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professional liability (E&O) insurance--for LLC or personal?

  • 1.  professional liability (E&O) insurance--for LLC or personal?

    Posted 07-11-2023 15:18

    I am just launching my part-time solo consulting business. It is organized as an LLC. Regarding professional liability ("errors and omissions" insurance) both my insurance agent and my lawyer advise that the LLC, as an entity, should be the insured, rather than me personally. This makes some sense to me, and I should probably take their advice, just wondering what others in similar circumstances do.  Thanks.

    --Chris Ryan



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    Christopher Ryan
    Clinical Associate Professor of Family Medicine
    SUNY Upstate Clinical Campus
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  • 2.  RE: professional liability (E&O) insurance--for LLC or personal?

    Posted 07-11-2023 16:04
    I'm not an expert but you should be an LLC for legal reasons (protected limited liability) so they can take your business, but not your house.
    I am incorporated (owner -only S-corp) for favorable tax reasons, but that's another issue.
    David



    Original Message


  • 3.  RE: professional liability (E&O) insurance--for LLC or personal?

    Posted 07-11-2023 17:36

    An LLC is very common. In terms of insurance, I've been asked for the LLC to have the following on a government contract:

    • Statutory Workers' Compensation and Employer's
      Liability
    • Commercial General Liability
    • Professional Liability
    • Umbrella/Excess coverage
    • Cyber Insurance

    Note that you can easily get insurance on short notice when it is needed for a contract. You should try to keep your costs as low as possible and avoid unnecessary expenses when you start.



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    Olivier Binette
    Duke University
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    Original Message


  • 4.  RE: professional liability (E&O) insurance--for LLC or personal?

    Posted 07-11-2023 17:13

    This is not a legal opinion, but I have operated as a solo practitioner for about 45 years. Your best bet is to insure both the LLC and yourself personally. Our E&O companies have always covered both our firm and me personally. Betting on the corporate veil to protect you is not always the best policy.



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    Nelson Lipshutz
    Regulatory Research Corp.
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    Original Message


  • 5.  RE: professional liability (E&O) insurance--for LLC or personal?

    Posted 07-11-2023 18:09

    This will be a good time to remind everyone that, some time ago, a group of Consulting Section volunteers worked together to put together a guidebook called "Considerations for Running an Independent/Small Statistical Consulting Business" (in fact, David Bristol who has already posted in response was part of this workgroup). It's not in the easiest of the places to find on the section site, but here is the link: https://community.amstat.org/cnsl/forconsultants/inpriv/guidebook

     

    It is pretty comprehensive in terms of the topics covered, and we would love to see it get used! Almost all of the questions that get asked here routinely are covered.

     

    Michiko I. Wolcott, CMC®

    Msight Analytics, LLC

    michiko.wolcott@msightanalytics.com

    30725 US Hwy 19N #146 | Palm Harbor, FL 34684 USA | O: +1 (404) 348-4314

    msightanalytics.com | LinkedIn | Facebook | Twitter | Instagram | YouTube | Medium 

    Discover. Understand. Execute.

     




    Original Message


  • 6.  RE: professional liability (E&O) insurance--for LLC or personal?

    Posted 07-11-2023 20:59

    Michiko, thanks for sharing that link. I didn't realize it existed -- it's truly a great resource. 

    Chris, a general reminder with LLCs -- courts are more willing than you think to "pierce the veil" between personal and professional identities for sole-member LLCs, especially when there's evidence of commingling of assets or expenses between the LLC and the owner. (Said with the disclaimer that I'm neither a lawyer nor an accountant.) Also, look carefully at who's being contracted. I had one short-term client who insisted on 1099 work for me personally rather than working through my S-corp; had I been sued for that work, my business insurance wouldn't have been of terribly much use. I've usually seen folks just insure the business and ensure that all their contracts route through the business and aren't personally guaranteed by the consultant; if you need to personally guarantee work, or work in your personal capacity, or if you think you might find it challenging to maintain a pristine wall of separation between your business and personal finances, then that's a conversation to be had with your lawyer/accountant.

    Best of luck in your new consulting adventures!



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    Jason E. Gillikin, CPHQ, LSSGB
    Principal Consultant
    Gillikin & Associates, Inc.
    Wyoming, Mich.
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    Original Message


  • 7.  RE: professional liability (E&O) insurance--for LLC or personal?

    Posted 07-11-2023 21:11

    If you do end up buying the personal policy, I would double check with your accountant / tax person if it's a valid business expense for the LLC, it sounds like a personal expense (eg after tax :( ) - honestly I'd fear the IRS as much if not more than lawsuits. Also if it's not a business expense, then paying for it from the business account could be "bad" wrt to separation of LLC and person.



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    Neal Fultz
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    Original Message


  • 8.  RE: professional liability (E&O) insurance--for LLC or personal?

    Posted 07-11-2023 21:19

    To further Neal's point (who was also part of the workgroup that published the guidebook): LLC is for legal purposes. How the business chooses to get taxed is another matter (reason why many LLCs are taxed as an S corp but legally structured as an LLC). Since insurance is a "legal" matter and not so much a business tax matter (other than what Neal mentions if you choose to be insured as an individual), the interplay between the two is critical in determining what to do.

     

    Michiko I. Wolcott, CMC®

    Msight Analytics, LLC

    michiko.wolcott@msightanalytics.com

    30725 US Hwy 19N #146 | Palm Harbor, FL 34684 USA | O: +1 (404) 348-4314

    msightanalytics.com | LinkedIn | Facebook | Twitter | Instagram | YouTube | Medium 

    Discover. Understand. Execute.

     




    Original Message


  • 9.  RE: professional liability (E&O) insurance--for LLC or personal?

    Posted 07-11-2023 21:05

    My consulting business is an LLC and I was advised by lawyers and other independent consultants in several fields to insure the LLC not myself. I have followed that advice. However, as several others have stated, I am not a lawyer and do not have legal training or knowledge, so take this as an opinion only, not legal advice.

    John W Green, Ph.D, Ph.D.

    John W Green Ecostatistical Consulting LLC



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    John Green
    Principal Consultant: Biostatistics
    DuPont
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    Original Message


  • 10.  RE: professional liability (E&O) insurance--for LLC or personal?

    Posted 07-13-2023 17:20

    Many thanks to everyone for your perspective and experience!

    --Chris



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    Christopher Ryan
    Clinical Associate Professor of Family Medicine
    SUNY Upstate Clinical Campus
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    Original Message


  • 11.  RE: professional liability (E&O) insurance--for LLC or personal?

    Posted 07-14-2023 01:42

    Hi all, I am coming in here at the end of the game when most of the thinking has been done. Apologies that I did not read every message leading up to this one.

    I have E&O insurance at about $500 per year, and I am an employee of the company that my wife and I own (The Mountain-Whisper-Light, Inc., aka  The Mountain-Whisper-Light: Statistics & Data Science). So, if I goof up statistically and I am or the company is sued, the E&O insurance will kick in.

    The more recent contracts that I have signed (for work) have required liability and E&O insurance. 

    This kind of exchange and the wide participation in the discussion is what makes this a great section. 

    Best wishes,

    Nayak



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    Nayak Polissar
    Principal Statistician
    The Mountain-Whisper-Light: Statistics & Data Science
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    Original Message