It is human nature to believe that there will never be any harm, or even close to it. Sometimes things can go wrong. Unexpected events can happen at any moment. It’s important to have insurance. This includes professional liability insurance, business insurance, and liability insurance. The old saying is “Hope for good, but be prepared for the worst.”
Personal protection is best provided by having life, property, and auto insurance. It’s equally important for business to have general liability and casualty insurance to protect personal and financial assets. These insurance plans can make the difference between success or bankruptcy.
Unfortunately, many people don’t realize how important it is to have a plan in place for preventing disasters. While most people know the importance of having insurance, many don’t make the necessary steps to ensure their protection against unforeseeable disasters. Here are five examples of companies that were crippled by inadequate insurance, professional liability insurance, and liability insurance. These case studies will give you the information you need to understand how your company is affected by lack of insurance.
Federal-Mogul
Federal-Mogul, a major automotive parts manufacturer with headquarters in Southfield Michigan, is Federal-Mogul. The company was forced to file Chapter 11 bankruptcy in 2001 due to the asbestos claims of workers who had come into contact with the substance while handling different parts of its automobiles. Many of these claims were filed to cover asbestos-related sickness and cancer.
Federal-Mogul’s problems with liability insurance were many. The truth is that Federal-Mogul acquired asbestos-related companies.
Federal-Mogul’s problem wasn’t the fact that these companies weren’t covered by liability insurance. It was more about whether they had the right kind of insurance and whether they could protect themselves against professional liability. Federal-Mogul believed they were covered but they soon discovered that they weren’t.
Federal-Mogul believed they could use a multifaceted strategy to defeat asbestos-related liability lawsuits. It was planned to lobby Congress and fight in the courts for changes in liability legislation. They lost in court because of this approach.
Federal-Mogul filed Chapter 11 bankruptcy in 2001. The bankruptcy helped Federal-Mogul to rebuild its finances and it is still strong today. They could have avoided the company’s financial losses and damaged reputation if they had not taken a chance on their professional liability strategies and liability insurance. Companies are often forced to leave things open to risk when it comes down to insurance.
Union Carbide
One of the most well-known examples of corporate disaster is the Bhopal tragedy. This case serves as an excellent example of professional liability and liability insurance.
In 1984, a Union Carbide subsidiary’s pesticide plant released 40 tons of MIC gas into space, killing between 2500-5000 people. Many speculate that the death count may have been higher than originally reported.
Union Carbide was faced with a lot of losses as a result of liability claims from the families and injured. They did not have adequate liability insurance to protect these losses. Union Carbide spent millions fighting these initial legal battles.
The Bhopal incident is a good example of professional liability and liability insurance. However, it is cited in business text books around the world as an example of how to not manage risk management. A proper assessment of risk would not have led to such a terrible accident.
Union Carbide was able to settle all Indian government claims for $470 million. Union Carbide could have avoided the $470 million payment by engaging in a strategy that included risk management and liability insurance. However, the company actually saved money by going through litigation.
The Exxon Valdez
Another famous corporate disaster is the Exxon Valdez, which deals with professional liability and liability insurance. This case is a strong example of why professional liability insurance is so important for business executives at all levels.
Exxon Valdez, an oil cargo ship, was struck by a reef off Alaska’s Prince William Sound. Exxon was awarded punitive damages of more than $2.5 billion to those who were affected by the oil spillage. Even though the initial $5 billion payout was reduced to $2.5 billion, some of the legal issues remain.
Exxon Valdez’s disaster highlighted the importance of risk management and liability insurance at the executive level. Exxon Valdez’s executives face professional liability costs due to poor execution of company liability decisions.
The Savings and Loan Crisis
One of the most severe financial crises in American history occurred in the late eighties and early 90s. It cost approximately $160 billion. Accounting firms continue to litigate concerns that are contiguous with the professional liability and liability of the case. This is yet another example of the importance of having proper insurance.