Small owner operator liability insurance.

The shop/small business is licensed under an assumed business name. No employees. The shop is on our property in a separate building from the house.
My wife and I are both on fixed incomes, Social Security. The shop and business are intended to supplement our incomes.
I was discussing supplemental plans for Medicare with our insurance agent, that's it's own nightmare. The conversation turned to the shop and our business. I was informed that the homeowners insurance that we have with him, would not cover the building and any liability stemming from an accident from something that can be linked back to me. An example the agent gave was if I made a part for someone for anything and a year later, or whenever, that device or equipment that the former customer installed the part that I made him in, caused an accident, then the customer's insurance investigator would go after me. Even if the part had nothing to do with the real reason for the accident.
He said to look into a business insurance for coverage for the building, contents and product liability.
I figured that this forum is the best place to start.
Thanks for any help.

Business insurance protects your ability to make a living. You don't need that. Uncle Sam gives you a living.

Product liability insurance protects you from the liability associated with your work. If you have assets, you might want that.

Not sure about the first reply. For many years we have had insurance on the buisness, it covers many types of damage to the buildings, contents, liability, theft and other things. You have a separate building for your business, that is a good thing. We took the space between our detached garage and the house and made it part of the business effectively making one building, could not insure them separately, had to insure them from the business back out the house amount when doing the taxes and carry separate renters insurance for the house content.
We use Sentry the agents have been helpful but we have never had a claim to know how they pay out. Someone else asked about insurance not too long ago. Everyone that had Sentry thought they were good but no one had actually collected to know for sure.
A friend had a book keeper that embezzled $250K from him and I think his insurance paid a part of that.

Incorporate the business, let Inc shield you from suers. Keep insurance money in your pocket. See attorney for advice.

Pathogen said:

Incorporate the business, let Inc shield you from suers. Keep insurance money in your pocket. See attorney for advice.

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Purposely shorting the corp on insurance is good cause for a judge to pierce the corporate shield. But, talking to a lawyer is a good idea.

Accountants and lawyers _can_ be your friends. In a case like this I would think they would recommend that the business be in an LLC. The LLC pays you a wage AND rents the building. It carries the product liability policy and may also need a general liability policy*. After all limiting liability is the main reason to setup an LLC. The second is ownership, since its easy to buy, sell or gift shares.

*may actually be required by your personal property/home owners policy holder since a business is on site.

I'm thinking there is some confusion here as to what the Insurance Agent is talking about.

(I'm not an insurance agent, I'm not a lawyer, but I went through the business insurance
swamp last year)

Product liability.. Good luck on that, probably cheaper to get sued then to get that.

General liability.. The cookie selling girl scout slips on your icy sidewalk.


ANY insurance company is going to be scared that you are a machine shop..
"I make parts to prints that customer supplies".. Even if you aren't trying
to get "product liability", they are going to be nervous about getting drug into
something, even if its something they don't cover.

I HIGHLY suggest putting up a few dollars and having a sit down with a lawyer.. A GOOD
lawyer, not one that you picked based on price. Having a lawyer in your back pocket that
you can call or e-mail for advice is a VERY comforting feeling.

I'd listen to a lawyer that is well versed in the law before I listen to an insurance agent
that is trying to sell you shit you don't need at a price you don't want to pay.. And any
good business lawyer is going to have contacts that they trust that they will send you to.

As for the actual insurance, when I was leasing, it was $386 a month from Liberty Mutual. The
land lord carried his own insurance on the building.. That was 2mil liability and $168k in equipment
stuff, and $35 each for up to 7 bushes and stupid shit like that..

When I bought the building. I ended up going to Farmers (not Farm Bureau), on my lawyers
referral. $135 a month. Same 2mil in general liability, 300 and something on the building.
$280k something on the equipment, plus all the other stupid shit.

Do your research, get some qualified advice, not from some asshole on the internet like me,
and make smart decisions, not expensive ones.

Sounds like a very good idea to get an attorney to lead me.
You're correct, I didn't get a good feeling about any of what the guy said. The main reason is the insurance company that he represents doesn't even sell any insurance related to Machine Shop business.
He said a bookkeeper working out of a studio apartment on their property where the owners home is or an office in the home would be okay with their company.
We have all of our vehicles, our home and the shop building I am talking about presently insured with this agents company. They are one of the Big names who has been around for a long time.
I hope I haven't opened a can of worms with them.
I have a few people I know who do welding,saw filing, knife sharpening fabrication of trailers, and on and on you go that I bet don't have any product liability insurance and more than likely their homeowners insurance people don't have a clue that they are doing it.

So then if the bookkeeper who is okay with my insurance company for their business in their home screws up someone's books and they end up getting financially hurt....well somebody's going after somebody. Wonder how that would work out for them.

The general consensus of most people I run into don't get too excited about a machining business if you mention what you do.
Flower shop, coffee shop or the like...you hear " Oh wonderful, cool!"

The chances of anybody suing you for work done, especially a year later, is between slim and none. If you are doing critical aerospace work then that could be a different matter. Sounds to me you are doing general machine work so I wouldn't lose any sleep over it. It sounds to me like you don't have a big asset base other than your home and some machines and they can't take your home or your ability to make a living. You would, in the rare event, be sued, you would be classified as "hold harmless" which means there nothing there for them to go after. You might consider having insurance in case of fire etc.

