Your business exposures change when operations cross the border. Here’s some of what makes operating stateside a riskier venture for Canadian companies.
Legal Jurisdiction
The laws of the land apply to business conducted in each state. You may be unaware of the differences in applicable laws. Legal exposures may range from:
- Tort: Negligent design, negligent manufacture, negligent misrepresentation, failure to warn, improper labeling
- Economic Loss: Breach of contract, breach of warranty, breach of a condition
- Statute: Strict liability imposed by local legislation, statutory restrictions, Consumer Product Safety Commission obligations
Higher Litigation Exposure & Cost
The U.S. tends to be a much more litigious legal environment than Canada. Both individual lawsuits and class actions occur with greater prevalence. It is often necessary to defend claims with the aid of local legal expertise, amounting to higher defense costs. Even if a claim is frivolous, the high costs of defense may prove burdensome to both insured and insurer.
Higher Judgement Awards
The nature of American civil trials is also something important to consider. Whereas many Canadian lawsuits are decided by a judge alone, in the U.S. they are trial by jury. This creates a legal setting where bias against insurance companies may be more prominent and thus a successful defense more difficult to secure.
In Canada, pain and suffering awards–otherwise known as general damages– are capped below $400,000 though a court may depart from ‘the cap’ for intentional torts.
In the U.S., there is no cap and awards can easily extend as high as $10,000,000 which can be greater than policy limits. Keep in mind that Canadian defendants must still pay in U.S. dollars, which adds another increased variable to the total incurred (currency conversion). States like New York & Florida are particularly known for high judgment awards.
Punitive damage awards are quite visible in the American tort system and which are outside the scope of insurance coverage.
Policy Coverage
The above demonstrates how U.S. operations invite both a greater frequency and severity to liability exposures. It is vital that businesses understand these risks, especially where policy limits, or possible policy exclusion, may affect liability coverage. Paying millions out-of-pocket for judgement awards that exceed liability limits is enough to cripple many businesses.
We recommend that a qualified counsel review any manufacturing or distribution contracts.
