Thursday, October 14, 2010

General Business Liability Insurance; Officers and Directors Errors & Omiissions Insurance

I'm thinking that the only way to continue forward in this litigious society involves incorporation of the two businesses in which I am involved, and some sort of general liability insurance.  My guess is that businesses that have gross revenues in the four figure area should be incredibly cheap to insure--but I could be wrong.

The other issue that concerns me is that some of the people sued in the Righthaven suits were sued as individuals--even though the organization that should have been liable (and was also sued) was a corporation or an LLC.  It appears that copyright and patent infringement suits allow piercing of the corporate veil.  For that reason, it would seem that what I believe is called officers and directors errors and omissions insurance is also required to protect officers of the corporation from personal liability for actions taken as officers of the corporation.  Again, I would think the costs of such insurance for a small, part-time business, would be fairly small.  Anyone care to enlighten me?


  1. I'd look first at an umbrella policy for personal liability - requires underlying coverage for likely issues - that is doesn't replace car insurance but comes in when policy limits are reached - that's why it's called an umbrella policy. With good underlying coverage the umbrella isn't very expensive and obviously is a good general coverage which might be preferred to very high specific coverage for very unlikely specific events.

  2. You might want to consider an umbrella policy if you've got a home-based business. They're relatively cheap, especially if you save by cutting down the liability coverage on the underlying policies (car and home) to just cover the deductible of the umbrella. You can pick your limit and they generally run $200-$300 per million of coverage.

  3. "It appears that copyright and patent infringement suits allow piercing of the corporate veil."

    You are going to have to contact someone who knows corporate law better than I do (like Profs. Bainbridge or Skeel) to get a more specific answer, but this is not right. PCV doesn't, or should not, apply to things like copyright or patent infringement.

    I'd particularly be interested in Bainbride's thoughts. Perhaps you should email him.

  4. I'm a programmer, not a lawyer, but I think the corporate veil only applies to prevent an owner/officer of the corporation from being personally sued for the actions of an employee. If the owner/officer was personally responsible for the event in question, he can be sued along with the corporation.

    As an example, if a delivery driver has a wreck while driving a company vehicle, both the driver and company could be sued but not the owners/officers. If the owner has a wreck in the company car, then the owner and company can both be sued (but not other company officers who were not involved in the wreck).

    So, if a blogger uses copyrighted material while blogging on a corporate blog, both the blogger and the corporate blog could be sued (but not the other bloggers who also write on that corporate blog).

  5. An interesting question--and just by asking it--I suddenly get E&O insurance advertising appearing on my blog. What a painless way to get answers!

    I've emailed Prof. Bainbridge with this question. If copyright infringement really pierces the corporate veil, then this is important to know. And if it does not, then Righthaven has sued a lot of people that it should not have sued.

  6. Good product liability insurance is not a bad idea in any event.

    In general, once plaintiffs' attorneys learn that there is insurance, they focus on that.

    More importantly, the most important part of an insurance policy is the duty to defend. Buy it as a corp and add yourself as an additional named insured as an individual at little add'l cost.

  7. Clayton,

    I'm an owner or part-owner of both an LLC and an S-Corp. A couple of years ago I spoke to a lawyer with concerns similar to yours. She told me, in no uncertain terms, you have to get liability insurance, the implication being that a good lawyer could almost always find a way to penetrate the "protections" of an S-Corp or an LLC. In your case, sounds as though you need some sort of product liability insurance.