This article is from in the January 2008 issue of DOTmed Business News. A list of registered users that provide sales & service can be found at the end.

Take this insurance test: Company X hires Company Y to install a CT in Hospital Z. Company X, a broker, sold the CT to Hospital Z "as is." Soon after a patient is injured during a scan: who does the patient sue? Probably X, Y and Z - oh, and go to the head of the class if you got the bonus answer, the OEM that made the CT. In addition, Hospital Z may sue Companies X and Y to boot.

So the correct answer is: an injured party can, and often will, sue everyone possible - particularly anyone with "deep pockets" - if the injured party thinks they can collect a liability judgment. We'll come back to this case in a minute after a brief look at the nature of "risk."



Business insurance 101: Accepting risk vs. transferring risk

In its simplest terms, insurance is a gamble. It's all about an individual or company either retaining the risks they face, i.e., remaining uninsured, or transferring the risk for a price (the premium) to an insurance company. This can be a tough judgment call because the can be so many variables; but the main factors typically are the maximum potential loss of an event, the probability that it will happened at all, and the cost of the insurance.

For example, take the risk of fire. The chance of your business burning down is very remote, so why pay for insurance? First, it's a catastrophic event, it would put you out of business. And second, because the frequency is very low, the cost is relatively low, so virtually every business has property insurance which always covers fire damage. (Incidentally, you should make sure your property insurance specifies "full replacement value" for all equipment and furnishings, not just a dollar amount. If you've expanded recently, make sure your coverage is up to date.)

Liability insurance is a lot more "iffy." While the probably that you or your employees may cause a law suit may be low, the amount of damages sought can be astronomical. So how do you weight this "bet?" One thing you need to do is take a good hard look at a factor that many people overlook.

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