Despite the fact that you’re normally a careful driver, you’ve caused an accident and now someone is seriously injured. You have insurance, so you think you’re covered. But if you haven’t made sure you have enough coverage, you could lose everything you own, says Michael Horst, an attorney at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.
“Bad things can happen to good people and you want to be prepared ahead of time,” says Horst. “CEOs and CFOs may not be out there driving 80,000-pound tractor trailers, but they are driving cars, and those can kill and injure people too. And if you don’t have sufficient coverage, your assets are at risk of being taken by the person you hurt.”
Smart Business spoke with Horst about what you can do now to make sure you don’t lose everything should you be found at fault in an accident.
Why does someone need more than the minimum insurance coverage?
Especially for high-income earners, having more than the minimum coverage can prevent financial catastrophe. In Georgia, you are legally required to have minimum limits of $25,000 per injured person and $50,000 per accident, although most people have something beyond that amount, generally around $100,000/$300,000. But in a case where damages far exceed those limits, the insurance company can only do so much. It can tender the limits, but if there is a million dollar judgment against you, that’s not going to cut it.
For instance, if there is a $5 million judgment against you and you have coverage of $100,000 per injured person, the insurance company will pay the first $100,000, but you are liable for the remaining $4.9 million. At that point, your house, your banks accounts, your cars, etc. are at risk, as almost any asset becomes subject to being executed on by the person who was hurt. If you operate your business as a sole proprietorship, the assets of your business could be at risk.
Even if you’re driving a company vehicle insured by your company, you are nevertheless responsible for any wrongful act you commit. And if the company’s insurance policy can’t satisfy the debt, then you as the driver may be responsible for doing so.
Can the leader of a company be held personally responsible if one of his or her drivers causes an accident?
Generally, no, unless that person is operating his business as a sole proprietorship. However, from the perspective of that business leader’s personal life, he could be liable if a member of his family causes an accident. For instance, if your spouse is in an accident, then the joint assets of the marriage are at risk. Also, under Georgia’s family purpose doctrine, if you own and maintain an automobile for the use and convenience of your family, you become liable for the negligence of a family member when the car is being used for a family purpose.
How can you protect your assets?
The smartest thing to do is to have a high limit on your coverage. The more coverage you have, the more likely it is that any wrongful act you commit will be covered by insurance.
For example, you can buy an umbrella policy that sits over your primary policy. If you have coverage of $100,000/$300,000, you may elect to purchase an umbrella policy of, say, $2 million. In that case, you’d have a total of $2.1 million in coverage available for any person who was injured.
Most people don’t realize that these policies are not very expensive; you can get $2 million in umbrella coverage for relatively cheap. It makes good sense to have high policy limits, especially if you’re a high-income earner.
How can you figure out how much insurance you need?
The first thing to do is to examine your lifestyle and your assets. Many people may think that they don’t need coverage greater than the legal minimum because they don’t have any unencumbered assets, and that you can’t squeeze blood from a turnip. But this thinking is a huge mistake as garnishment allows the judgment creditor to receive a certain percentage of your paycheck each pay period.
So if you’re collecting a salary, irrespective of whether you’re working at a fast food restaurant or are the CEO of a multibillion-dollar company, your wages could be garnished. And if you’re a CEO, you will probably ultimately pay off that judgment, but only after enough income has been deducted from your paycheck to satisfy the judgment.
If a driver has failed to plan and buy adequate coverage, is there any recourse after he or she has caused a serious accident?
If a judgment is rendered in favor of an injured person against you and you don’t have sufficient coverage, one option and it’s not a good one is to file bankruptcy. As long as the accident did not stem from drunken driving or from willful and malicious acts, you can file bankruptcy to have the judgment discharged. The advantage to filing bankruptcy is that some of your assets would be protected by federal law. The downside is that your entire financial situation is thrown into chaos. Your credit will also be damaged for the next several years.
The better option is to plan ahead and obtain sufficient insurance. The amount of coverage will differ from person to person depending on salary, assets and overall financial condition, but if you purchase insurance coverage with high limits, you should be OK in most instances.
Michael Horst is an attorney at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. Reach him at (404) 443-6719 or MHorst@bakerdonelson.com.