Using A Shell Corporation To Avoid Liability
So this weekend I had occasion to talk with an attorney friend of mine about the usefulness of using essentially a shell corporation as a barrier to deflect a liability lawsuit.
As we all know, the United States is the home of the liability lawsuit. It reminds me of a routine by The Jerky Boys where one of their characters calls a lawyers office to say that he’s “hurt” and wants to sue. It turns out that his feelings were hurt and was advised by the lawyer that he can’t sue on those grounds. Ok, so it was funny at the time.
Anyway, I asked my friend if having a Limited Liability Company (LLC) in place and acting as the management company would present much of a barrier to a personal injury attorney intent on suing for some negligence (real or imagined) on the landlord’s part. I also mentioned that I have homeowners liability insurance on each property and a personal umbrella liability policy as a secondary buffer.
He said that basically in my situation where I am the named property owner, president of the management company and maintenance person, an attorney would sue me personally and bypass the corporation altogether.
He also mentioned that the corporation could pose a problem for me in that the insurance company could look at the lease, see that the corporation is the landlord, and deny the claim because there’s a business involved and try to pass the buck to the corporation which, you guessed it, comes back to me personally.
His advice was that personal injury attorneys want to sue an insurance company and not an owner who does not seem to have sizable assets. He said that it’s better to have multiple layers of insurance in place and if sued, make the insurance company handle it because it’s their job.
A footnote to this is that the insurance company is responsible for the insured party’s attorney fees should he be sued and that amount has nothing to do with the “limit of liability” stated in the policy.
Of course, being an attorney, he mentioned that I should read my policy completely to be sure of the above. Imagine that.
