WHAT IS BUSINESS VEHICLE INSURANCE?

As a businessowner, you need some of the same insurance coverages for the cars, trucks, vans or other vehicles you use in your business as you do for vehicles used for personal travel.

Your Businessowners Policy (BOP) does not provide any coverage for vehicles, so you must have a separate policy.

Most states require you to purchase liability insurance for bodily injury and property damage that may result from a vehicle accident occurring while you or someone from your organization is driving on business. Many states also require you to have uninsured/underinsured motorists coverage and/or medical payments coverage (known as Personal Injury Protection (PIP) in some states). You can also purchase physical damage coverage for vehicles your business owns, leases or hires.

The Business Auto Coverage Form (BACF) is the most commonly used contract for providing business auto liability insurance. Although the form refers only to “autos,” autos are defined to include cars, trucks, trailers, vans or other vehicles designed for use on public roads.

Each vehicle you use in your business can be separately “scheduled,” or listed on your policy along with corresponding coverages. In other words, you can choose different coverages, for your various vehicles, depending on the vehicle’s characteristics and the coverage you need for it.

DO I NEED A BUSINESS AUTO POLICY?
Your insurance agent will ask in detail how you use vehicles in your business; who will be driving them; whether you own, rent or lease; and whether you and your employees are likely to be driving their own cars for your business. The answers to these questions will indicate the types of coverage you need.

In general, only a BACF can provide the level of liability protection—the recommended minimum is $500,000—that even a small business needs to cover the potential damages in a serious accident.

WILL MY PERSONAL AUTO POLICY COVER BUSINESS USE?
Your personal auto policy provides coverage for some business use of your vehicle. Similarly, your employees’ personal auto policies cover some business use of their vehicles too.

A personal auto policy is unlikely to provide coverage, however, if the vehicle in question is used primarily in business. It will not provide coverage for any vehicle owned by a business. The personal auto policy, whether yours or your employee’s, may not have enough coverage to protect your business.

For example, imagine you are driving your car to a business meeting while having an intense conversation on your cell phone with one of your sales reps. By the time you notice a van ahead of you has stopped to make a left turn, it’s too late to avoid a collision. The driver and five passengers are injured in the accident. They sue you and your company.

If you have only a personal auto policy, your insurer will probably defend you personally and pay the claim—up to the policy limit. Your personal auto policy insurer will not defend or pay damages on behalf of your business, however.

For a very serious accident or one with a number of injured people, your personal auto policy may not be enough to cover the damages. In that event, the injured parties would likely sue to collect damages from your business.

If you or your employees are driving personal vehicles on business and relying on your personal auto policies, be sure you and they have sufficient liability coverage to protect your business in the event of a serious auto accident.

Do not expect to rely on a personal umbrella policy for any claims that arise from business use of a vehicle. Typically, the personal umbrella excludes all claims occurring in the course of a business endeavor.

WHAT VEHICLES ARE COVERED?
The scope of coverage in the business auto policy can be either broad or narrow, depending on your choice of options. It could, for example, be written to apply only to one specifically described auto. Or, as an example of very broad coverage, the policy could be written to apply to the named insured’s liability exposures arising out of the use of any auto.

In general, you have three options for which vehicles you choose to cover.

1. Autos your business owns
2. All autos your business owns, hires or leases
3. All autos used for the business, including those that your business does not own, hire or lease

Most businesses should buy the third type, since that is the only coverage that protects the business from liability when an employee or owner is driving a personal vehicle on business.

BE SURE THE RIGHT INSURED IS ON THE POLICY
An insurance contract usually requires that the owner of a vehicle be named in the policy “Declarations” as the “principal insured.” If you drive any of the same vehicles for both business and pleasure, make sure you tell your insurance agent who holds the vehicle’s title, you personally or your company. This will avoid problems if you need to file a claim or a claim is filed against you.

PHYSICAL DAMAGE COVERAGE
The three types of physical damage coverage for motor vehicles are collision, comprehensive and specified perils.

Collision coverage is for losses that result from the collision of a covered vehicle with any object or from the vehicle overturning.

Comprehensive coverage is the broadest form of auto physical damage coverage, because it provides for losses from any cause except collision and overturn (insured under collision coverage) and a few policy exclusions, such as wear and tear, mechanical breakdown and acts of war. Among the causes of loss covered under comprehensive are flood, fire, theft, glass breakage, falling objects, explosion, earthquake or colliding with a wild bird or animal.

