Protecting Your Business With The Right Kind of Insurance

If there’s one thing you can do as a business owner to minimize the sleepless nights, it’s ensuring you've got the right level of insurance. 

Nobody likes to think all their hard work might go up in smoke or be washed away in a flood. Unfortunately, it can and does happen. Choosing the right insurance cover will allow you to pick up the pieces and resume operations with minimal financial loss and disruption to business should such an event occur. 

There are a few simple ways you can work out what kind of insurance is right for your business. Ask yourself the following questions: 

• What is the most catastrophic event that could befall my business? 
• What is the most likely adverse event we’re likely to encounter? 

Each business has its own inherent risks.  Don't roll the dice when it comes to your business. 

The answers will be very different according to what kind of business you run and where you’re located. If you sell outdoor furniture, the worst case scenario may be all of your merchandise getting destroyed in a warehouse fire. You’ll definitely want Property Coverage, which insures you against damage to buildings, contents and stock caused by fire and other perils. 

Conversely, if your run a website design business based in a small office space, you may find Property Coverage less critical. What you willneed is Computers and Electronic Coverage, which insures you against theft, accidental damage, breakdown, fire, and business interruption.

This was a guest blog from Belinda J Darling. To learn more about how you can protect your business with the right insurance coverage, contact the experts at www.mckenzieross.com.au

Damage to Rented Premises

Any time a business rents or leases a space to operate from they sign a contract. In that contract are insurance requirements stating that the tenant will carry certain liability limits. Normally they will ask the tenant to carry a commercial general liability policy, and more often than not they ask for at least $1,000,000 per occurrence limit. The reason they ask for this is that if the tenant is the cause of a fire or other type of damage to the rented building, the landlord wants to make sure that the tenant’s insurance will pay for the damages, and not their own insurance.

Commercial General Liability takes care of a lease contract with two different types of coverages. The first is the coverage I mentioned above of $1,000,000 per occurrence limit. This coverage, however, only gets the tenant half way there. The per occurrence limit doesn’t cover for actual areas of a building that the tenant rents or leases. It will pay for only the part of the building that is not rented by the tenant. An example might help explain this better.

Example:

Let’s say that business XYZ, Inc rents unit A of a four unit office building. If XYZ, Inc causes a fire that extends damages to both unit A and unit B, the per occurrence portion of their insurance policy will only cover damages to unit B. It will not pay for damages to unit A because it is leased or rented by them.

Damage to Rented Premises (sometimes called Fire Legal Liability) is the other coverage a tenant needs when they rent space. This coverage is often included in a general liability policy as well but many times is not specifically mentioned in lease contracts. In the example above, Damage to Rented Premises would be the coverage that would pay for unit A that XYZ, Inc. rented.

The reason I bring this up as a blog article topic is because the Damage to Rented Premises is often overlooked. Since it is left out of many lease contracts, businesses don’t think to check with their insurance carrier about the coverage. Your typical commercial general liability policy will only include $100,000 to $500,000. If company XYZ, Inc. in the above example rented a large space, this may not be enough coverage, and they could pay for some of the damages out of pocket.

So next time you rent a space for your business be sure to have Fey Insurance Services review the lease and double check your commercial general liability insurance limits to make sure you are covered in case of a large fire.

Insurance Journal Article on Cyber Liability

On March 5th, 2012 the Insurance Journal published an article called "What Insured's Should Know About Avoiding Cyber Liability Exposures".  It was written by Christopher Bomar of  Boomarang Data Backup.  In the article he brings up scenarios of possible insurance claims, where the gaps might be in covering such claims and how to avoid such gaps.  It is a well written article and even has a quote from one of Fey Insurance's very own, Brian Fey. 

Please take a look at the article as it does a great job of showing the current status of Cyber Liability needs, gaps and exposures.

Article: What Insured's Should Know about Avoiding Cyber Liability Exposures

How to Save Money on Insurance For Start-Ups

The biggest mistake start-ups make is being too optimistic.  Of course, you wrote in your business plan that demonstrates to your investors that you are going to make $1,000,000 in the first year and turn a profit by year three, but that's not what you should be telling your insurance agent.  

As a start-up, cash will make or break your business. CASH IS KING.  You will often have to accept 60-90 terms to get orders, your vendors (and insurance company) will want cash upfront.  Here are a few tips to keep your insurance overhead as low as possible so you can turn your start-up into the business of your dreams:

Since its first store opening in 2005, Pinkberry has nearly 100 locations throughout the United States, Mexico and the Middle East...(11/30/2011: Pinkberry Website)

Be Conservative on Sales and Payroll Estimates

You don't know how much you are going to make the first year.  Your numbers are based on estimated sales based on estimated customers based on research and industry benchmarks.  Insurance policies are generally based on either annual sales or payroll, so the higher you estimate the larger monthly bill you are going to have during that crucial first year.   

