From Beers to Tears

We live in a litigious society. People are sue-happy and many people see this is as a viable way to make money. Don’t get me wrong, there is a place for civil lawsuits, but they are often abused. It is crazy to think about how much liability we invite into our own homes. Let’s go through an example.

It’s Friday night and you invite your friend Jim over to have a beer. One beer turns into two which then turns into three. Jim gets ready to leave.

You ask, “Are you sure you’re good to drive home Jim? You can crash here for the night.”

Jim replies:

“No, I can drive home.”

“Naw, I live right around the block.”

“No, I’m good. I want to go see my girlfriend.”

Jim does seem like he is good to drive home. He doesn’t slur his speech, he is cognizant when you speak with him and he doesn’t reek of alcohol. You offer him water and food, but he declines.

Now what happens if Jim does drive home that night and in the process of driving home he crashes in to a parked car? Police officers show up and Jim gets a DUI. But, I will ignore the impending criminal proceedings and focus on the financial impact this decision will have on you.

Jim is going to owe a lot of money to the person that had their vehicle damaged, who we will call Larry. Correction, the insurance company Jim has insurance through will owe a lot of money to Larry (we will assume that this insurance company pays out this claim). Jim never cared too much about auto insurance so he only carried the minimum property damage value permitted in California ($5,000).

The following chain of events occurs:

· Jim pays his deductible

· The insurance company Jim has auto insurance through pays the claim to the limit stipulated in his insurance policy (in this case $5,000 for property damage)

· The amount paid out by Jim’s insurance company ($5,000) does not cover the full cost of repairing Larry’s vehicle.

· Fortunately, Larry has uninsured motorist coverage for his vehicle (or under-insured motorist coverage).

· Unfortunately, the limits stipulated in Larry’s auto insurance policy still do not fully cover the loss.

I know what you’re thinking, “Brett, how do I fit into all of this?”

After Jim’s auto insurance policy is exhausted and Larry’s auto insurance policy is exhausted, Larry still hasn’t been indemnified (brought back to the same financial position he was at prior to the loss). His car is still damaged. Where will he get that money?

That’s where you come in. Your negligence, in letting Jim leave your home after having some beers, is the beginning of the end. What you did may not have been criminally negligent (i.e. you may not face criminal charges for letting Jim leave your home) but you could face civil litigation. Larry wants his car fixed and you are partially to blame for this accident because you did not do enough to stop Jim from leaving your home. That last sentence was spoken in a court room by a tall, pasty-skinned lawyer that wags his finger at you. You struggle to listen to the shrill voice of Larry’s lawyer through your muffled sobs. One tear turns into two tears which then turns into three tears.

Miraculously, in this example, Larry (or Jim) is not hurt in the car crash. The financial impact this situation poses to you would only increase if Larry was hurt in this auto accident.

“Brett, great example and everything, but I don’t drink”.

I provided this example because there are a lot of millennials that live for the temporary blurry-eyed bliss uncovered after several beers, shots or mixed drinks. I live in North Park, San Diego, CA and all you have to do is walk down to 30th and University Street (the “it” spot in town) on a Friday or Saturday night to see that there are a lot of millennials that live this way. I am not a statistician, but I have seen a similar trend in: Las Vegas, NV; Coeur D’Alene, ID; Seattle, WA; Portland, OR and many other towns, cities and states. Which leads to the conclusion that: most millennials like alcohol.

Side Note

Ever wonder why alcohol is so expensive when going out? Part of the reason is because of the upfront price to obtain a liquor license in California, hourly wages of employees and the price of rent, utilities, alcohol, etc. But, another reason is the liability a restaurant or bar faces from selling liquor to customers. Similar to the example above, a restaurant (or bartender) could be sued if Jim damages Larry’s vehicle after having some drinks at that restaurant.

“Interesting, but remember I still don’t drink alcohol”

You are a wise human being. Please teach me your ways. Actually, I would advise every human being to limit their alcohol consumption. By limiting your alcohol consumption you will:

1) Develop ninja like reflexes because you will feel better

2) Save a lot of money

3) Find yourself more productive — maybe even writing a financial blog

Even if you do not drink any alcohol you still invite a lot of liability into your life. Here are some examples:

In the ensuing paragraphs I will provide more information about how you can protect yourself from these types of incidents and many other incidents. But, one of the best risk management strategies is avoidance. The best part of avoidance is that it’s free.

· If you do not want to die in a plane crash, you could avoid flying

· If you want to avoid being bitten by a water moccasin (a poisonous snake), you could avoid swimming in rivers that contain them (they are generally docile snakes that are misunderstood)

· If you do not want to speak in front of a crowd on weekly basis, you could avoid Toastmasters International

· If you do not want to contract dengue fever, you could avoid visiting areas that are known to have mosquitoes that carry this disease

Avoidance is not the most pragmatic risk-management strategy. One should live their life to its fullest potential. But, we should also be cognizant about the liability associated with our decisions and how these decisions could affect us from a financial standpoint. Simply because you know how to protect yourself from civil litigation doesn’t mean you should engage in activities that you know pose a higher than normal chance of civil litigation. This is a morale hazard. Just because you have something that can protect you doesn’t mean you should:

· Purposely hit golf balls at people (this would be a criminal act too)

· Invite friends over and not give a damn about them driving home after 5 shots of Buffalo Trace because if they drink too much it’s “their problem”

· Hurt the reputation of someone because that person caused you emotional turmoil

I am not your parent. But, if you become careless because you have something to protect yourself from civil litigation, you are a fool. Fools do not become financially free.

“Brett what is that something?”

There are three things that I would highly suggest looking in to:

1) If you operate a vehicle, identify the liability and property damage limits on your auto insurance policy. Are you sure you are sufficiently covered if you got into an accident?

2) If you rent or own a home look into a renter’s insurance policy or a homeowner’s insurance policy. If you live at home with your parents (I did this for two years and boy did it hurt my dating life) ask your parent’s about the liability coverage on their renter’s insurance policy or homeowner’s insurance policy.

3) Look into an umbrella insurance policy.

I will dive into each of these topics over the coming weeks so you don’t have to go from beers to tears.