Going Separate Ways

In a lawsuit, you and an employee could be sent down different paths.
Magazine Contributor
2 min read

This story appears in the August 2004 issue of Entrepreneur. Subscribe »

Consider this scenario: One of your employees assaults a customer, and that customer sues the employee, the company and you. But your liability coverage excludes intentional bad acts. Does this mean you are on the hook for and damages? Not necessarily, says attorney Richard Zevnik, an associate with Berger Kahn in Irvine, California.

Most policies contain a "severability" or "separation of insureds" clause, which means that if there are multiple defendants in a lawsuit, the company could deny or limit coverage on one and not on others. So you and the company could be covered for vicarious liability, but the employee who committed the assault may be denied coverage.

"You've got to analyze your coverage under the policy as to each insured who has been made a defendant in a lawsuit as if they were the only insured," says Zevnik.

A similar clause is standard in directors and officers (D&O) policies. The language protects innocent insureds if another director or officer made a misrepresentation on the application or engaged in wrongful conduct that would result in a denial of coverage.

Considering that most lawsuits these days include multiple defendants, a clear understanding of severability will help you manage your more effectively.

Jacquelyn Lynn is a freelance business writer in , .


More from Entrepreneur

Get heaping discounts to books you love delivered straight to your inbox. We’ll feature a different book each week and share exclusive deals you won’t find anywhere else.
Amplify your business knowledge and reach your full entrepreneurial potential with Entrepreneur Insider’s exclusive benefits. For just $5 per month, get access to premium content, webinars, an ad-free experience, and more! Plus, enjoy a FREE 1-year Entrepreneur magazine subscription.
Create your business plan in half the time with twice the impact using Entrepreneur's BIZ PLANNING PLUS powered by LivePlan. Try risk free for 60 days.

Latest on Entrepreneur