Specified perils coverage covers many of the same perils as comprehensive, but because it covers only “named” perils—those specifically named in the policy—it has a lower premium. It is sometimes referred to as “fire, theft and Combined Additional Coverage (CAC)”

If your businesses has a large fleet of vehicles, over time, it may be more costly to insure the fleet for physical damage than it is to retain the risk, that is, pay for any physical damage directly rather than by insurance.

Regardless of how many vehicles your business has, it may be cost effective to carry physical damage coverage only on the newer or more valuable vehicles.

WHAT WILL THE INSURER PAY FOR PHYSICAL DAMAGE?
The amount an insurer will pay on an auto physical damage or theft claim depends on the market value, known as Actual Cash Value (ACV), of the vehicle at the time of the loss. The most that will be paid is the lesser of the ACV or the cost to repair or replace the vehicle with one of like kind and quality. In the event of a total loss, the ACV is adjusted for depreciation and the vehicle’s physical condition. Thus, the older the vehicle and the worse its condition, the more its value has depreciated and the less the insurer will pay.

The insurance company may pay you the value of the loss in money or, at its choice, it may repair or replace the damaged or stolen vehicle. In case of a theft, it may return the stolen vehicle to you with payment for any damage caused by the theft.

LIABILITY COVERAGE
The liability portion of the BACF obligates the insurer to pay all damages the business is legally obligated to pay because of bodily injury or property damage caused by a covered vehicle, up to the policy limits.

When there is an auto liability lawsuit against the insured business, where the loss is covered by the policy, the insurer is obligated to defend the business or settle the lawsuit. The decision whether to contest or settle the case is entirely at the insurer’s discretion.

The insurer’s duty to defend or settle ends when the insurance policy limits are exhausted. By way of example, imagine that three people are injured in an accident in which you or one of your employees is at fault. The policy limit is exhausted in judgments or settlements for the first two claimants. That leaves your business liable to pay the award directly, should there be a judgment in favor of the third person.

Punitive damages may be awarded in cases of gross negligence, such as drunk or reckless driving. By law in a number of states, a BACF cannot cover any punitive damages for which you may be liable. Even in states where coverage for punitive damages is allowed, your policy may exclude them.

HOW MUCH LIABILITY COVERAGE DOES MY BUSINESS NEED?
Many insurers recommend a business auto coverage limit of $1,000,000, with $500,000 as the minimum. The higher limit does not add a great deal to the premium, considering the amount of additional protection it provides.

WHAT IS A COMBINED SINGLE LIMIT (CSL)?
Unlike personal auto policies that have separate limits for bodily injury and property damage liability (split limits), the BACF commonly has a Combined Single Limit (CSL). This creates higher limits for both bodily injury and property damage coverages, including per occurrence limits. Although you can purchase other limits, the most common commercial automobile CSLs for a small business are $500,000 and $1,000,000.

DOES A BUSINESS UMBRELLA COVER AUTOS?
If you have a business umbrella policy, it would provide protection for owned, hired and non-owned autos, if the umbrella shows the auto liability policy as an underlying policy for which it provides coverage.

WHAT COVERAGE DO I NEED IF MY EMPLOYEES USE COMPANY VEHICLES FOR PERSONAL BUSINESS?
Some businesses let employees drive company vehicles home and use them for personal purposes in the evenings or on weekends. So long as these vehicles are scheduled on your business auto policy and the appropriate “coverage auto symbols” are shown on the “Declarations” page, you have coverage for owned autos taken home by employees.

Employees’ own personal auto policies will not cover their use of a company car unless the car has been specifically borrowed as a temporary replacement for the employee’s own car while it is unavailable. In addition, employees who lease, hire, rent or borrow autos for their personal use are not covered by their employer’s business auto policy.

WHEN YOUR BUSINESS VEHICLE IS ALSO YOUR PERSONAL VEHICLE
Sometimes employees or executives of a company or other persons who are supplied with a vehicle owned by the company have only that vehicle. They do not own a personal vehicle nor do they obtain personal automobile coverage. The BACF does not cover personal use of the vehicle in this situation. To close this coverage gap, you need to add the Drive Other Car Coverage Endorsement to your BACF. This provides insurance while the named individual or a member of his or her family is driving a car borrowed from a third party.

