Generally. Imagine for a moment you are standing helplessly by while the liquidators are at your house, combing through your personal belonging seizing anything of value such as jewelry, art work, and collectables, keepsakes. Someone won a lawsuit against you and the insurance wasn’t enough to cover the loss, or maybe punitive damages were awarded which isn’t covered by insurance. Or maybe is the type of loss for which there is insurance such as a business failure.
In a recent case decided by the Illinois Supreme Court a customer was killed when a car jumped the curb and plowed into the building where the customer was seated. But the case was not against the driver of the car, but against the business. The court allowed the wrongful death lawsuit to go forward against the business.
The most dangerous thing most of us do is drive a car. Did you know that the average jury verdict in automobile accident cases in Cook County Illinois is over $1,200,000? That’s the average, which means that fully half of the verdicts are for more. Is your auto insurance coverage limit enough to cover such a loss? If your home and other assets were taken to pay a creditor would you be able to re-build your estate?
I wish I could say I was amazed but in this litigious society nothing shocks me anymore. Junk lawsuits seeking jackpot justice contaminate the legal system with Illinois among the States leading the way. According the 2008 Harris Study Illinois ranks 46th for worse litigation environment exceeded only by Alabama, Mississippi, Louisiana and West Virginia. Cook County is exceeded only by Los Angeles County as the least fair in the nation.
Test your vulnerability. As a simple test of your vulnerability make two columns listing your assets. In the left column list retirement plans, like IRAs, 401(k)s etc. which are generally (but not always) protected from lawsuits in Illinois. Now in the right column list your home, your money market accounts, CD’s investment real estate, brokerage account (that are not in an IRA). Then ask yourself, “If I were to be hit with a catastrophic lawsuit and I lost everything in the right column, how severely would it impact me?” For most people the impact would be severe and virtually impossible to recover from in time for retirement.
The impact is not only felt in your pocket book. If you have never been a defendant in a lawsuit before it is hard for you to imagine the toll it takes on your time, energy and relationships. Proper asset protection planning can provide you peace of mind.
Pitfalls of insurance. Liability insurance is a proper first line of defense. But not all losses are covered by insurance, and even if the particular loss is covered, the amount of the loss can exceed policy limits. Many people are surprised to find they have to hire a lawyer to defend a lawsuit even if they have insurance.
This is because the insurance company often defends you under a “reservation of rights” which means they are not admitting there is coverage. Therefore, you have to hire a “coverage attorney” who makes sure you don’t do anything that gives the insurance company a reason to deny coverage if the case ends with an award.
If punitive damages are alleged you may need an additional defense attorney because punitive damages are not covered. Adding insult to injury in many cases your own insurance company will sue you for a “declaratory judgment” alleging that there is no coverage seeking reimbursement for the legal defense they provided.
This is hardly indicative of the peace of mind people seek when they buy a policy of liability insurance.
MDs. Physicians are particularly vulnerable. The typical medical malpractice policy only covers one million dollars, but according to the Cook County Jury Verdict Reporter the typical jury award is around three million dollars. Insurance is the first line of defense but what if the award is greater than your policy limits? As a physician you are also liable for anything your employees do that allegedly causes an injury.
Lawsuit protection is for everybody. The most dangerous thing most of us do drive a car. Liability insurance gives us a false sense of security. Did you know that according to the Cook County Jury Verdict Reporter the average jury award for lawsuits in automobile accident cases was $1,200,000? That’s the average which mean s half the awards were for more.. The average award for cases involving lawsuits brought by passengers: $1,750,000. The average award for cases brought by pedestrians, $2,100,000.
If you don’t have umbrella coverage I highly recommend you buy it. But umbrella policies are most often bought for one to two million dollars of coverage. But for cases that come in above the average, what do you do?
The tools. Many people think that lawsuit protection is only for the wealthy because it is too expensive for the amount of wealth you have to protect. The best lawsuit protection, offshore trusts, is expensive to set up and to maintain.
But there are many tools that greatly lower your vulnerability to lawsuits. These methods sometimes discourage predatory lawsuits from the start because they can see how difficult it would be to collect even if they win.
The appropriate design depends on many factors. A partial list of some are: Domestic Asset Protection Trusts, Limited Liability Companies (these are not just for operating businesses), Limited Partnerships, Home Protection Trusts, irrevocable trusts, and testamentary trusts.