How conservative should you be?  

It really depends on your business.  After the first year the insurance company will do a review (nice way of saying audit) with you and will adjust the yearly premium based on your actual sales or payroll.  Go here for a great FAQ on audits.  If you estimated sales of $50,000 per year and you end up doing that in the first quarter, you need to call your agent to adjust the policy so the payments will be spread more evenly.  The last thing you want is to estimate a super low sales or payroll figure, have a great year and have an extremely large bill when the insurance company audits you.  The idea here is to increase cash flow and lower overhead.  

Look at all your options with your independent agent when starting an insurance policy.  Keep in mind that your personal assets could be at risk even if you incorporate, so price shouldn't be the only factor in choosing your policy.  Don't know where to start?  Check out this blog post: Insurance 101 for New Business.

Professional Liability & the Claims-Made Policy

Occupations or business practices involving specialized care or advice often need professional liability insurance. Typical business classifications that need this coverage would be notary publics, real estate agents or managers, attorneys, doctors and consultants. The typical commercial general liability policy will only respond to bodily injury, property damage, personal injury or advertising injury claim.

The professional liability policy often is written on a claims-made form. The claims-made form requires the claim to be reported during the policy period, and the incident causing the claim must have occurred after the retro date for a claim to be covered. A retro date is a date prior to the start of the claims-made policy. The retro date could be years prior to the start date of the policy based on the underwriter’s discretion, after considering the applicants past exposures and loss history.

By comparison, the typical occurrence-based policy used in most commercial policies responds to claims that occur during the policy period, regardless of when reported subject to the statutes of limitations. The occurrence-based policy handles when the claim happens, and the claims-made policy considers when the claim is reported. In some cases, it is possible to purchase a claims-made policy with full prior acts coverage that essentially does away with a retro date. Coverage classes for this option are limited, and again, depend on the underwriter’s discretion.

When canceling an existing claims-made policy, it is usually advisable to purchase and extended reporting period. This is commonly referred to as tail coverage. Various lengths of time are available. Tail coverage extends the claim reporting period under the claims-made policy to cover claims that have occurred during the coverage period, and not yet reported by the cancellation date.
While most occurrence-based policies are somewhat similar, claims-made policies are usually specific to each company issuing the policy. The insurance agent must d o a careful review of these differences to determine applicability to a particular operation.

Host Liquor Liability

Over the next several months there will be many reasons for businesses and individuals to host events and parties where alcohol may be served. Businesses may have happy hours for celebrations such as Mardi Gras, March Madness, St. Patrick’s Day, and Cinco De Mayo where they will be providing alcohol for employees or customers. Individuals may use the same reason to have friends and family over to celebrate and consume alcohol. Taking my party hat off for just a moment and putting my risk management/insurance hat on, let me discuss something called Host Liquor Liability.

This is a coverage that often is part of a Commercial General Liability (CGL) policy and also included in homeowner policies as long as the individual and/or businesses are not in the occupation of making, selling or distributing of alcohol for money (meaning bars, distilleries, wineries, restaurants, etc. would have a different coverage simply called Liquor Liability). Host Liquor Liability is a coverage to help protect in cases where injuries happen because of alcohol incidents. One common example would be a participant is driving drunk and as a result crashes and injures people in an auto accident. Wherever the drunk driver last consumed alcohol could find themselves facing a lawsuit for injuries that were caused by the driver. They could be pulled into the situation because it was at their event and under their supervision that this driver consumed alcohol and then got behind the wheel intoxicated and drove off.

So here is one key thing about host liquor liability that all your employees, customers and/or friends and family will like to hear: if you are going to have an event with alcohol you are best to give it away. If at your event money changes hands and people are then able to consume alcohol you would have violated the no making, selling or distributing of alcohol for money rule. If you are having alcohol at a charity event the alcohol would have to be donated for the event or have a very good paper trail showing that none of the moneys collected to get in the event went toward the purchase of alcohol. Now, if your event is going to have a cash bar you will need to look into purchasing two items. The first is a temporary liquor license from the state and the second is a Liquor Liability insurance policy. Both of those can be costly and time consuming to acquire so your best bet is to just give it away… and be more popular with your employees, customers, friends and family.

