I set up an LLC for my handyman business last year thinking it would shield me from any personal liability. Last month a client slipped on some sawdust I left on their porch and broke their wrist. Their lawyer named both my LLC and me personally in the suit, arguing I was negligent. My insurance is covering part of it, but I'm still exposed. I thought the LLC was a wall. Apparently not.
LLC Protection
I found out the hard way that registering an llc doesn't protect you from everything
An LLC protects the business entity, not you from your own negligent acts. That's a common misunderstanding. If you personally did the work and were careless, you can be held personally liable. The LLC just separates business debts from personal assets, but it's not a force field.
Yeah, this is why a lot of small contractors get a separate liability policy on too of the LLC. The LLC won't cover professional mistakes you make yourself.
Oh no, that's scary. I jusst filed my LLC papers last week for my cleaning business and thought I was all set. So what kind of insurance should I be looking at?
General liability for sure. Maybe also a professional liability or errors and omissions policy depending on what you do.
The worst part is the legal fees even if you win. I had a similar situation a few years back. LLC didn't stop me from getting sued, just meant the company was also on the hook. The personal claim was dropped eventually but I still paid a lawyer.
Did you have an operating agreement and separate bank accounts? Sometimes commingling funds can make it easier for them to pierce the veil.
I did have a separate account and a basic operating agreement. But the claim is about my personal actions on the job, not the business finances.
Exactly. Piercing the veil vs personal negligence are are two different things. The latter doesn't require any commingling.
This is why I carry a 2 million umbrella policy. It's not that expensive and covers stuff like this. My agent talked me into it and I'm glad.
How much does an umbrella usually run?
Depends on your risk. Mine is about $300 a year over my auto and home but for a business it might be more. Worth calling an independent agent.
Also, don't assume the LLC will protect you from unpaid suppliers or credit card debt if you signed a personal guarantee. I learned that one.
Have you talked to a lawyer about settling? Might be cheaper than dragging it out.
My insurance company is handling the negotiation. I'm just trying to understand what happened so I can fix it going forward.
Talk to an attorney who specializes in small business. You may need to adjust how you structure your contracts too. For example, include a waiver of liability where possible.
And document everything.Photos before and after the job. It helps if someone claims you were negligent.
Honestly, for a one-person operation, sometimes an LLC gives a false sense of security. Not saying don't have one, but insurance is the real shield.