WHAT COVERAGE DO I NEED IF EMPLOYEES DRIVE THEIR PERSONAL VEHICLES ON BUSINESS?
If your employees drive their own cars for business purposes—to visit clients, for example—your business could wind up liable for property damage and bodily injuries resulting from a traffic accident for which an employee was at fault.

Sometimes businessowners don’t notice they have this exposure. Consider these scenarios:

• Your office manager stops by the office supply store to pick up some items for work on her way back from lunch.
• On the way home, a supervisor stops by a client’s office to leave a product sample.
• While on vacation, a salesperson driving his personal vehicle makes a brief stop to visit a customer.

These are all situations where a business can find itself liable for an auto accident with damages higher than the policy limit of the employee’s personal auto policy.

To protect your business from these liability risks, you can add the Non-owned Auto Liability Endorsement to your BACF. It provides coverage when employees drive their own vehicles on business. This BACF coverage is excess over the limits provided by the employee’s personal auto coverage. If the employee’s limits are low—such as only to satisfy state financial responsibility limits—then it is critically important for the business to have this non-owned auto protection.

YOU ARE LIABLE IF YOU ALLOW A BAD DRIVER ON THE ROAD
You are legally liable when you allow someone to drive one of your vehicles. If you fail to take reasonable steps to determine that the driver is qualified to drive or if you allow someone to drive whom you know has a poor driving record and that person causes an accident, you could be liable for negligent entrustment. Any damages awarded for negligent entrustment would be on top of liability for the accident itself.

A case of negligent entrustment arises when someone allows another person to use a vehicle knowing or having reason to know that the use of the vehicle by that person creates a risk of harm to others.

Your organization is responsible for verifying a driver’s qualifications before entrusting him or her with a vehicle. Do not entrust a bad driver with a vehicle—not even for a quick errand.

KEEPING PREMIUMS DOWN
The best way to keep your BACF premiums down is to avoid accidents. Driving safety should be emphasized. Drivers should not be so pressured to produce that they feel compelled to drive unsafely. All vehicles should be well maintained.

Ask your agent whether your insurance company has business auto safety resources that you can use to help your organization be accident free.

Source: Insurance Information Institute, “Business Vehicle Insurance”
iii.org website. Accessed November 30, 2015. http://www2.iii.org/small-business-guide/specific-coverages/business-vehicle-insurance.html

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

WHY DO I NEED LIABILITY INSURANCE?

Good liability risk management can reduce the chances that your business will be sued, but it can never eliminate the risk entirely. You or a member of your organization can make a mistake that injures someone or damages property. Your mistake could harm the reputation or interfere with the privacy of a customer, client, competitor or member of the general public. When such injuries occur, you may be legally liable to pay damages to someone who suffers a loss due to your actions or inaction.

Depending on the degree of harm and the number of people injured and/or value of property damaged, a lawsuit could bankrupt your business. Even if your organization is ultimately cleared of any wrongdoing, a determined plaintiff can keep you tied up in legal proceedings for a long time, entailing significant cost to defend yourself. Liability insurance pays the cost of your defense and protects your assets.

HOW ARE LIABILITY AND DAMAGES DETERMINED?

Everyone in society has a duty to take reasonable care that his or her actions do not injure others. The same rule applies to business entities. Not repairing a pothole in a parking lot, not lighting a dark stairway, failing to train workers how to do their jobs safely and legally or failing to provide directions for the safe use of a product can constitute negligence if a client, customer or member of the general public is injured as a result. The legal meaning of negligence is failure to exercise reasonable care.

If the parties do not agree to settle a liability lawsuit, there may be a trial. Or, the parties may agree to use some alternative means of dispute resolution, such as arbitration, and be bound by the arbitrator’s ruling.

The law of the state where the lawsuit is filed sets the rules for the determination of liability and damages. The amount of damages imposed in any particular case is, of course, in part a function of the economic losses the plaintiff can prove he or she has endured due to the defendant’s negligence. In some states plaintiffs may also be awarded damages for

WHAT KIND OF LIABILITY POLICY SHOULD I GET?

