How Good Is Your Business Insurance Coverage?
Tips for checking the “fine print” to ensure effective coverage.
What could go wrong? Every time you pick up the newspaper or turn on the TV, you hear about lawsuits – companies being sued for all kinds of reasons. From employee accidents to Internet and security breaches, you don’t want to find out that your insurance doesn’t cover your company in a lawsuit.
The fine print of the insurance policy makes a big difference. It’s a good business practice to have your insurance coverage reviewed by an experienced attorney, especially one who has handled insurance litigation.
Here are some tips:
First, check some key provisions.
While reading an insurance policy is painful – you’ll want to check the exclusions. It’s also important to know whether your coverage is “primary” or “excess” – “primary” coverage provides the initial coverage, while “excess” only comes into play after the primary insurance has been exhausted. Another important provision is whether the insurance includes the cost of defending the claim, paying your lawyers and other costs related to defending your company.
Second, get a competitive quote.
It's amazing what happens when you get one or more competitive quotes. You find out whether you are being overcharged for the coverage you have! By requesting a review of current coverage and recommendations, you’ll gain a better understanding of the scope and cost of your coverage.
Third, ask yourself some hard questions about your risks.
- Risk of damage to property?
Is your coverage 'all risk' or just 'named-peril' (i.e., fire, rain)?
Does your policy cover losses from business interruption? Damage to software and data?
A good policy covers the costs of recovering from the interruption of the business, including lost business.
- Risk of liability for injury or harm?
Commercial liability insurance covers bodily injury and property damage caused to others.
Is your coverage 'all-risk'? Does your policy require the insurance company to defend you as well as pay any judgment or settlement?
- Risk of injury to employees? Subcontractors?
If you have employees, workers compensation insurance is mandatory. It's required by law. If you don't have it, you are subject to expensive penalties and open-ended liability. Workers compensation insurance covers employees injured 'in the course of' or 'arising out of' employment. -
Risk of malpractice?
This insurance, (sometimes called 'Errors and Omissions,' 'E&O' or malpractice) covers negligent acts, errors or omissions in the performance of professional services.
Typical exclusions include criminal, fraudulent or acts intended to cause harm.
Emerging issues include whether such policies cover professional services for 'failure to meet contractual obligations.'
- Risk to Officers & Directors?
This insurance (sometimes called 'D&O') protects your directors and officers from the costs of a lawsuit for acts on behalf of the company.
With this type of policy, check the exclusions carefully. An important consideration is whether the coverage pays the legal fees up front in the event of a claim (or only reimburses).
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Other risks?
New types of specialty insurance are becoming available for protection against claims such as copyright infringement and employment issues such as sexual harassment. Such policies may or may not be a good fit for your business.
If you work with subcontractors, you’ll need to see written confirmation that they have insurance and in certain circumstances, you will want your company named as an additional insured so that you’re not liable for a subcontractor’s injury.
In conclusion, good business practices and insurance coverage are important steps to reduce your legal exposure. An insurance review is a cost-effective way to ensure you have the coverage you need.
About the author:
Jean D. Sifleet, Esq. CPA is the head of the Business Practice Group. For practical information, check out Jean's articles and books which are featured on this site. For legal advice related to your business, contact Jean at 508-361-0916 or jean@smartfast.com
