limiting liability...or, liability insurance? New business

at long last, after 10 years of struggle and soap opera, I'm going back into business for myself. I've been actively working towards this goal for about 3 years (I filed LLC papers in '05).

pertinent info: I'm going to be (initially) offering fab and weld service, and machine and implement repair, eventually branching out into machining (job shop, no proprietary product line). Shop is located in my 'shed out back', IOW on my personal property, not in a separate location. I have filed LLC paperwork in my wife's name, and I'm the sole 'employee' of the corp. My targeted customers will be local farmers (repair work), local shops (for custom work or repairs) and walk-ins (for custom work and repairs). I'm (if I dare say so myself) a good welder, never had a weld fail to my knowledge, have a pretty good handle on what is safe or not (and consequently if I feel something is unsafe, I won't take the job), but am not, in any way, shape, or form, an engineer, in any discipline.

My worries are geared towards the customer who will sue all and sundry if something goes wrong, regardless what caused the failure (bad decisions on their part, bad engineering from whatever source, etc). How do you guys in a similar field handle the liability issue? I've never had this issue crop up before, as my previous business was purely industrial contracting, doing millwright-type work and I worked closely with several companies who all knew me well, and the work was done to their spec.

I talked with several insurance agents in my area, both 'general' and 'business' (not that the business agents around here have even part of a clue of what manufacturing involves, or machining either, for that matter). Typically, one of 2 things would happen: if I mentioned cars-n-motorcycles, or mentioned welding, they immediately sat up straight, got the greedy gleam in the eye, and a chorus of cash registers started playing the pink floyd song 'money' in the background...or if I said machining job shop, they couldn't grasp the concept that I wouldn't be actually making my own definable product, thought machining involved a row of drill-presses, told me my homeowner's policy would cover it, and basically blew me off.

I feel I have 2 options: the first being lots of legalese mumbo-jumbo disclaimers on my receipts, and on signage in the shop (IE-'all work done to customer spec and no liability implied or assumed'), but I know that is pretty worthless at lawsuit time in a courthouse....or....try again to find some sort of suitable insurance to cover me, in which case I need a direction to look (anyone know a decent agent or company?)

Homeowners will not cover it.

You have to keep hunting. I searched for a long time for building coverage (not liability) on a building valued at $140K. It is a masonry building deemed "non-combustible" with a well rated fire department across the street. Not kiding, I look out the window and they are washing the truck. Some companies wanted $6K a year with a nosebleed deductable and no coverage on contents, just building!

Best bet in finding a agent is to cross out anyone who says "we insure anyone" or seems primarily interested in the general public.


As for what you need, some hints form my experiance;

Tell them (ins co) that NOBODY comes on your property and post signs accordingly. They are very worried about the "slip and fall" routine.

You ONLY work from prints. This shifts liablity back onto the client for there designs.

Dont know about every state but if a part fails because of client design the ins co will not cover. DONT design it yourself. YOU end up with the liability and the if the state gets the word that you are doing engineering type work they will grind you under.

Material deffects will not be covered.

Workmanship will not be covered.

Some policys are only good for one calender year, if part was made last year it is not covered.

Dont go beyond front office of clients and make sure that ins co knows this.

Have plenty of yearly inspected fire extinguishers and keep the proof in safe deposit box at bank.

If it is a wood building dont even bother with building insurance. It will cast more then replacing it if it burns down.

Best bet for security is to owe a ton of money. Lawyer will sniff around and find out. They do not sue the poor.

One guy I worked for had a huge number of corporations. Each one owned or did different things. This way if one got into trouble the others were safe. Might want to talk to a lwyer about this.

I don't know if Maryland has a Farm Bureau organization. If they do you might contact them. When I was in Michigan they were the only place I could get a 2 ton truck insured as a personal vehicle.

In Australia it is pretty straight forward to get public liability insurance. There is also Product Liability Insurance available.

Don't know much about US law or the system there but have a look in your phone book for government departments that deal with this sort of thing. You might be able to find a lot of pretty good and relatively cheap advice there.

After you get your feet wet with the government/bureaucracy then start talking with insurance companies. Around this time you would be well advised to go and see a lawyer to find out what the courts expect from you. This legal advise will help protect you if anything does happen because you can claim to have been acting according to your advice. That is you weren't trying to break the law or hurt anyone. It gives you some protection that even if standards change in the future you can say that you were following current standards as well as you could, and of course had no way of foreseeing future changes in the law. Stops people trying to gold dig on you when the law changes and they dig up something that was done years before.

