What is Shared Liability Insurance, and How Does it Affect My Organization?
Updated: May 17, 2022
Shared liability is a model in which all the parties in a lawsuit are equally responsible for paying damages. The idea is pretty simple. Each party is responsible for bearing part of the risk in any venture embarked on jointly. For example, in a lawsuit, each party will pay a part of the damages.
Shared liability insurance ensures an organization against the payment of damages arising from a shared liability case where it is a defendant. The shared liability may either be in the form of a joint liability or a joint and several liabilities. Note that these are different from employers' liability insurance.
What is a Joint Liability?
Joint liability refers to an arrangement where all the defendants are responsible for bearing the risk associated with a venture. This may be a lawsuit brought by an injured party. Or the case of a loan taken out jointly by two parties. The total amount owed must be paid even if one party defaults in joint liability.
Joint liability can be very unfair to the defendants in an injury case. If any party cannot pay his share of the damages, the plaintiff can go after any other defendant for the payment. This means that a defendant with a lot of money might end up paying much more than his fair share of damages in joint liability.
Joint liability does not take into account the magnitude of the role played by each party in the situation.
What is a Joint and Several Liability?
In a joint and several liability, each party is only responsible for their share of the damages incurred. Unlike in a joint liability, in a joint and several liability, a plaintiff cannot go after another defendant if one defendant cannot pay his share.
Two companies can borrow money under a jointly and severally liable agreement. Then they only have to pay their share of the loan. Should one company default on the loan, the other company does not have to pay for the defaulted company.
What’s the Difference Between Joint Liability and Joint and Several Liability
Take a loan situation, for example. Several parties can be responsible for defaulting on a loan in joint liability. And the organization responsible for enforcing repayments can go after each party to collect their repayment on the loan.
However, if one party cannot repay its share, the organization can go after another party to repay the outstanding share.
In joint and several liability, each party is only responsible for paying his share of the loan. Should any party default on paying their share, the organization cannot go after another party for payment.
Advantages of Shared Liability
Shared liability dilutes the risk involved in a venture by making more people liable for it. Some of the advantages of shared liability include:
Shared liability assumes that the pool of defendants can pay the damages. And that they are sufficiently able to decide how to share the money among themselves.
It spreads the cost of damages across several different organizations. Thereby it makes the total amount easier to pay.
The plaintiff has a better chance than usual of actually getting paid. Especially in a joint liability arrangement where he can simply go after a wealthy figure for payment should others default.
Disadvantages of Shared Liability
Shared liability can be really helpful. It can help you avoid paying high amounts of damages alone. However, it has its disadvantages, too.
The lawsuit might involve one party who has a lot of money but has little or nothing to do with the injuries. This is especially common where joint liability is concerned. The rich party acts as a failsafe if any of the others cannot fulfill their part.
It is difficult to precisely ascertain what part each party’s role was in causing the injury. As well as what amount each party is to pay in proportion to the part they played.
Should any party not pay his share, the entire group of defendants has to pay more to cover for him. Often, this might just be one individual or the corporate party paying much more than he should.
How Does Shared Liability Insurance Impact My Organization?
A shared liability arrangement can help your organization avoid bearing the total cost of damages arising from a case. This is especially helpful in cases where multiple organizations may be responsible for the injuries to varying degrees.
For example, a worker can sustain injuries at different sites and sue all those organizations for damages. In a shared liability arrangement, all the organizations involved shoulder the cost of the damages should the plaintiff eventually win the case.
Or, in the case of loans or investments, shared liability means that all the parties involved are responsible. This could be for paying back the loan or absorbing any risks arising from the investment.
Shared liability insurance insures your company against paying more than their part of the total liabilities incurred. This is in the case that one party defaults and the other parties are required to pay more than their share to make up for that.
The PEO co-employment model is a typical example of the shared liability model. Both parties — the client company and PEO enter into a co-employment arrangement, where the HR and employment-related liabilities have split both ways, between the two parties. Working with a PEO has proven to be economically beneficial for SMBs or other businesses who need a complete HR structure, but cannot afford to run one yet.
Have more questions about shared liability insurance? Reach out to us today at Mission. We are an HR and outsourcing expert with years of experience helping businesses like yours survive in the marketplace with top-notch, tailored HR services. As growth experts, we offer you the exact services and solutions you need to scale internationally. We are available to answer all your bugging HR and outsourcing questions.