Most days begin like any other — until they become moments you’ll never forget. A customer slips, a delivery van collides with another vehicle, or a routine project goes awry. Suddenly, you are confronted with a lawsuit, medical bills, or settlement demands far exceeding your standard insurance policy limits. In today’s business climate, even seemingly minor incidents can result in claims reaching millions of dollars.
To avoid these unwanted moments, you need to assess if your current liability limits for your business insurance are adequate to mitigate risk and protect your business from significant financial repercussions. Evolving risks on multiple fronts create urgency for more robust coverage. This article details why increasing your liability limits is prudent; you must adapt to the evolving litigation landscape to safeguard your business.
The Rising Cost of Lawsuits
Business lawsuits are bigger, more frequent, and costlier than ever. According to the U.S. Chamber of Commerce’s Institute for Legal Reform, “nuclear verdicts” — jury awards of $10 million or more — have surged in size and frequency. However, even lawsuits that never go to court can result in outsized settlements once legal fees, medical costs, and lost income are included.
Any business can be affected by:
- A slip-and-fall at a storefront.
- An error in a service contract.
- A fire started by a subcontractor.
- A discrimination or harassment claim.
Construction, manufacturing, hospitality, and other sectors are high-risk, and no business is immune. Legal expectations are rising, and so are payouts in these litigious times.
Why Standard Limits May Not Be Enough
Most general liability policies offer $1 million per occurrence and $2 million aggregate. That might have been enough a few years ago. Today, it often isn’t.
Here’s why those limits may fall short:
- Inflation is driving up costs, from healthcare to legal defense.
- Plaintiffs are willing — and their counsel encourages them — to file claims and pursue compensation aggressively.
- Negligence standards are expanding, exposing businesses to more types of lawsuits.
- Third party litigation funding, finances lawsuits and exacerbates their frequency and sometimes higher verdicts, in part because the best lawyers are hired under these scenarios.
One claim can easily surpass your policy limits, leaving your business accountable for the difference. The potential risk for unprotected financial breakdown is significant, if not catastrophic.
How Umbrella and Excess Liability Coverage Protects You
When a claim exceeds the limits of your standard liability policy, umbrella and excess liability insurance provide the extra protection your business needs. While both serve as backup coverage, they function differently, and one may offer more value, depending on your needs.
Excess liability insurance increases the limits on a specific underlying policy, such as general liability. It offers more coverage for the same types of claims but doesn’t broaden what’s covered.
Umbrella insurance, by contrast, extends coverage across multiple policies — including general liability, commercial auto, and employer’s liability. It may also cover some claims that aren’t included in the underlying policies. One of its biggest advantages is affordability: Rather than increasing the limits on several individual policies, businesses can use a single umbrella policy to boost protection, often at a lower overall cost.
For example, say you have a $5 million umbrella policy. If your general liability policy covers $1 million and your business faces a $4.5 million lawsuit, your umbrella policy would cover the remaining $3.5 million. This critical coverage can prevent devastating losses without straining your budget.
Real-World Scenarios That Demand Higher Limits
Modern claims don’t just cost more — they strike where you least expect. These examples show how quickly standard coverage can be exhausted:
- Customer injury: A patron slips in your store, sustains a head injury, and is left with a long-term disability.
- Commercial auto accident: A company vehicle collides with multiple cars on the highway, resulting in several injuries and property damage claims.
- Product defect/subsequent recall: A faulty product causes injury, leading to a class action suit against your business, huge recall expenses, and loss of new sales for that product.
- Cyber breach: Hackers steal customer data, triggering fines, lawsuits, and mandated notification expenses.
Each of these scenarios can escalate into multimillion-dollar liabilities. When unfathomable things happen, a well-structured risk management plan is your first line of protection and may be the difference between staying in business and going out of business.
Commercial Auto Liability: A Top Risk Behind the Wheel
Aggressive and distracted driving have become everyday hazards. If your business owns or operates vehicles, you face significant road-related exposure, even on short trips or service calls.
What has changed:
- Courts are awarding multimillion-dollar judgments for commercial vehicle accidents.
- A single crash involving injuries or fatalities can exceed standard liability limits.
- Businesses are often found liable not just for the incident but for hiring, training, or supervision failures.
Fleet vehicles, delivery vans, and trucks carry a key risk. If your drivers are on the road, your liability exposure travels with them.
How To Assess Your Business’s Liability Exposure
Not every business needs the same level of coverage. But every business should conduct a liability assessment with an experienced agent to determine its vulnerabilities.
Key factors include:
- Your industry and how much of a target for litigation it is.
- The size and value of your projects or contracts.
- Your asset base and future earnings potential(what you have to lose).
- Whether your business interacts directly with the public.
- Any use of company-owned or employee-driven vehicles.
An annual review is the most prudent and efficient way to ensure your business coverage and limits align with your business’s current realities — especially during periods of growth, expansion, or regulatory change.
Make Higher Liability Limits Part of Your Risk Management Strategy
Rapid claims, rising costs, and legal trends that allow for minimal margin of error influence the current business insurance environment. Increasing your liability limits, particularly with an umbrella policy, is a strategic investment in your business’s resilience rather than just an additional expense.
Contact Brooks, Todd & McNeil today to discuss how higher liability limits and umbrella coverage can help safeguard your business.
About Brooks, Todd & McNeil
Since 1839, the independent agents at Brooks, Todd & McNeil have been pleased to offer our community the best and most affordable policies from a variety of providers. To learn more about our products and services, contact us today at (800) 448-4567.