California businesses face enormous obstacles to profitability. One significant obstacle is the never ending threat of lawsuits by customers, employees, and others. A 2018 decision from the California Supreme Court has provided a ray of hope regarding certain types of lawsuits.

In August 2018, the California Supreme Court ruled in Liberty Surplus Insurance Corp. et al. v. Ledesma & Meyer Construction Co. Inc., that lawsuits seeking to hold businesses liable for damage caused by its employees may be covered by insurance. The Supreme Court found that the insurance company must cover a lawsuit where there are allegations the business was guilty of negligent hiring.

“This latest ruling is welcome news to California businesses. According to founding partner Dan Navigato,” Too often, insurance companies try to avoid paying for lawsuits and claims even when their customers have dutifully paid premiums for years. It is nice to hear the Supreme Court of California is holding insurance companies responsible for claims which businesses legitimately expect to be covered.”

The Supreme Court’s ruling provides additional justification for the advice we provide to our clients every time they are the target of a lawsuit or a monetary demand. We tell our clients to notify all of their insurance companies. Some business owners mistakenly believe that notifying their insurance company of a claim (especially when there is a slim chance of coverage) will increase their insurance premiums. This is not typically the case. “Notifying your insurance company of a claim does not typically result in increased premiums. Rather, loss runs (money paid by the insurance company for covered claims) are the #1 reason for increased premiums. In fact, most insurance policies require a business owner to timely notify the insurance company upon receiving a claim.”

There is little, to no downside in “tendering” a lawsuit and it is likely a contractual obligation of the policy owner. More importantly, if the lawsuit is covered, the insurance company will pay to defend the claim and any resulting judgment relating to a covered claim. Thus, be a smart business owner, protect your business by notifying all possible insurance companies of all legal demands you receive.

If your business is subject to a claim that you believe should be tendered to your insurance company(ies), contact Navigato & Battin for assistance.