Don’t wait until you hit an iceberg!
Understand the business insurance coverages that you need now.
Take it from someone who spent more than 20 years in the insurance industry, buying insurance coverage is about as exciting as watching paint dry, or worse, DOING the painting - and that’s how it should be.1 However dull it sounds, depending on your type of business, insurance is often the linchpin of your risk management strategy. For something so important, very few people know much about it other than who “Flo” is thanks to some pretty hefty marketing spend by carriers.
Let’s try to change that. But keep in mind, insurance is an extremely complex subject that is often very fact specific, so what follows is a general overview as you consider your business insurance needs. We aren’t called PrepOverCoffee for nothing - this isn’t PrepAsYouKnitSixBlankets or PrepAsYouBuildYourEmpire.
Generally speaking, when you are trying to avoid the Titanic icebergs and keep your business protected, there are two types of coverages: property and liability.2
Property Insurance: Pretty much every business needs this.
Property insurance covers your premises and your “stuff” from perils. Perils are generally the “acts of God” like fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. Basically, things that will appear on the next news cycle or at minimum, require a visit from emergency personnel. Something that surprises a lot of people is that earthquakes and floods are generally not covered by your property policy unless specifically added or endorsed (see below for what endorsement means).
Everyone typically needs property insurance, even if they don’t own a building, for things like computers, furniture, or inventory (think of it like personal renters insurance if you don’t own the building). But again, remember the perils and the property damage caused by those perils - this is usually all your property coverage addresses. Notice the peril list did not include theft. There are some commercial property policy forms that do not automatically cover theft. Even if theft is endorsed (there is that word again, we will get to what this means below) or included as a special form on your commercial policy, you should verify the scope that is included and excluded. For example, is it just equipment? Does it include cash or other items on premises? Also, are any specific circumstances required for the theft to be covered? Many policy forms exclude theft by employees and other common crime scenarios, which may require separate commercial crime coverage.
Commercial General Liability Insurance: The vast majority of businesses also need this.
Liability insurance covers damages that your business causes to other people. For example, you would look to your liability coverage to protect you if your business caused damage to someone else’s property, bodily injury (including resulting medical payments), and even personal injuries like libel and slander. In addition, many commercial liability policies will step in to cover litigation accusing you of copyright infringement in your marketing materials, wrongful eviction, and even privacy violations. But a big mistake businesses often make is assuming that their commercial liability covers all the liabilities associated with running a business, such as the additional coverages outlined below.
Professional Liability: Do you offer advice or professional services? If so, you probably need this too.
Another type of liability coverage involves the professional advice or services offered by consulting firms, real estate or home inspection firms, technology consultants, law firms, and accounting firms, among others. This is the coverage (often called E&O or errors and omissions) you look to in the event someone sues you for making a mistake in your advice or services, if you are negligent, or make some sort of misrepresentation. In most states, this is not required by law for most service providers (the exceptions are things like medical malpractice, etc). However, many clients require their providers to have this type of coverage (including for federal contracts). Even if your clients don’t require it, this coverage can protect your personal and business assets in these unfortunate situations and may even step in to cover your legal fees.
Not sure what questions to ask, PrepOverCoffee is here for you with some critical questions to ask when evaluating professional liability coverage.
What is a BOP? And no, it’s not a Cyndi Lauper song.
Running a business is difficult, and no one that isn’t making a living in insurance has time to become an insurance expert. Thus, many carriers have created a business “bundle” to streamline a number of coverages into a single product. These are called BOPs, which stands for Business Owner Policies. A BOP includes property insurance as well as commercial liability coverage, and sometimes tosses in employment practices liability (that covers you if you are sued for things like discrimination, retaliation or wrongful termination) and business interruption or business income coverages to provide lost revenue if your business is impacted by a covered peril. A BOP is often more cost effective than purchasing separate policies and can often be customized or expanded even further to include things like professional liability, D&O, umbrella, and data breach coverage.
Business interruption still requires a peril.
