Definition of Deep Pocket Insurance

"Deep pocket" in insurance terms concerns litigation filed against a wealthy defendant because of the potential for full compensation. Oftentimes, the wealthy party may not be directly involved in the injury incident. But liability claims filed against joint parties can mean the wealthier party bears the biggest financial penalty. So, a wealthy individual or corporation may draw a deep pocket insurance policy to counter the financial setback from a claim.

Deep Pocket for Small Businesses

As a small business owner, you can take out a deep pocket liability insurance policy to reduce the financial risk stemming from lawsuits against people who you manage, directly or indirectly. For example, a plaintiff hit by an impaired driver can sue your business if it employs the driver. Such a situation may occur because the driver has no insurance or lacks enough money to pay for damages. So, the insurance policy can serve as protection for your business should a single claim rest heavily on your financial resources.

Deep Pocket for Corporations

A corporation that makes consumer products might consider taking out a Directors and Officers insurance policy -- a type of deep pocket insurance -- to protect against joint lawsuits from product end-users. For example, if the corporation makes hair products, it could be named liable in a lawsuit against a hairdresser who may have incorrectly applied its product to a client. In such a case, the hairdresser's client could sue her and seek full damages from the corporation that makes the product, if there's no money to be made from the hairdresser.

Wealthy Party Bias

In some cases, a wealthy individual or corporation can bare the full cost of the legal compensation to the injured party. This has been the application of the law under joint and several liability. With this, defendants who are 1 percent liable pay more than 1 percent of the damages, up to 100 percent. Consideration has been given to whether such cases are biased against wealthy individuals or corporations. After all, plaintiffs may be more likely to sue if more money can be extracted from a wealthy party, and lawyers may grab at cases where punitive damages are linked to a wealthy individual or corporation.

Pursuit of Fairness

Fair Share Acts ensure that third-parties only pay the damages for which they are responsible. For example, California’s Proposition 51 was enacted to reduce the damage paid by defendants who are only partly to blame. Similarly, Pennsylvania’s Fair Share Act holds corporations that are liable for less than 60 percent of the damages to pay only their proportionate share of a judgment. However, culpability higher than 60 percent is not protected, and corporations can sometimes incur the full cost filed from the lawsuit. Forty US states have instituted varying hybrid fair share liability laws, as of publication.

About the Author

Victor Rogers is a professional business writer who started his career as a financial analyst on Wall Street. He later expanded his experience to content marketing for technology firms in New York City. Victor is an alumnus of St. Lawrence University, where he graduated with honors in economics and mathematics.

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