninsured or underinsured). 
  2. The driver of the vehicle (possibly uninsured or underinsured). 
  3. The organization or business that was responsible for the driver or owner of the vehicle being on the road at the time of the accident.

 

Two risk management tools I recommend is to 1) have all your subcontractors carry at least $1,000,000 minimum limits of liability on their auto policy so there is enough money to satisfy the judgment in the event of a lawsuit and have the sub provide you a Certificate of Insurance as proof of coverage and 2) always carry Hired & Non-Owned Auto Liability with a minimum $1,000,000 limits on your General Liability or Business Auto policy.  Hired & Non-Owned Auto Liability will provide the needed liability coverage to help your business survive; in the event your independent subcontractor is classified as an employee.

 

 

 

 

 

Are Your Personal Assets Really Protected By Incorporating Your Small Business

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One the most common misconceptions I hear from prospects is that, since their business is incorporated, they have no personal liability in the event of a product liability claim.  In fact, probably 65% of all incorporated start-up businesses that contact me tell me they would not purchase product liability insurance if there was not a contract from one of their vendors or distributors that required them to have product liability insurance because they have corporate status.

While it is true that corporations exist to help protect the personal assets of both shareholders and directors from personal liability for the actions or liabilities of the corporation, it is extremely dangerous for smaller privately held businesses that sell or manufacture products to assume they are free of all personal liability.  The legal concept of “piercing the corporate veil” can often be used to make the shareholder, directors and officers personally liable for the debts or liabilities of the corporation.

Unlike larger businesses, smaller businesses are more susceptible to having the corporate veil pierced.  Smaller corporations, that have no product liability insurance, often hold little or no assets, and a plaintiff or injured third party may seek to hold liable a related person such as a shareholder, director or officer with more assets.  Large corporations typically have more assets available and legal staffs to help them avoid the technical issues, which helps them avoid having the corporate veil pierced.

 Wikipedia  has identified the following factors that courts consider when piercing the coporate veil:

  • Absence or inaccuracy of corporate records;
  • Concealment or misrepresentation of members;
  • Failure to maintain arm’s length relationships with related entities;
  • Failure to observe corporate formalities in terms of behavior and documentation;
  • Failure to pay dividends;
  • Intermingling of assets of the corporation and of the shareholder;
  • Manipulation of assets or liabilities to concentrate the assets or liabilities;
  • Non-functioning corporate officers and/or directors;
  • Other factors the court finds relevant;
  • Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances);
  • Siphoning of corporate funds by the dominant shareholder(s);
  • Treatment by an individual of the assets of corporation as his/her own;

It is important to note that not all of these factors need to be met in order for the court to pierce the corporate veil. Further, some courts might find that one factor is so compelling in a particular case that it will find the shareholders personally liable.

In conclusion, if you are a small business and you have incorporated to separate you personal asset from you corporate assets, it is important that you have both General Liability and Product Liability insurance so that, in the event you are sued, the lack of corporate assets does not become a motive for piercing the corporate veil and exposing your personal assets.  On the other hand, if you have little corporate or personal assets, then you may consider rolling the dice and not having General Liability or Product Liability insurance because if there is little chance of recovery or restitution by the injured third party, you become a less attractive target for a lawsuit.

  • Was the corporation being used as a “façade” for dominant shareholder(s) personal dealings; Alter Ego Theory;