In the early 1980s, one of my Dad’s prized possessions was a Starrett-brand “long-line” tape measure. The tape measure when coiled was about six inches in diameter and organized in a shiny, silver, hard-backed round case that included a handle to re-spool the tape.
One summer day in 1981 before I started first grade, when my Dad was away from home, I swiped the tape measure and retreated to a portion of our barn that was never used. I decided at that moment that I was going to figure out how far that tape measure would go. I pulled and pulled and pulled on that tape measure until the end of the tape itself was pulled loose from the case, never to be re-coiled again.
My Dad never yelled or screamed at me, but my Dad was forced to thereafter keep that nearly new tape measure sloppily re-coiled in a rusty coffee can.
We sometimes similarly wonder, “How far can you stretch this, legally?” Often, the question specifically involves how far we can protect ourselves from liability (legal responsibility) for harm that we cause.
For example, we can wonder how aggressive of a discount for a lack of marketability or lack of control can be included in the LLC’s operating agreement.
Or, can an LLC’s structure be stretched so that the LLC literally owns nothing and just serves as a “liability” magnet?
Likewise, is there any way to protect everything I own from being used to satisfy my legal responsibilities stemming from accidents or misdeeds that I may make?
Like a Starrett-brand tape measure, legal protections include limits on how far those legal protections can be stretched.
Generally, legal protections limit but do not eliminate liability.
If someone makes a mistake, that person (or the person’s employer/principal, if the person is acting within the scope of the person’s employment) will be responsible for that mistake.
Insurance is designed to handle most of our liability concerns. And, insurance does handle almost all liability concerns, except in two instances.
First, there may be a gap in the insurance coverage (i.e. I thought I had coverage, but this mistake is not covered under the policy I purchased).
Second, the liability may exceed the limit of the insurance’s coverage (i.e. the harmed person deserves $3 million, but my insurance will only pay up to $1 million).
In either of these instances, legal liability protection through entities and contracts provide “insurance beyond insurance.” However, those entities and contracts also have limits on their protections.
The limits are embodied in Ohio law that requires that LLCs own at least something from which an injured person may recover from wrongdoing for which the LLC is responsible.
Similarly, contracts that completely limit liability are not usually enforceable as complete and total liability shields. This is because everyone should have some responsibility for their mistakes in order to motivate individuals, businesses and society to not wantonly or recklessly endanger others.
Like tape measures, legal liability protections can only be stretched so far.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.