May 232012

Last week we discussed the legal phenomenon known as “piercing the corporate veil”.  If judgment creditor succeeds in a piercing action, courts can ignore the corporate liability shield and hold the individual owners of the company personally responsible if there is not enough assets in the company to satisfy their judgment.  This often happens when the evidence shows that the business did not follow proper corporate formalities, when owners commingle business funds with personal funds, or where the owners failed to adequately capitalize the business.

When the company does not have insurance, or has not purchased enough insurance to keep up with the liabilities their activities may generate, the courts can look upon this as an act of under-capitalization and allow a judgment creditor to pierce the corporate veil.  Their reasoning is that the company was under capitalized since the owners would not contribute enough money to purchase the liability coverage necessary to protect the public from their business dealings.  If a party is then injured as a result of the company’s actions, the courts do not think it is fair that the injury should go unredressed simply because the owners availed themselves of the corporate liability shield.

As Florida asset protection attorneys, people often ask us how much insurance is a “reasonable” amount.  Unfortunately, there is no black and white rule regarding how much insurance is enough.  The issue will often turn on the circumstances of the company as well as the incident in question.  It is safe to assume that companies that engage in dangerous activities require more insurance than those that trend toward the safer side.  One thing that is helpful to note is the price of the insurance.  If it is expensive, then this may be an indicator that this type of business suffers numerous claims which require higher premiums to offset the liability.  Keep in mind that the fact that the insurance is expensive will usually serve as no defense if the court inquires as to why the owners of the company failed to procure any.

Along with adequate insurance, business owners may wish to engage a Florida asset protection attorney who can help them safeguard their individual assets in the event of an unplanned misfortune, such as a corporate veil piercing.  These “layers” of asset protection (corporate liability shield, adequate insurance, personal asset protection) can help to provide a business owner with much more security than reliance on any one protection alone.