Stephen

Try Erie Ins they seem to have good rates here in PA

What ever you don't EVER tell them what you are actually making, our Farm Bureau agent, (a ditz but pretty cute) asked what we made. Showed her some samples and whatnot, explained a few things to her. Farm Bureau or any of their "partners" would not insure us for liability. Apparently we make airplane parts, from prints, that are signed off on for people like Boeing. However they would insure us if our shop was actually located at an airport.

BTW, from all the things we tried to get through Farm Bureau, we only have one, and it was the first and the one we didn't research, life ins. on me and my partner, on each other. Their retirement plans were a rip off. Their health insurance was well over double what you can do anywhere else, and I have no idea about their liability, since we couldn't even get a quote. On our flatbed, 11.5k GMC cabover, low usage local delivery vehicle, their prices where in the $700 a month range, and we both have good credit and sparkling driving records. We found somebody that came in at well under $100 a month for the same coverage.

Too bad the agent was cute and really tried to work with us, but the prices were out of this world. I always heard that Farm Bureau was great, they are not.

Sign on front door, "irresponsible in case of accident".

I have found that standalone liability insurance is hard to find and expensive.
Much better is a business policy that covers everything.
My homeowners will not cover the buildings on my property that I use for business, just my home.
So I have homeowners for my house.
And for my "shed out back" (actually 7 buildings totalling around 10,000 sq feet) and the equipment in em (I shudder to think what replacement value would be, but well north of $100k) I have a business policy for fire and theft. And it just happens that adding liability to that, to the tune of $1,000,000, was not all that much more, and required a lot less snooping on the part of the insurance company than a standalone liability policy would.
Your shed out back will NOT be covered by your homeowners.
So you should check into a business policy that includes liability.

Mine is thru Safeco, cause they are local, and runs around $2500 a year, which, since I was paying $1200 to $1500 JUST for the liability alone before, strikes me as a deal.

Ries, does your liability ins cover you in event of a product/service you've 'sold' failing off-site? That's my biggest concern (sorry to all who've responded if I wasn't clear in the first post), I'm not especially worried about the ol' 'slip-n-fall' injury on my site, more the 'he just welded a bracket on my rear bumper and my front wheel fell off the next day so he's at fault' type of idiot out there trying to hit the lawsuit lottery and taking my house because the shop is on my home property

It doesn't seem like much happens when it comes to suing unless someone (or a few) get killed in the failure,like cranes. All things eventually do fail. If its a major component sometimes they may try to sue for their $ lost in down time if it was a brand new product, but that usually doesn't make it to the shop who manufactured the component. Usually doesn't make it far at all, they just want it working again soon and rarely piss off the manufacturer unless there was a major engineering problem.

I stick to a market that has very little human contact, if any once in operation. I've also turned down certain projects where I didn't fully trust some engineering aspects.

Even if you did get taken to court for welding a guys bumper and his front wheel came off and he somehow died from the crash. How far would that go in court? a bit of legal fees maybe to show up and show what you did clearly can't be the cause, and thats that. Isn't it? Now if what you did is indeed the cause, thats a whole other problem.....

About a year ago a company I work with all the time got a letter demending money for medical bills totaling around $40,000 from some laywer in California, basically a guy hurt himself on the machine. No defect in the machine, I think he left the chuck wrench in it.
Their lawyer called them up and wanted to settle out of court and talk to our lawyer. He told them we couldn't afford a lawyer, and never heard another word.

From what I am told, the only way that you would be financially responsible and can get past the corporate sheild is either if you sign a personal guarantee on a loan, or did something illegal to get the loan. Or in a law suit, if they can prove that you were neglegent, OR if you empty the company funds out right before you go to court.

Best scenario is, keep a box buried in the back yard with your money in it!

gbent's suggestion was good: definitely talk to the Farm Bureau. They are local, insurance and membership rules might vary, hence BobWs bad experience. Remember insurance is regulated only by the states, so every state has different rules and scenarios.

Here Farm Bureau is very liberal about allowing you to join, so doing fab/repair work for farmers would probably qualify you for membership as a farm service provider. Once you are in they have a good insurance program -- it was the only way I could get liability insurance for my aquaculture operation. But they did make me be a member for a year before allowing me to buy the insurance.

Another avenue to explore is an "umbrella policy" over your homeowner's insurance. Umbrella policies sometimes have broader language and cover more risks than your basic homeowner's policy. They have big deductibles though.