BTW, I have my own shop in a leased 2400 sf industrial and I don't have any insurance for that at all.

Sleep tight.

Pathogen said:

Incorporate the business, let Inc shield you from suers. Keep insurance money in your pocket. See attorney for advice.

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Nope, won't work. If you have a corp with no insurance the judge will "pierce the corporate veil" and go after you personally. I know this for a fact.

Wild West said:

The chances of anybody suing you for work done, especially a year later, is between slim and none. If you are doing critical aerospace work then that could be a different matter.

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I figure if you have product liability insurance, its like hanging out a big sign that says
SUE ME!!! You aren't going to get sued for product failure if there is nothing to get.
And then they have to try and collect.

Government stuff, you'll probably just land in jail.

BTW, I have my own shop in a leased 2400 sf industrial and I don't have any insurance for that at all.

Sleep tight.

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I don't know if this is standard for a commercial lease, but when I was leasing this building,
part of the lease was that I HAD to carry $2mil of general liability. Of course added the fire and theft
and all that other fun stuff into the same policy.. I'd have to guess that your landlord is
carrying it, and you're paying for it weather you know it or not.

I'm not sure what kind of equipment you've got in your shop, but when the value of the equipment
in the shop is worth more than the house you live in, having insurance is kind of comforting..

Never mind the big machines, think of the value that you have in all the little stuff, inspection
equipment, 3000 drills, 500+ carbide endmills, 800+ carbide inserts, hand tools, tool boxes, computers,
carts, benches, the fricken coffee maker. Couple tons of aluminum, a few 100lbs of Ti, forklift etc...

Bobw said:

I don't know if this is standard for a commercial lease, but when I was leasing this building,
part of the lease was that I HAD to carry $2mil of general liability. Of course added the fire and theft
and all that other fun stuff into the same policy.. I'd have to guess that your landlord is
carrying it, and you're paying for it weather you know it or not.

I'm not sure what kind of equipment you've got in your shop, but when the value of the equipment
in the shop is worth more than the house you live in, having insurance is kind of comforting..

Never mind the big machines, think of the value that you have in all the little stuff, inspection
equipment, 3000 drills, 500+ carbide endmills, 800+ carbide inserts, hand tools, tool boxes, computers,
carts, benches, the fricken coffee maker. Couple tons of aluminum, a few 100lbs of Ti, forklift etc...

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Yes, I do have a $2M liability policy that strictly covers the buildings owner. That is a whole different issue than product liability insurance. BTW, my shop has about $250K in equipment give or take.

Come to think of it, in all my years of being a self employed machine shop owner I have never known nor heard of anybody in the business being sued for product liability.

hot tip lawyers only sue people they figure they can collect from.
if you are close to being what is called judgment proof they will run
the other way.

you make a part to specs provided by some one else that's a tough sell in court.

lawyers are basically lazy

I already posted this answer to a similar post on this forum. You might want to do a forum search before asking a question like this. I am pasting my previous answer below:

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General business liability insurance is coverage for a range of liabilities. Typically general liability coverage for a machine shop would be $2000/yr per $1 million in sales.

Financially speaking, it is usually a mistake to buy insurance. Ever seen an insurance company building? Those big glass skyscrapers? Guess who is paying for that skyscraper? Idiots who buy insurance. Insurance may seem like a "small" expense to you, but it eats away at profits and costs you valuable time to pay bills.

A far better policy is to limit the value of recoverable assets you have, incorporate, and then declare bankruptcy in the rare event somebody sues you.

Let's look at the math of this to prove it:

Imagine you lease your shop and have $250,000 worth of equipment, if it were sold at auction. You pay $2000 a year for $1 million in insurance. Now let's say the chance of you getting sued is 1 in 2000 (roughly accurate). That means the unadjusted value of the insurance is $500 per year. So, you are getting $500 per year in value and paying $2000 for it. The broker pockets $600 and the insurance company gets $900 profit. That's how they are able to buy glass skyscrapers.

In reality, you actually get less than $500 per year because the insurance company will do everything it can to avoid paying a claim, so your real value might be more like $350 or $400 per year. So you are basically flushing $1600 a year down the toilet.

Also, the insurance does not really "protect" you anyway, because if a judgement is awarded against you for $5 million you will go bankrupt anyway, so the insurance is useless. In fact, it is counterproductive because lawyers are much more likely to sue somebody who has insurance rather than someone who does not have insurance. For example, let's say a motorcyclist dies and they start taking apart the machine to figure out who to sue. Guess who they are going to sue? The large parts companies with the most amount of insurance.