As for business interruption coverage, remember those perils above? Those typically have to be the “cause” of the loss of business income or the inability to operate. COVID introduced an interesting challenge to these types of coverages as courts across the country entertained the question: “is a government mandated closure a peril?” In most cases to date, the answer is no. But even if the answer was yes, a special consideration for business interruption coverage is not only what circumstances have to be present for the coverage to kick in, but how many days will be covered? Most policies cap the number of days covered to a fairly small number, so even had COVID coverage been available, it would not have made insureds whole by covering a closure of multiple months (unless they had a specific endorsement that extends the time period of the “interruption”). And if you believe the zombie apocalypse is yet to come, you might want to find a carrier that offers a communicable disease rider for your business interruption and property policies, or ask for an endorsement covering government shutdowns during an outbreak of disease.
Speaking of endorsement, what is an endorsement to an insurance policy?
Sometimes called a “rider,” an endorsement is an attachment to the standard form policy that adds or modifies coverage. It is a lot like an amendment to a contract, and may be specific to your business or something that lists or “schedules” additional property items covered. For example, various commercial policies might endorse additional coverages, such as cyber (both first and third party), employment practices, crime/theft coverage, fiduciary liability/ERISA, etc. Or, your property policy might list out the large inventory or computer items associated with your business.
Do you have a board of directors? D&O coverage is not just for public companies.
Public companies, private companies, and even nonprofits often need directors and officers (D&O) coverage, even if they have indemnification provisions in their bylaws or if indemnification is required by law. This coverage focuses on covering the legal fees, judgments and settlements associated with litigation defense and protecting the personal assets of directors and officers (and their spouses) in the event there are allegations of fraud, failure to comply with workplace laws, misrepresentation of company information, breach of fiduciary duties, theft of intellectual property, and even lack of corporate governance.
For example, even a small startup can create claims that may only be covered under a D&O policy, such as making promises which do not materialize to investors, missing regulatory requirements, or not complying with workplace laws.
There are different types of D&O agreements that comprise the overall coverage, including Side A (which covers individuals when the company does not or cannot honor indemnification obligations), Side B (which reimburses the company for indemnification obligations), and Side C (which covers potential claims against the company itself in addition to the directors and officers).
So many coverages, so little time.
In addition to those outlined above, there are also coverages for commercial auto, couriers, home based business insurance, product liability coverage, employment practices liability, cyber, and more that you might need for your business. The best rule of thumb is, if you don’t expressly see the coverage in your policy, do not assume that risk is covered. Take the time to understand the unique risks created in your business, and determine those that you would prefer to insure versus those you plan to accept and take your chances on paying for any loss or damage out of pocket. The opposite is also true. A lot of policies may cover “hidden” claims that aren’t necessarily obvious on the policy’s face, and commercial insurers will often work with you on coverage because the business is highly relationship dependent. Thus, even if you are not sure, talk to your broker about submitting a claim because you might have coverage even if your specific claim type is not in the name of the policy.
Your broker is Mickey to your Rocky.
Most businesses undervalue the advantage that a good insurance broker creates. Just like Mickey could always be counted on to be present in Rocky’s corner, towel in hand, your broker should be there for you when you have questions or a potential claim (though hopefully no one is cutting anyone’s eyelid open). They can offer you strategic advice on risks in your business, how to minimize those risks, and the best way to consider your insurance needs (and yes, they typically carry E&O insurance in case they mess up).
In short, the world of insurance for your business is complex, the coverages are endless and often incredibly specific, and the policies are not always consistent between carriers. Thus the broker relationship in the commercial space is much more critical than on your personal policies. Choose wisely, and as with many things, you often get what you pay for.
WORKING in the insurance industry is a totally different matter. Though many do not think it is as glamorous as venture capital or investment banking, insurance offers one of the widest variety of roles and professions of any industry. And, while customers often view insurance as part of the financial services industry and lump carriers and agents in with banks, insurance is really the original “public service.” By this I mean, insurance steps in to help insureds at their worst possible moment, providing them with security during an event that would otherwise have devastating financial consequences. So, if you are looking for a great career, look no further than insurance.
For our purposes, life insurance, workers compensation, health insurance, and other insurance of the “person” are topics for another day. And you might hear the term “casualty” tossed around with property insurance. Casualty insurance is simply the liability element of the property coverages.