2010 Discriminations Charges

The US Equal Employment Opportunity Commission (EEOC) recently released some very interesting data for the fiscal year of 2010. 99,922 workplace discrimination chargers were filed which set a new record. The types of claims that were filed where:

Retaliation Charges

Race-Related Charges

Sex Harassment

Disability

Age

National Origin

Religion

Equal Pay Act

Genetic Information Nondiscrimination Act

What is even scarier about this number for business owners is that Commercial General Liability (CGL) doesn’t cover these types of claims. Employment Related Practices claims are excluded under a business CGL. In order to have protection for these types of claims you must purchase Employment Related Practices Insurance. Be sure to talk with your insurance agent today about quoting this coverage for your business.

Business Medical Payments

Your business liability policy covers you for claims due to your negligence. Medical payments coverage provides payment for bodily injury to third parties that occur on the premises you own or rent as a result of your operations regardless of negligence.

The rationale for this coverage is insurers believe an injured party is less likely to sue you if they receive prompt payment for their medical expenses. Medical payments coverage expedites payment to an injured party without their having to sue.

A relatively high medical payments limit chosen by you might reduce the chances of a minor claim escalating into a lengthy and expensive claims process.

For claims that might be larger than your chosen medical payments limit, the liability portion of your policy would apply if it were determined that you were negligent. Regardless of your fault the commercial liability policy will provide a defense if you are sued by a third party, even if the claim is groundless.

Damage to Rented Premises

Any time a business rents or leases a space to operate from they sign a contract. In that contract are insurance requirements stating that the tenant will carry certain liability limits. Normally they will ask the tenant to carry a commercial general liability policy, and more often than not they ask for at least $1,000,000 per occurrence limit. The reason they ask for this is that if the tenant is the cause of a fire or other type of damage to the rented building, the landlord wants to make sure that the tenant’s insurance will pay for the damages, and not their own insurance.

Commercial General Liability takes care of a lease contract with two different types of coverages. The first is the coverage I mentioned above of $1,000,000 per occurrence limit. This coverage, however, only gets the tenant half way there. The per occurrence limit doesn’t cover for actual areas of a building that the tenant rents or leases. It will pay for only the part of the building that is not rented by the tenant. An example might help explain this better.

Example:
Let’s say that business XYZ, Inc rents unit A of a four unit office building. If XYZ, Inc causes a fire that extends damages to both unit A and unit B, the per occurrence portion of their insurance policy will only cover damages to unit B. It will not pay for damages to unit A because it is leased or rented by them.

Damage to Rented Premises (sometimes called Fire Legal Liability) is the other coverage a tenant needs when they rent space. This coverage is often included in a general liability policy as well but many times is not specifically mentioned in lease contracts. In the example above, Damage to Rented Premises would be the coverage that would pay for unit A that XYZ, Inc. rented.

The reason I bring this up as a blog article topic is because the Damage to Rented Premises is often overlooked. Since it is left out of many lease contracts, businesses don’t think to check with their insurance carrier about the coverage. Your typical commercial general liability policy will only include $100,000 to $500,000. If company XYZ, Inc. in the above example rented a large space, this may not be enough coverage, and they could pay for some of the damages out of pocket.

So next time you rent a space for your business be sure to have Fey Insurance Services review the lease and double check your commercial general liability insurance limits to make sure you are covered in case of a large fire.

Insurance 101 for a New Business

Insurance is there to get you back where you were in case of an accident. In this litigious society, insurance is your first layer of protection against a law suit arising from an unforeseen accident. There are many types of insurance. Depending on your business you may need one or more policies.

General Liability - This is sometimes called the “trip and fall” policy because it is for third party claims when some one is injured. A third party is anyone that is not involved in the company including customers and the general public.

This covers your business, your work, and your even products after the products are in your customers hands.

Generally, the first time a business gets insurance is because a vendor or a landlord is requiring it. The standard requirements
$1,000,000 per Occurrence
$2,000,000 General Aggregate
In English this means: $1,000,000 per accident and $2,000,000 per year.

One should ask to get the insurance requirements in writing, so you can make sure you fulfill all of them. Many times these requirements are written into the lease or contract in its own section. Give this information to your insurance agent so he can get you the correct coverage to fulfill your lease

Workers’ Compensation - This is the second most common policy as it is mandated by the State of California and most other states to any company with employees. If an employee gets hurt during the course of work, workers’ compensation pays for the workers’ injuries and lost wages.