For small businesses the most efficient and least expensive way to purchase liability insurance is usually as part of the Businessowners Policy (BOP) which combines property and liability insurance in one contract. Alternatively, a business may purchase a Commercial General

WHAT TYPES OF DAMAGES ARE COVERED BY THE BOP?

Your liability insurer will pay damages that you are legally obligated to pay as a result of “bodily injury,” “property damage” or “personal and advertising injury,” up to the policy limits and subject to your deductible. Punitive damages are generally not covered, although there may be some exceptions.

Bodily injury means injury, sickness, disease or death; it may include injuries that are emotional or mental, such as post traumatic stress syndrome or humiliation.

Personal and advertising injury includes libel, slander or any defamatory or disparaging material or a publication or utterance in violation of an individual’s right of privacy; infringing the privacy or copyright rights of another in your advertisement; wrongful entry or eviction, or other invasion of the right of private occupancy; and false arrest or wrongful detention.

WHAT IS COVERED MEDICAL EXPENSES?

For the most part, your BOP liability coverage is for situations where a third party claims you were negligent and sues for damages. The medical payments coverage is an exception, as it pays medical expenses for bodily injury to third parties that occurs on premises you own or rent or as a result of your operations regardless of fault.

People are less likely to sue you if they receive prompt medical payments to cover the costs of any injuries they have sustained for which they could claim your business or organization is liable. Medical Payments coverage gets the payments to them without their having to file a lawsuit or go to court and engage in a protracted claims process. This coverage also allows your insurer to pay small nuisance claims without the need for costly legal expenses.

People who commit insurance fraud usually know that for claims below a certain amount, insurers prefer to pay the claim or settle rather than incur the legal costs to defend against the claim. If you have a relatively high limit for medical payments, your insurer can more readily dispose of a lot of smaller claims. However, submitting multiple medical expense claims could negatively impact your insurance claims history. If you are in a business with significant traffic from the public, such as a retail store, be sure to discuss the possible consequences of your medical payments limit on your claims history with your agent.

WHO IS INSURED?

BOP liability coverage insures a sole proprietor, partners or partners named in the policy “Declarations,” but only with respect to their duties on behalf of the business. The spouses of sole proprietors or partners are also covered. If your organization has officers and directors, they are insured, as are your stockholders, but, once again, and this applies to all parties, only with respect to their duties or liabilities in connection with the business. Employees and volunteer workers are insured for acts committed within the scope of their employment in your business.

THE INSURER’S RIGHTS AND DUTIES

• The insurer may investigate any event that has led to a liability claim.
• The insurer has a duty to defend the insured in any lawsuit seeking damages for a covered type of injury or damage.
• At its discretion, the insurer may settle any claim or lawsuit.
• The insurer’s right and duty to defend and pay claims ends when the applicable limits of insurance as specified in your policy “Declarations” are used up in the payment of judgments, settlements or medical expenses.
• The insurer bears the cost of providing a defense; this cost is not part of your policy’s coverage limits.

WHAT IS AN “OCCURRENCE?”

Your liability policy often refers to an “occurrence.” The ISO BOP (1) defines an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same harmful conditions.” An accident is an event that causes injury to the body, property, person or reputation of a third party whom you did not intend to injure. (The designation “third party” means a party other than you or the insurer. It is a third party who claims or sues for damages as a result of an occurrence. You are the first party and the insurer is the second.) An explosion or a car accident are each examples of an occurrence that could result in bodily injury and/or property damage.

The phrase “continuous or repeated exposure to substantially the same harmful conditions” in the definition of occurrence makes clear that the insurer covers situations where harm was done because of an ongoing situation. For example, a person who lived near a commercial chicken farm might claim to have developed allergic asthma as a result of breathing dust from the chicken farm over many months.

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(1) Includes copyrighted material of Insurance Services Office, Inc. with its permission. Copyright, Insurance Services Office, Inc., 2004.

WHEN IS AN OCCURRENCE COVERED?

Property damage or bodily injury is covered when it meets these three conditions:

• It is caused by an “occurrence”
• It is in the “coverage territory”
• It is during the “policy period”

Coverage Territory – Coverage territory is for the most part confined to the United States, including its territories and possessions, and Puerto Rico and Canada. It extends to international waters or airspace only when the travel is between destinations in the United States, including territories and possessions, and Puerto Rico and Canada.

