We learn in Business Organizations and other law school electives that corporations and LLCs protect their owners’ assets. But how can the corporation or LLC protect its assets? David F. Rolewick of Rolewick & Gutzke, P.C. writes in the ISBA’s Section on Corporations, Securities, and Business Law Forum “that insurance is first line of defense.”
Insurance can protect against many potential liabilities and may come in the form of general liability, directors’ and officers’ liability, as well as umbrella insurance. Mr. Rolewick even provides a chart of different types of available insurance at the end of his article. He goes on to say that insurance policies may pay to defend litigation even if the litigation is over an issue excluded from the policy. However, he notes that the insurance company may reserve its right to “enforce the exclusion in a separate action.” Still, having the litigation expenses covered may be invaluable because Mr. Rolewick points out that defending litigation may be a client’s biggest exposure.
In conclusion, when setting up a LLC or a corporation to protect a client’s asset, a practitioner may be wise to have the client consider insurance to protect the new entity’s assets as well.