Coverage Corner: What Constitutes Adequate Liability Limits’

How much liability insurance should I have?” Now there’s one tough question that’s occasionally asked by commercial clients. Unfortunately, I’m not so sure there’s really a good answer. A similar question for insurance agents to ask ourselves is “just how much liability insurance should we offer our clients?”

I must confess that I recently experienced a wake up call in regards to adequate limits while making a renewal presentation to one of my very good customers. The renewal presentation had gone exactly according to plan, and I was about ready to conclude our meeting when my client indicated that he had one last remaining question.

His question was simple. “Could we buy higher limits of umbrella coverage?” If the truth were known, I was momentarily stunned. I quickly realized that not only had I not offered higher limits of liability insurance during this particular presentation, but I had not offered higher umbrella limits for several years. Shame on me. Go ahead and cast your stones, as I probably well deserve them.

In any event agents still have to deal with these questions. Quite honestly, it’s quite difficult to tell an insured exactly how much liability insurance they may need without knowing ahead of time what kind of terrible accident they may be responsible for causing.

If they never have one heck of a liability claim made against them, then they never really needed high limits to begin with. Actually, I think there are a couple of answers to this question.

Perhaps the best answer is that our clients should buy as high of limits of umbrella protection as is reasonably affordable by their company. It’s really that plain and simple.

I think there is also a good case to be made for the argument that says that companies with a healthy balance sheet have a greater need for protection of their assets than companies that really have no money to lose in the first place.

From an agent’s error and omissions lawsuit perspective, I believe we need to go on record as having offered a limit higher than eventually purchased by our insured. Should one of our insureds be so unfortunate as to have a claim that exceeds whatever limit of liability they purchased, then it’s definitely going to work to our betterment to have in our file good documentation that illustrates the fact that we had, in fact, offered a higher limit.

And, of course, at least we shouldn’t have to count on our insureds to ask the question that was asked of me: “Could we buy higher limits of umbrella coverage?”

Wes Bailey, CIC, is president of Bailey Insurance & Financial Services, a Waco-based independent insurance agency. He serves on the faculty of the Society of Certified Insurance Counselors, teaching the specifics of commercial general liability insurance and the essentials of legal
liability.