How Do Insurance Policy Limits Affect My Lawsuit?

If there was ever a story that brought to light the importance of businesses having appropriate liability coverage, it’s the story of the 1993 Jack in the Box lawsuits.

In 1993, over 700 people in multiple states fell ill from an E. coli outbreak originating from dozens of Jack in the Box locations. Of the hundreds of cases, four were fatal—all of them children. The cause was ultimately negligence; due to massive demand in response to a promotional discount, burgers weren’t being cooked long enough to kill foodborne bacteria.

In litigation, Jack in the Box was ordered to pay over $100 million to the victims. That would be a massive loss for even the largest of companies, but in a stroke of luck for the corporation, they had recently added an insurance agent to the franchise’s board. He saw that Jack in the Box had a corporate general liability policy with only $30 million in coverage and urged the company to get a policy with at least $150 million in coverage. Three months after Jack in the Box expanded its coverage, the E. coli outbreak happened.

In the end, Jack in the Box’s victims got what they needed, in part thanks to the policy bought by the burger franchise. However, if Jack in the Box didn’t have coverage or wasn’t able to fully pay for plaintiffs’ claims, it would have left hundreds of people without compensation for costly, life-saving medical care.

Unfortunately, the lessons of the E. coli story remain relevant today. A similar food poisoning case involving a different company occurred in 2022, also highlighting the necessity of businesses having adequate coverage.

This article will explore why having general liability insurance should not be optional, regardless of a business’ size.

How Much Coverage Do Public-Facing Companies Need?

One of the most critical decisions business owners make is what type of commercial insurance to buy. While most states only require workers’ comp insurance, the amount and type of insurance a company should carry varies by state and the kind of business it is.

For example, Texas does not force businesses to buy general liability insurance, while other states like California require both workers’ comp and commercial auto insurance. For businesses that handle data, a cyber liability policy may be necessary to protect against data breaches that can result in financial losses.

The need for professional liability insurance (PLI) also depends on the field. Lawyers are required to carry legal malpractice insurance, while hospitals often require doctors to have medical malpractice insurance. Real estate agents must also pay for errors and omissions insurance, which is another type of PLI. It’s important to note that PLI covers businesses for financial damages, not personal injury. In contrast, liquor liability insurance is designed to protect liquor-selling businesses from personal and property damages caused by overserved patrons.

However, most businesses that interact with the public are not required by law to carry general liability insurance. That puts both people and businesses at risk.

The Determining Factor for Insurance Coverage

When it comes to calculating an appropriate amount of coverage, it’s not a question of a business’s size but rather its exposure. Like we saw in 1993, a fast-food chain that serves food to thousands of people every day has a level of exposure far higher than most businesses. With the rise of grocery and meal delivery services in 2020, the problem of exposure to food poisoning cases broadened.

Last year, the Daily Harvest—a grocery delivery startup with $250 million in annual revenue—became the source of a major food poisoning outbreak. Nearly 500 people became violently ill after the company distributed a contaminated lentil dish. Victims suffered from acute liver damage and had to get their gallbladders removed; the medical fees per person range from tens of thousands to hundreds of thousands of dollars.

According to industry insiders, the company only has $30 million in coverage for general liability. The size and number of lawsuits they’re facing could easily dwarf their insurance coverage. While insurance requirements vary by state and business type, it’s important for public-facing companies to consider their level of exposure and potential risks when deciding on the type and amount of insurance to carry.

Exceptions to Policy Limits in General Liability Cases

As we’ve seen, the damages caused by a company could likely exceed their insurance coverage.

It raises the question: can people claim more compensation than an insurance policy will allow? When it comes to corporate negligence, the better question is "does the defendant have enough money to cover my damages?" If they don’t, then your recovery is at the mercy of their liability coverage. Fortunately, there are a few ways for plaintiffs to potentially recover additional compensation.

For instance, if a plaintiff’s damages exceed the defendant’s policy limits, the court may issue a judgment against the defendant’s assets to pay the difference. However, this is more likely if the defendant actually has assets that can be used to cover the plaintiff’s damages. In this sense, the size of the business who wronged a plaintiff is a relevant question.

Umbrella Policies

One way is through an umbrella policy, which is an insurance policy that kicks in when other policies have reached their maximum coverage. These policies are more common for corporate defendants, but they can also be purchased by individuals.

Multiple Defendants

Another possibility is that there may be multiple defendants in a case, which allows plaintiffs to claim the maximum benefits per defendant. For example, in trucking accidents, both the driver and the carrier might be responsible for the accident. If a defective truck part played a role in the accident, the manufacturer may also be included as a defendant. A plaintiff could file claims against all three to recover what they’ve lost. Similarly, complex litigation cases such as medical malpractice, maritime injury, and product liability often involve multiple defendants.

Bad Faith Insurance Claims

If an insurer is found to have acted in bad faith by denying a valid claim, the plaintiff becomes entitled to damages beyond the original scope of the policy limits. Bad faith insurance is one of the worst breaches of fiduciary duty under the law; in such cases, not only do insurers defraud their clients, but they do so when their clients are facing a mountain of medical bills, lost wages, and serious injury.

What Happens When You’ve Been Harmed by a Powerful Defendant

If you’ve been injured by a commercial entity, the first thing you should do after receiving medical attention is call an attorney. Your lawyer will ensure any insurance coverage information regarding your wrongdoer is turned over to the firm. If the insurance coverage is insufficient to cover all of the damages, attorneys will investigate other avenues to collect compensation for your recovery.

While the outcome of a lawsuit against a company with insufficient insurance coverage may depend on the company’s assets, there are laws and regulations in place to protect injured parties. Companies are expected to abide by the judgments passed down by juries or judges, and may have to sell off assets or even declare bankruptcy to pay for damages.

In any case, it’s vital to have experienced attorneys who can explore all options to collect compensation for their clients.

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