Let’s be clear, insurance was intended to provide a pool of funds (using the law of large numbers) that would be used to pay fortuitous or unexpected losses of the insured, such as an accident that is described as an unforeseen event or unplanned circumstance. Insurance was never intended to cover operating risks that are known to occur on a frequent basis. This becomes an operating risk. The exception to this rule is workers’ compensation and in this instance the premiums paid are a direct result of the losses incurred.

The legal liability system requires that each business entity must bear the responsibility of its own actions. As a business owner, it is not a question of have you been sued; the question is, when will you be sued and for what reason. Insurance is intended to provide the business entity with a pooled fund to pay for the fortuitous event, or statutorily imposed liability such as workers’ compensation, and to include the cost of defending any such claim.

One of the fastest going areas of liability for the business owner is Employment Practices Liability, and careful consideration needs to be given to the legal liability imposed on Directors and Officers of the corporation whether publicly traded or privately held. Keep in mind that the premium paid for insurance may never cover the loss incurred. Pay a small premium to insure what may be a large loss.