Now, let's say the nightmare happens, somebody dies, your part is to blame and the grieving family members sue you for $10 million. You ascertain you are likely to lose a court battle. What you should do is immediately close the business and sell everything. Pay off all your debt. So, let's say you get $250,000 from the sale of assets. You pay $70,000 you had in payroll and debt. You now have $180,000 left. Put it in a bank account. This is the disbursement. The most the lawyers can get from you is this amount. You meet with the plaintiff attorneys. You tell them: "I closed the business 2 months ago. The disbursement was $180,000. I will settle the case and give you $100,000 and will not sign anything. If you refuse my offer and sue me anyway, I will spend every penny of the $180,000 on attorney fees, fight you tooth and nail for 5 years and in the end you will get nothing." The lawyer will advise their clients to accept your offer. You pay the plaintiff $100,000. You keep the remaining $80,000. You lose $100,000. Remember this is a 1 in 2000 scenario. That is a 0.05% percent chance every year. EXTREMELY UNLIKELY.

So let's look at the math:

You pay the insurance: you lose $1600 per year PLUS
You have (let's say) a 0.01 chance of still being bankrupted = $100,000 * 0.01% = $10
Total losses $1600 + $10 = $1610 per year

You don't pay the insurance: you lose $100,000 * 0.05% = $50

Okay, so there you go, you can either lose $50 a year or $1610 a year. How much do you want to lose? Choice is pretty obvious.

Do not buy insurance.

Stupid argument. There is a huge manufacturing concern near me, Parsons. I think they have 150+ employees, 250,000 sq ft. I have no idea what the place would be worth, lets say $50 million. An F4 tornado leveled the place. Total loss.

Not all liability is man made.

In 1995 I worked for a small mold shop that leased space in a building that exploded and burned due to negligence by another tenant. All tenants were either under insured or not insured at all, and all eventually failed. About 7 years ago, my largest customer at the time, a plastic injection molder, was leasing space in a building that collapsed due to snow load. They were very well insured. Insurance covered replacing EVERYTHING to get them back to where they were, including finding a new space to rent, and wiring and plumbing that space to suit their needs. They were back in business in a few weeks, and suffered no loss of customers. The difference between a business being uninsured and properly insured when a tragedy strikes is like the difference between night and day.

Barry Weeks said:

The difference between a business being uninsured and properly insured when a tragedy strikes is like the difference between night and day.

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Well, the OP sounds like a semi retired guy with a one man shop that does general machine WORK. there is no need whatsoever for product liability insurance. He should enjoy his SS and his part time machining and not worry about a thing. That's what I do.

Absolutely correct, I believe it's called co-insurance? This is what happened to the shop I worked at that burned in 1995. I don't remember the exact numbers in our example, but let's say the contents of the shop were valued at $500,000, but the shop owner (my boss) only insured them for $250,000, thinking he would never have a total loss. When we did have a total loss, he expected to get the full $250,000 he had insured the shop for. Since he had $500,000 of actual losses, the insurance company claimed they were a "co-insurer" of 50%, and only paid him 50% of the $250,000 he had insured the shop for. So on a $500,000 loss, he received a check for $125,000, and it took some time to get even that.

Doug said:

Regarding insuring business equipment there are some things to be aware of. Under insurance is one.

For example, let's say you have a machine you want to insure, but you feel the loss of it is statistically very unlikely. So, to save money you might insure it for only $10K, thinking that in the unlikely event of a total loss at least you'll get the $10K.

If that unlikely loss does occur the insurance company will determine the true value of the equipment. If their valuation of your machine is $20K, how much do you get?

This is where, IMO, the insurance company rips you off. Insured value, $10K divided by true value ($20K) =.5. They will then give you .5 x $10K= $5K. This is in spite of the fact you were paying premiums for $10K of insurance. They penalize you for under insuring the machine.

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Doug said:

Regarding insuring business equipment there are some things to be aware of. Under insurance is one.

For example, let's say you have a machine you want to insure, but you feel the loss of it is statistically very unlikely. So, to save money you might insure it for only $10K, thinking that in the unlikely event of a total loss at least you'll get the $10K.

If that unlikely loss does occur the insurance company will determine the true value of the equipment. If their valuation of your machine is $20K, how much do you get?

This is where, IMO, the insurance company rips you off. Insured value, $10K divided by true value ($20K) =.5. They will then give you .5 x $10K= $5K. This is in spite of the fact you were paying premiums for $10K of insurance. They penalize you for under insuring the machine.

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When insuring shop equipment you ALWAYS have to value the equipment at replacement value. You cannot under insure, that is you cannot under value the equipment to save money on your premiums and you cannot just insure certain pieces of equipment, this is considered under insuring. I have been thru this a few times in years past.

I just back to check in on this,thanks for all of this information everyone.
To paint a better picture, which I should have done earlier, for equipment I have a 1944 Pratt and Whitney 16 x 54 engine lathe that I refurbished, not rebuilt. Actually a pretty good machine.
A 76 Bridgeport series 1 with a 1 1/2 hp vari-head that I did the typical repairs to head, table and saddle screw and nuts.
Racine Power Hacksaw. Roll in Vertical Bandsaw. All machines pretty well tooled, i.e.: chucks, vices, rotary table etc.
About 20-25 thousand in misc. hand tools, measuring instruments, 2000 in Welding equipment.
The homeowners insurance we presently have covers building only, 30,000.
That probably clarified my situation. Agent said if there was any business in it, they wouldn't cover the building.