It's hard for an insurance adviser to recommend just the right limit to carry, but we believe that a $10-million limit is an absolute minimum — and $20 million is better. Although the cost of liability insurance has risen rapidly in the last few years, we believe that excess limits remain affordable relative to the risk potential. Our advice is:

• We urge you to check the cost of higher liability limits for all your clients.



• Limits of $50 million or more should be considered for clients with an elevated exposure to severe bodily injuries, multiple bodily injuries or catastrophic property damage exposures. Fire and explosion that damage surrounding commercial and industrial properties are the most common causes of catastrophic property damage losses.



• Clients with U.S. premises or product exposures or vehicles operating in the U.S. should also consider higher limits. U.S. court awards tend to be much higher than those here in Canada. Remember, Cdn$40 million is less than US$30 million at current exchange rates.



• For clients whose principal exposures are in the U.S., minimize the risk of currency fluctuations by buying the GL cover in American dollars.



• Important business partners such as a landlord or major customer will usually have specific insurance requirements. Meeting such external insurance requirements is necessary, but it is not a substitute for thoughtfully considering the right level of protection for your business. If insurance purchased for a business partner can be attached by that business partner, leaving insufficient protection for the client, then even higher limits are necessary.



• The long-term, corrosive consequences of personal injury litigation shouldn't be underestimated. Big lawsuits tend to take a long time to resolve. While they remain outstanding, they can foster an environment of uncertainty that can inflict real damage. The threat of underinsured litigation can cause havoc with your client's financial stability. Your client's ability to borrow, build, and grow — and even corporate buy-outs — can be jeopardized.



• Losses aren't always discovered immediately — especially if, like product liability losses, they occur away from your client's premises. Even when a loss is reported promptly, its full severity may become apparent only after several years, perhaps as the trial date draws closer. Some lawsuits are finally adjudicated 10 years or more after the original injury.



• Your client doesn't have to be the principal defendant to be a victim of this kind of financial instability — big lawsuits attract a lot of fringe defendants as well. Thanks to joint and several liability and the hunt for deep pockets, blame can shift from those who are most responsible to those who can most afford to compensate the injured victims.



• Self-insure loss frequency, not severity. Large losses have a mighty big sting, so adequate excess limits always make sense, even for businesses willing to self-insure layers of loss frequency.



• Your client may have the financial resources to absorb a large loss over time, but the short-term fiscal impact on spending or borrowing will always justify purchasing higher catastrophe-level insurance.



• Self-insurance must be carefully balanced against predictability. New legislation, regulations and precedent-setting court awards will have a measurable but manageable effect on the frequency layer. In the excess layer, the effects are likely to be rare but pronounced, even catastrophic. Adequate insurance limits are the only hedge against this sort of social inflation.



• We know that your clients buy this sort of insurance only on the earnest advice of their professional insurance broker. We suggest that you include a quotation for higher limits in all your renewal presentations, ideally in writing. For a stronger defence to any future errors and omissions suit, ask your client to sign off your renewal report, showing that they acknowledge your recommended limits.