Without workers’ compensation the employer can become personally liable for employees injuries. In addition, the Department of Industrial Relations can put a stop order on your business and fine you $1,000 per employee.

Professional Liability – This is an important coverage if you are a consulting or giving professional advice. This is also known as Errors & Omissions insurance and Malpractice in the medical field. Consultants, technology professionals, lawyers, accountants, bookkeepers, and other professionals should all carry this protection.

Make sure that you understand the insurance you are buying before signing anything. An insurance policy is a contract and may require you to have certain protections in place in order for you to be covered. Make sure to discuss with your agent your specific needs based on your specific risks in addition to contract requirements from your vendors.

General Liability vs Errors and Omissions

General Liability
What it protects against: Accident and injuries that occur on company property or the property of a customer. It also protects against product liabilities.

How it works: Commercial General Liability (CGL) includes payments to an injured person or to an owner of property that is damaged. These can cover medical expenses and the cost of defending lawsuits, including legal settlements or investigations. Insurance may also provide the means to post bonds during a legal proceeding, or pay judgments. A CGL policy also covers libel, slander, copyright infringement and other personal and advertising injuries.

Who needs it: Most, if not all, companies

Errors & Omissions
What it protects against: Claims by customers that a company made mistakes or failed to perform contractual work. It should include coverage of the cost of legal defense. It is also know as professional liability insurance.

How it works: It insures mistakes made by a company’s owners, employees and contractors. It is similar to a doctor’s medical malpractice insurance.

Who needs it: Anyone who advises, recommends, consults or designs solutions should consider this coverage.

Information provided by: Bests Review The Guide to Understanding Business Insurance Products (2007-2008)

So What is the Difference?:
The key difference between the above two mentioned business insurance coverages is that General Liability only pays claims that have resulted in bodily injury or property damage (meaning damage to property not owned or leased by the business). It will not cover a financial loss that is a result of errors or alleged errors done by the business or the omission of work that the business was contractual obligated to do. That is where Errors & Omissions Insurance steps in and pays for the cost to defend the business as well as any settlements that a court requires them to pay for their error or omission of work.

General Liability is Not Enough

It happened without warning …
Everything went smoothly with the release of your latest software upgrade. Or so you thought. Soon after, customers complain that their computers crash when they install your product. To make matters worse, they sue your company for hundreds of thousands of dollars. The damage to your company’s reputation is bad enough. But your product liability insurance does not cover losses arising from faulty software or programming. How will you pay attorneys fees and damages to your customers?
(Hartford Brochure 2009: A Hands-On Approach to Insuring Innovation)

I never make mistakes...
An accountant audited financial statements which were relied upon by the creditors of 3 plumbing companies. The creditors lent $65,000,000 to the Insured’s client. The plumbing companies defaulted on the loans and fled for bankruptcy. The accountant’s audit procedures did not comply with GAAP. Cost to defendant: $4,175,000
(Philadelphia Brochure 2009: Claim Scenarios, Accountants Professional Liability)

Is General Liability enough?

The answer to that question depends on what business you are in and the services you provide.

Questions you should be asking yourself:

• Do I offer a professional service?
• Am I giving advice in addition to selling a service or product?
• Am I doing any designing?
• Could a glitch or error in my services cause my client a loss?

If you answered yes to one or more of these questions, then you need to look into Professional Liability or Errors and Omissions insurance. General Liability policies have an exclusion for professional services meaning that if someone sues you for something you advised them to do, then you are on the hook for legal fees, settlements, and protecting your good name.

Examples of people that need Professional Liability:

• Doctors & Lawyers
• Consultants & Inspectors
• Web developers, software engineers
• Technology Consultants
• Insurance Agents
• Real Estate Agents
• Accountants, CPAs, Bookkeepers
• Engineers, architects, landscape designers
  

Ways to protect yourself:

• Have your contracts with clients reviewed by your attorney
• Back up all data on a redundant server
• Purchase a Professional Liability policy for your service

Things to look for in a Professional Liability policy:

• Is defense inside or outside the limits? Often times legal fees can eat up most of the limits and you may not have enough money left in the policy if there is a settlement. When defense is outside the limits, you will have your entire limit to pay a settlement.
• Does your policy exclude bodily injury? Some policies will exclude claims if someone gets hurt from something you advised. Example: An tree consultant may say a tree is healthy, then it falls on someone.
• More exclusions. Make sure you are reading the small print and you address your concerns before binding the policy. Companies may change the wording in a policy if it means attaining your business.
  

Talk to your agent to see if you are covered correctly.