Acme Courier vs. Godzilla:
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Protecting Your Business Against Monster Loss
By Peter Schlactus, CIC, AAI
It was too good to be true but even I – a hardened,
"doom-and-gloom" insurance man who’s seen it all – even I
was beginning to think it wouldn’t happen….couldn’t happen.
But, of course, in the end it did.
For a long time I had not heard of a courier-related accident involving more than a million dollars in damages.
I was beginning to wonder if the insurance industry’s stock
advice – to protect your business with about as
much liability insurance as your annual revenues – was really appropriate.
Since regular liability insurance policies provide no more
than one million dollars in protection, businesses are
advised to obtain what is known as Umbrella Liability Insurance once their revenues approach one million dollars
These Umbrella policies, which cover your liability and legal
costs in excess of one million dollars, are considerably
less expensive than primary insurance. Still, they certainly are not free. For companies already struggling with the
high cost of insurance, is catastrophic liability protection really necessary?
Then I heard about a settlement of nearly $3 million in 1998
involving an accident that killed a mother out jogging
with her baby.
In a moment my false security vanished.
Who had I been kidding? With so many vehicles on the road
making time-sensitive deliveries, couriers account
for thousands of accidents each year. It was only a matter of time before the monster struck.
Snapshot of the Monster
It happened so quickly. The mother was jogging on the side of
the road, pushing her baby ahead of her in a
modern "stroller." She saw IT approach, saw IT advance into the intersection, saw IT turn left. She began to cross.
She did not see IT realize that IT had gone the wrong way. She did not see IT veer back – right into her path.
The monster can materialize anywhere, at any time, without
warning or mercy. In contrast to the little gremlins that
cause frequent but relatively minor damage, the monster is much more difficult to analyze, contain and control. All
it takes is one attack to darken the skies for years to come.
The most striking characteristic of the monster is its
unpredictable nature. Consider our tragic example of the jogging
mother. First, it took place in a state not known for awarding multi-million-dollar damages. Yet the size of the settlement
speaks for itself.
Second, the woman died. While horrible, a fatality normally
results in a lower payment than a critical injury requiring
expensive and prolonged medical treatment. Yet in this case, costs skyrocketed anyway.
Third, as bad as it was, the loss could have been much worse. The baby, after all, was unharmed.
What if the accident occurred at a busy intersection, or involved a school bus or a vehicle carrying a family?
‘Regular’ Insurance Isn’t Enough
Most reputable insurance companies carry "primary"
insurance limits of one million dollars for both auto and general
liability. These primary insurance policies will not provide much protection against a monster, however. They run out
of ammunition at one million dollars. Worse, they can lay down their arms and run … as when an insurance company
agrees early on to pay out its limit, thereby releasing itself from having to pay further for your legal defense.
Either way, without additional help, you may be left footing the bill for your defense, as well as some monster damages.
To protect your business against catastrophic claims, you may
need more protection. This normally requires an Umbrella
or Excess Liability policy.
The name umbrella is fitting. An umbrella provides an
additional layer of protection against rain and wind. Similarly, the
standard Umbrella or Excess policy provides an additional layer of insurance protection above your primary policy’s one
Both Excess and Umbrella policies usually "follow
form." This means that their coverage follows that of your primary
insurance and provides the same protection.
The main difference between an Umbrella policy and an Excess
policy is the scope of the liability covered. An excess
policy covers one type of liability only – such as auto liability. This usually is not what customers want you to have
and gives you less value for your money.
A true Umbrella policy covers at least three separate types
of liability: auto liability, general liability and employers
liability (which is part of your workers compensation protection). It’s like having three (or more) excess policies in one!
In addition, Umbrella policies protect you against some
unusual losses that may not be covered at all by your primary
For example, you may send someone abroad and that person may
injure someone else. When your company is sued,
you may find that your primary insurance does not cover accidents outside of the USA or Canada. Umbrella policies
usually contain no such exclusion. Therefore, subject to a special deductible (retention), you’d be covered.
Of course, no insurance covers everything. Even a
giant-killer like the broad- shouldered Umbrella Liability Policy has
limitations. Certain specialized areas of liability are often not covered. These include pollution, employment practices
(i.e. discrimination and harassment), business errors and cargo.
Policies from different companies can provide quite different
benefits, terms and conditions, so review your policy
with your broker. Beware of policies from unlicensed carriers – which are sometimes the cheapest but also may
contain more limitations in the fine print.
That said, Umbrella policies do offer a lot of protection for
your money. An additional million dollars of insurance
may only cost five to fifteen percent of what you pay for your primary liability insurance. Higher limits are available
at even lower rates.
Monster claims can happen. Indeed, in the courier industry
they will happen with absolute certainty, if also with
While you can reduce your risk of falling victim to the
monster by trying to control the accidents you have, all it
really takes is one encounter to bring your business down.
Umbrella Liability Insurance is a cost-effective means of
shielding your business from the full ravages of the monster.
It is also a valuable selling tool that lets you show your customers that you invest in protecting them from the worst.
For those who wonder why shippers should be concerned,
consider our original example of the jogging mother, where
not only the delivery company – but also the shipper – was sued by the victim.
The worse the accident, the greater are the chances of everyone getting dragged in.
Deciding how best to protect yourself against the monster
depends on your attitude toward risk. A five million dollar
umbrella policy, after all, still leaves you exposed to a ten million dollar catastrophic loss.
Peter Schlactus, a Certified Insurance Counselor and Accredited Advisor in Insurance, is Co-President of KBS International Corp., which provides specialized insurance programs, benefits, and risk management services to courier companies and executives nationwide. Mr. Schlactus is available to answer inquiries at 1-888-KBS-4321 or via e-mail at firstname.lastname@example.org.
COURIER MAGAZINE - May/June 1999 [ Back To Table of Contents ]
(c) copyright, 1999 by KBS International Corp. All Rights Reserved.