Insider ran across an interesting 2003 Massachusetts law case  which highlights the importance of filing your organization documents promptly.

• In November 1999 Carroll Advertising was issued a $1 million commercial liability insurance policy which covered 8 billboards it owned in Massachusetts.  The policy had a carve out which said that the insurance did not apply to any claim arising out of bodily injury of a Carroll Advertising employee while performing duties in the course of conduct of the insured’s business.

• In April 2000 Jeff Ratigan and John Carroll set up a joint venture called Carroll Outdoor to service billboards owned by Carroll Advertising.  The venture shared an office, truck and phone with Carroll Outdoor but had its own computer and checking account.  Carroll Outdoor was not formally incorporated until October 2000.  This was a huge mistake as you can see below.

• On June 4, 2000, Jeff Ratigan and Jeff Kane of Carroll Outdoor was hanging vinyl on a Carroll Advertising sign.  Kane inadvertently touched a high voltage electric line with a metal pole and was electrocuted and lost his left arm and lower leg.

• In October 2000 Kane filed a civil action against Carroll Advertising to recover money for his injuries.  Essex Insurance  brought a court action seeking to deny coverage for Kane’s claim by arguing that Carroll Advertising and Carroll Outdoor were the same company so the insurance claim should be denied because Carroll Outdoor and Carroll Advertising were the same company and Kane was an employee of Carroll Advertising.  Essex based its case on the fact that Carroll Outdoor was not incorporated until after Kane’s injury.

• After trial the court ruled that the insurance claim was valid because the two companies were independent.  The key facts in support of this were the fact that Carroll Advertising had its own computer and bank account and that John Carroll and Jeff Ratigan both testified that the companies were operating independently.

Insider’s take: Insurance companies look for technicalities to avoid paying claims.  Although the insurance company eventually lost, the entire court case could have been avoided if Carroll Outdoor had been incorporated as soon as it was formed and started doing business.  Don’t make life hard for yourself by failing to promptly file your formation documents.