There are three situations, however, when the coverage territory extends to injuries or damage anywhere in the world, so long as the lawsuit is brought in the United States and it involves:

1. Goods or products you made or sold in the United States, including its territories and possessions, and Puerto Rico and Canada.
2. The activities of someone from your business in another part of the world who is away from his or her home in the United States, including its territories and possessions, and Puerto Rico or Canada only for a short time.
3. Personal or advertising offenses facilitated through the Internet or similar electronic communications.

Policy Period – The policy period comprises the dates on which the coverage begins and ends. The standard form of liability policy covers only injuries and damages that you (or an authorized employee) come to know about within the policy period.The policy covers personal and advertising injury only when the offense was committed during the policy period.

If there are further developments regarding a bodily injury or property damage that first becomes known to you and about which you give notice to your insurer during the policy period, that insurer continues on that claim beyond the policy period.

For example, Mae Hoover, a customer, sues you after she slips on ice in your parking lot and breaks a wrist. You turn the suit over to your insurer, ABC Insurance. A few months later, you change your liability policy to XYZ Insurance. A month after you go with XYZ, Mae amends her original lawsuit. She now contends that her wrist has not healed properly and seeks additional medical payments for the cost of surgery and higher damages for her lost income, expenses to her family because of her injury and for pain and suffering. Even though ABC is no longer your liability insurer, Mae’s claim and the new developments continue to be handled by ABC, the insurer who handled the claim at the time it originally occurred.

HOW ARE POLICY LIMITS APPLIED?

The limits of your coverage are set forth in your policy “Declarations.” The policy describes how the limits will be applied. The amounts are the most the insurer will pay, regardless of the number of persons or organizations making claims or bringing suits against you.

The most the insurer will pay for either (1) all damages because of all bodily injuries, property damage and medical expenses arising out of any one “occurrence” or (2) personal and advertising injury sustained by any one person or organization depends on the circumstances. A single occurrence can produce many costly liability claims. If a fire due to your negligence spread from your building to destroy several neighboring structures and caused a death, the value of all the claims against you could be significant even though there was only one occurrence. Regardless of the circumstances, the payment must fall within the liability and medical expenses limit shown in the policy’s “Declarations” page.

In addition to these limits for one occurrence, the policy has aggregate limits. These apply when you have more than one occurrence that results in bodily injury and/or property damage during the policy period. Aggregate limits are divided into two sections:

-The most the insurer will pay for all bodily injury and property damages that result from the products-completed operations hazard is twice the liability and medical expenses limit.

-The most the insurer will pay for all bodily injury and property damages that result from occurrences other than those included under the products completed operations hazard, plus medical expenses, plus all covered personal and advertising injury, is twice the liability and medical expenses limit.

For higher coverage limits, you will need an umbrella policy.

WHAT IS THE “PRODUCTS COMPLETED OPERATIONS” HAZARD?

If you manufacture, sell or distribute a product, there is the possibility that it could cause bodily injury or property damage for which you would be legally liable. Even if you only sell or distribute the product, you could still be liable depending on the circumstances.

If you provide a tangible service, such as installing heating systems, there is the risk that negligence could result in damage caused by your work after your work is done (a “completed operation”). For example, a contractor installs a steam heating system and three months later it leaks and causes property damage.

The “products completed operations” hazard covers each of the above risks under certain conditions.

When a product is involved, to be covered, the injury or damage must occur away from your own premises—unless your business includes the selling, handling or distribution of your product for consumption on premises you own or rent.

With respect to property damage as the result of completed operations, “property damage” means physical damage to tangible property, including loss of use of that property. Intangible property, such as digital data, would not be covered.

DAMAGE TO PREMISES YOU RENT

If you rent or lease a building or part of a building, you could have a fire liability risk. Should a fire caused by your negligence burn your rented premises and other property owned by your landlord, you could be liable for the damage. If you rent or lease business premises, be sure to discuss with your agent how much insurance you need to cover your fire liability exposure.

WHAT IS NOT COVERED?

A number of situations, people and circumstances are excluded from the standard BOP liability coverage. There are various reasons. Injuries to employees are excluded because employees are usually covered for work-related injuries by workers compensation insurance. Liability for pollution or in connection with professional services is excluded because only some businesses need that coverage and it can be purchased separately. Auto liability is excluded because it is covered by a businessowners auto policy. Damage to your own property is excluded because it is covered by your property insurance.

