Limited Liability Insurance and Overconfidence

Business owners who have liability insurance with limited coverage often have overconfidence when they are threatened with a lawsuit. Suppose an owner of a laundry mat has coverage that insure 1 million dollars if he/she is defeated in a in a lawsuit. An opportunist threatens to file a frivolous lawsuit against him/her. The owner assumes that if the money hungry opportunist sues, he will not sue for more than 1 million dollars. He says to himself, "My assets will be protected, so go ahead and sue me." The opportunist threatens to file a frivolous lawsuit against the owner. The owner calls the opportunist's bluff, but he sues the owner for 2 million dollars. If the defendant loses, he will have to pay 2 million dollars not to mention the legal fees of trial defense that is often thousands of dollars. Someone having a greater peace of mind due to this type of liability insurance is one thing. Having overconfidence can be financially dangerous.