22:29
Faizan
In litigation, "deep pocket" refers to a person or company that is worth suing because they have a lot of money or are insured for a great deal. Deep pocket insurance is used in business to protect wealthy board members -- sometimes called "deep pocket" board members -- corporate officers and the business itself from lawsuits. There are several types of deep pocket insurance, each designed to protect businesses and their owners from liability in the event of a lawsuit.
Deep Pockets Rule
Companies need insurance to protect them from lawsuits because of a legal doctrine called the "deep-pockets rule," or joint and several liability. This rule states that businesses and people that are found to be partly at fault for damages caused by things such as negligence or fraud can be held liable for the entire amount of any court judgment. This allows plaintiffs to sue a business owner for the entire amount of damages, even if that person was only 1 percent responsible for the damages. For example, if four people are equally responsible for manufacturing a faulty product that caused $1 million in damages, but only one of those people has money, the victim could sue the one person with money for the entire $1 million.
Types of Insurance
Because of the deep pockets rule, some businesses and business owners may need insurance to protect them from liability claims. The exact type of "deep pocket" insurance a business or owner needs depends on the types of risk they have. Most businesses carry liability insurance, which covers a company in the event that its negligence causes an injury or financial loss. Some companies, and nonprofit organizations, also carry director's and officers (D&O) insurance, to protect board members against lawsuits brought against them personally. This type of deep pockets insurance may be extended to protect some employees, and may not cover employment-related actions or actions where the plaintiff is not asking for a monetary award.
Who Needs Insurance
All businesses should carry liability insurance. Without it the business and its owners are personally responsible for any negligence claims that may arise. People are more likely to sue companies and people who have money, so the greater your assets, the more insurance you may need -- a single claim can bankrupt a small business and its owners. For small businesses, other types of deep pockets insurance, such as D&O insurance, may not be necessary. If the company and its owners have few assets, they are unlikely to attract lawsuits that do not arise from negligence. For example, companies with a small, friendly staff may not be at great risk of lawsuits related to employment issues, such as unfair dismissal.
Fair Share Acts
More than 40 states have enacted some type of fair share legislation, in which the defendant can only be made to pay for the damages he is actually responsible for. In 2011, Pennsylvania became the 41st state to pass a fair share law. As in other states, defendants can still be forced to pay for the entire judgment if they intentionally caused the damage or if the damage is related to violations of the liquor code or to hazardous sites cleanup. Fair share legislation is intended to keep costs down for businesses by reducing the need to take out deep pocket insurance.
Deep Pockets Rule
Companies need insurance to protect them from lawsuits because of a legal doctrine called the "deep-pockets rule," or joint and several liability. This rule states that businesses and people that are found to be partly at fault for damages caused by things such as negligence or fraud can be held liable for the entire amount of any court judgment. This allows plaintiffs to sue a business owner for the entire amount of damages, even if that person was only 1 percent responsible for the damages. For example, if four people are equally responsible for manufacturing a faulty product that caused $1 million in damages, but only one of those people has money, the victim could sue the one person with money for the entire $1 million.
Types of Insurance
Because of the deep pockets rule, some businesses and business owners may need insurance to protect them from liability claims. The exact type of "deep pocket" insurance a business or owner needs depends on the types of risk they have. Most businesses carry liability insurance, which covers a company in the event that its negligence causes an injury or financial loss. Some companies, and nonprofit organizations, also carry director's and officers (D&O) insurance, to protect board members against lawsuits brought against them personally. This type of deep pockets insurance may be extended to protect some employees, and may not cover employment-related actions or actions where the plaintiff is not asking for a monetary award.
Who Needs Insurance
All businesses should carry liability insurance. Without it the business and its owners are personally responsible for any negligence claims that may arise. People are more likely to sue companies and people who have money, so the greater your assets, the more insurance you may need -- a single claim can bankrupt a small business and its owners. For small businesses, other types of deep pockets insurance, such as D&O insurance, may not be necessary. If the company and its owners have few assets, they are unlikely to attract lawsuits that do not arise from negligence. For example, companies with a small, friendly staff may not be at great risk of lawsuits related to employment issues, such as unfair dismissal.
Fair Share Acts
More than 40 states have enacted some type of fair share legislation, in which the defendant can only be made to pay for the damages he is actually responsible for. In 2011, Pennsylvania became the 41st state to pass a fair share law. As in other states, defendants can still be forced to pay for the entire judgment if they intentionally caused the damage or if the damage is related to violations of the liquor code or to hazardous sites cleanup. Fair share legislation is intended to keep costs down for businesses by reducing the need to take out deep pocket insurance.
Posted in: Business Insurance