The standard policy form does not provide coverage for a recall of products, work or impaired property due to a suspected defect, deficiency, inadequacy or dangerous condition. You may purchase a Product Withdrawal Expense Endorsement to cover some of this risk.

YOUR DUTIES REGARDING ANY CLAIM

By acting quickly, your insurer can often settle a liability claim and head off a costly lawsuit. For this reason, insurers require that you inform them as soon as practicable when you are aware of an occurrence that may result in a claim, even if no lawsuit has been filed. As part of your insurance contract, you are required to give this notice and to provide information about the occurrence, including names and addresses of anyone injured and any witnesses, as well as the nature of any injuries or damage. You also agree to cooperate fully in the investigation of the incident.

Other than for first aid, you will not have insurance coverage for any payments or expenses you make or agree to make without the insurer’s consent.

ENDORSEMENTS TO BOP LIABILITY COVERAGE

Endorsements are additions to insurance contracts that change the coverage. Endorsements can add liability coverage for specific circumstances to the BOP. Among those most commonly added are:

• Employment Practices Liability
• Liquor Liability
• Employee Benefits Liability

Employment Practices Liability Endorsement – If your business has even a few employees, you cannot entirely avoid the risk of a lawsuit charging you with some type of employment discrimination, whether based on sex, race, age or any one of a number of other characteristics. This is typically one of those exposures—much like the exposure to theft by trusted insiders—that employers tend to think “won’t happen here.” Unfortunately, even if you have an excellent risk management program, an employment practices lawsuit can happen in any business. For example, you may fire a worker for poor job performance only to find he or she files a lawsuit charging that the real reason for the termination was race, religion, age or some other protected characteristic. Regardless of whether the employee can ultimately prove the charges, you may be tied up in a legal defense for a long time. Even if you think you’ve done nothing wrong, you could be found liable for discrimination and responsible for the payment of a large damage award. The Employment Practices Liability Endorsement provides coverage for violations of seven different federal anti-discrimination statutes named in the endorsement, as well as for violations of similar state and local statutes. You must choose a supplemental limit and deductible for this coverage that is separate from any of your policy’s other limits. As part of the contract, you give the insurer the right to defend against any claim. The insurer may offer to settle a claim. If you do not consent to the settlement, the most the insurer will pay on the claim is the amount it offered in settlement.

Liquor Liability Endorsement – People who are intoxicated can harm others. If your business involves serving liquor for a charge, or if a license is required for you to serve liquor (even if you do not charge for it), your BOP liability coverage does not cover your liability exposure—the possibility that someone you served could cause a car accident, for example. The Liquor Liability Endorsement provides coverage for bodily injury or property damage for which an insured may be held liable by reason of any of the following:

• Causing or contributing to the intoxication of any person
• Furnishing alcoholic beverages to a person under the legal drinking age or under the influence of alcohol
• Violating any statute, ordinance or regulation relating to the sale, gift, distribution or use of alcoholic beverages

Employee Benefits Liability Endorsement – If you have employee benefits programs, there is a risk you will be sued by employees or retirees charging there was negligent administration and management of the benefit plan. Even though you may use a professional benefits administrator, the personal assets of your in-house plan fiduciaries may be at risk if they are responsible for errors, omissions or breach of their fiduciary duties. The Employee Benefits Liability Endorsement covers this liability exposure.

SPECIAL COVERAGES

Depending on the nature of your business and its risk exposures you may need one or more of the following types of liability coverages:

• Umbrella Liability Insurance
• Errors and Omissions Liability Coverage/Professional Liability Insurance
• Directors and Officers (D&O) Liability Insurance

Umbrella Liability Insurance – A big difference between property and liability risks is that you can put a value on the property you have at risk, but there is no way to predict the amount of damages you could be required to pay as the result of a catastrophic accident. If, for example, you were found liable in a school bus accident that injured children, the damages could be in the millions of dollars.

