I have GL insurance in a multi property commercial package. It covers the five properties in San Antonio for about $800 per year with a limit of $1 million. I maintain a blanket at the parent company level of $2 million for $250 per year.
The E&O policy I suggested is because you will find the GL coverage can be denied if you made either an error or omission as part of your normal practice. This is why is is very expensive insurance. Some insurers will back you on a GL claim if it can be proven you caused the problem through either an error or omission, others will not. I think it depends on how likely it is that you will make a bad enough error to have that be the focus of a lawsuit.
For example, I spent 20 years as a systems development contractor. If one of my systems, such as the one I wrote for pre-approving loans for large (over $10 million) projects such as buying new aircraft for a carrier, were to have an error in it, the bank I was working for at the time (BofA) would potentially suffer millions in losses since the officers who approved the loans relied heavily on the system’s recommendations. During the test phase we were running a billion dollars of loans for the three months before we were approved to go production. My agency (we called them pimps - you can probably figure out why if you consider they took 30% of the hourly rate off the top) had a lot of E&O coverage. Very high risk of getting sued for errors.
If I were to do something like a flip, I would probably want E&O insurance for the project, especially if you consider the way people find out their subs were no good.
Posted by John Merchant on April 16, 2008 at 11:50:02:
Jimmy’s answer is right, so while, yes, an LLC is frequently enough, for enough motivation (dead or seriously hurt plaintiffs and BIG award in mind) a lawyer is going to be looking hard at trying to penetrate or go around the LLC and get to the money.
So put all in LLC but also carry ample insurance so if **** does happen, you’re covered.
Frankly I’ve found the big universally virtue of the LLC is lawyers fees go up substantially when they realize they’ve gotta fight with one, try to penetrate, etc. so that’s often as far as a claim is gonna go.
I’ll give you a lawyer’s perspective on this: no form of asset protection is bullet-proof. I don’t care what the asset protection gurus say.
you have several lines of defense from liability:
conduct yourself and your biz in an honest and professional manner.
carry insurance, including GL.
isolate activities and properties in LLC’s or other entities.
learn to quickly de-fuse liability situations. they will happen. but lawsuits are not inevitable.
anticipate potential problems. know where you have exposure. this comes from experience.
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If I was representing an aggrieved plaintiff for some thing that happened in one of your proerties (e.g., tenant fell through rotten porch and was severly injured), I would look forst to the insurance you carry on the peoperty. if insufficiant, I would look to the other assets of the LLC, including the property inquestion. If that is still not enough to cover the claim, I will look very hard at YOU, AS AN INIVIDUAL. All I have to prove is that YOU were negligent in some manner and I got you. its much easier than you might think. I could argur that you were negligent, in your role as manager of the LLC, because you had inadequate insurance coverage. that brings YOU into the mix. or that YOU, in making renovations to the house, failed to fix an obvious and dangerous defect. or that you, as manager, hired unlicensed handymen who failed to see and correct the problem. there are lots of ways to get to you.
here’s an example from thre Ninth Circuit (California). Crook established a Cook Islands trust. placed huge amount of cash and other assets in it. unlike the US, the CI allows a person to establish an asset protection FOR HIMSELF. anyway, the District Court ordered this guy to bring the assets back. he refused. and so did the CI Trustee, as he was goverened by CI law and the tust instrument. that’s about as bullet-proof as is possible. but there was one critical flaw. the District Court had no jurisdiction over the assets, but it sure as he!! had jurisdiction over HIM. so they put him in jail for contempt. 9 or 10 months later, magically, the trustee agreed to remit the assets to the custody of the court.
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anticipating problems is key.
rotten and sagging floors is an easy one to see. at some, point, someone will step through. it might be a 350 pounder visiting.
porch rails and haidrails is another. imagine a drunk tenant falling 4 or 5 feet down some steps because YOU did not have handrails.
think about little kids. little kids are the most wonderful plaintiffs on the planet. and they get into trouble all the time.
inspect gas furnaces annually. all it takes is one malfunction, and you have a house full of dead plaintiffs. had that scenario play out a few years ago. no one died, but I had a tenant in the hospital for 3 days. I de-fused that one quickly. they had a brand new furnace the next day. I put them up in a motel for a couple days, in adjoining rooms with the special door (they thought that was incredibly cool). I bought them dinner at the local catfish place and lunch at the local Mexican place. and gave momma $50 walking money and a six-pack of beer (Heineken, no less). in the end, they did not see a lawyer. and I hired the lady’s son to mow grass for me for the summer. got the idea ?
Re: Does a LLC really protect you. - Posted by Frank Chin
Posted by Frank Chin on April 16, 2008 at 04:25:17:
That depends on how you operate and your level and involvement, and what happened. You can can be sued for personally “negligent”. For instance"
If you operate the business via an LLC, have your car and insurance under an LLC, you run somebody over, you can’t say the LLC did it, because you drove it, and you AND the LLC will be sued.
Here in NY State, you can get tangled up with workman’s comp issues. Say you hired an “unlicensed and uninsured” contractor to do your roof, he falls off, and goes into a hospital, you are technically at that point his employer. You can yell all you want about a subcontractor, but it doesn’t matter. Does you LLC have workman’s comp?? Most people who does RE I know don’t? Then, the officer/manager/member is held personally reponsible under state law.
It can be easy to get entangled in this unless you’re very careful. I hired some guy to do siding, showed up with a truck that says “licsnses and insured”. But after he got started, I asked for proof of insurance, and he then admitted it lapsed. If something happened, and he checked into the hospital, they’ll send my LLC the bill if he can’t pay it, and if it turned out the LLC does not have WC, they’ll hold me PERSONALLY responsible.
Or if you were repeatedly warned about a huge dead tree that might fall over and seriously injure someone, and it finally fell over and hurt someone. I’ll sue you for being personally negligent in the management of the LLC.
I also knew someone that was accused of being too agressive in collecting rent, and the tenant got him arrested for attempted rape and assault charges. The LLC doesn’t do anything here.
You might not be personally involved - Posted by John Merchant
Posted by John Merchant on April 15, 2008 at 17:17:38:
Just because somebody might sue you, that’s no reason to think that your LLC would not be a shield for you.
The claimant would have to prove you were personally involved, and in a contract situation where your LLC had been the contracting party, you might not be involved personally in any way.
I just recently bought a property, having my LLC take the title and give a note to seller.
Since buying it I’ve had the LLC do work on it, spend money on it and fix it up.
I’ve not been personally involved and I’m not personally on the note.
So very unlikely that I’d be sued if somebody were to get hurt on the property, or for anything else to do with it since everything there is in the name of the LLC.
Matter of fact a friend was sued on a similar property, where he’d had his 2 LLCs give 2 notes to buy it…but the claimant sued him personally anyway, and his lawyer had the case dismissed within 30 days because the claimant could prove nothing that involved my friend personally.
So if you take care of your LLC and its business, it’ll take care of shielding you for its acts and actions.
Rich; not sure if your comment was about GL premiums for an owner or E&O premiums for a contractor. I don’t know much about the latter (but I rememebr my E & O pemiums as an atty were nasty).
GL on a property, of purchased separaely, is expensive. but if done in a package with the underlying fire policy, not so much.
All of my policies are commercial. I can get 300K in GL coverage for $100 per year per property. that’s affordable in my book.