Umbrella Liability—also known as Excess Liability Insurance—provides extra protection for catastrophic events. The primary policies are called “underlying” policies and are specifically listed, along with their limits, on the umbrella policy. Typically, the underlying policies are your primary general liability, auto liability and the employer’s liability section of your workers comp policy. The umbrella coverage starts to pay when a covered loss exhausts the primary policy’s per occurrence limit.

Most umbrella policies exclude employment practices liability, professional liability, product recall coverage, workers compensation and coverage for asbestos-related claims, pollution, war and terrorism.

Errors and Omissions Liability Coverage/Professional Liability Insurance – If you provide any type of advice, expertise or professional service, you risk being sued by a customer, client or other party who claims he or she was injured due to your negligent act, error or omission. This type of negligence is sometimes referred to as “malpractice.” Professional Liability Insurance, also called Errors and Omissions Liability Insurance, pays the cost of your defense and any damages awarded, up to policy limits. Insurance companies have developed many specialized policy forms that respond to the individual risks characteristic of particular professions and services.

Directors and Officers Liability Insurance (D&O) – D&O Insurance protects past, present and future directors and officers of a for-profit or nonprofit corporation from damages arising out of alleged or actual wrongful acts committed in their capacity as directors and officers. Some policies extend the same coverage to employees. The policies provide protection in the event of any actual or alleged error, omission, misstatement, misleading statement or breach of duty.

Many policies will also cover the corporate entity for claims involving the sale or purchase of the company’s securities. A D&O policy does not cover exposures properly covered under other policies, such as bodily injury or property damage, which are covered under general liability.

HOW MUCH LIABILITY COVERAGE DO I NEED?

The amount of liability coverage a business needs depends on perceived risk. You should first consider the amount of risk inherently associated with your business. For example, a business that manufactures or distributes power tools is at a greater risk of being sued than one that distributes towels and would therefore need more liability insurance. You can usually get a good sense of lawsuits involving your type of business through your trade association. Ask your agent for help assessing your liability risk.

KEEPING PREMIUMS DOWN

As with other types of insurance, the general rule for liability insurance, from an insurer’s perspective, is that your past claims history is a good predictor of your future claims. The greater the risk of future claims, the higher the premium. Good liability risk management is critical both to keeping premiums under control and avoiding losses.

Higher deductibles are another means of lowering premiums. Make sure that in the event of a loss, you can afford to pay the deductible you select.

WHAT IS “CLAIMS MADE” COVERAGE?

There are two major forms of liability insurance policies: Occurrence and Claims Made.

Occurrence Policy: An occurrence policy covers a business for harm to others caused by incidents that occurred while a policy is in force, no matter when the claim is filed. For example, a person might sue a business in 2010 for an injury stemming from a fall in 1999. The policy that was in place when the incident occurred (i.e.1999) will apply, even if the company now has a policy in place with higher limits.

Claims Made Policy: A claims made policy covers the business based on the policy that is in force when the claim is made, regardless of when the incident occurred. In the above example, the limits in the policy in effect in 2010 would apply.

Source: Insurance Information Institute, “Liability Insurance”
iii.org website. Accessed November 30, 2015. http://www2.iii.org/small-business-guide/specific-coverages/liability-insurance.html

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

Slightly more than half of U.S. businesses — 51.6 percent — were home-based, according to the 2007 Survey of Business Owners (SBO), conducted by the U.S. Census. Only 6.9 percent of these home-based respondent businesses had $250,000 or more in sales and receipts, while 57.1 percent brought in less than $25,000. (For further information see the U.S. Census release.)

Whether you’re doing medical billing, building birdhouses in your garage, running a day care center, auctioning art on eBay or any one of the myriad of other types of businesses people run from their homes, you may not have adequate insurance.

Many people think their homeowners policy is all they need. But a typical homeowners policy may not provide enough coverage. The usual limit is $2,500 for your business equipment while at home and $250 when it’s off the premises.

Most homeowners policies specifically exclude business liabilities. Even though your at-home business may involve only yourself working just part time, you could still have liability risk. For example, someone may come to your home for a business purpose–such as delivering materials–and sustain an injury on your premises for which they believe you are responsible. Your homeowners policy would probably not cover the damages.

HOW TO ADD MORE COVERAGE
There are three ways to provide more property and liability insurance for your in-home business. The right choice will depend on the nature of your business, its annual receipts and the amount of coverage you need. They are:

• Endorsement to Your Homeowners Policy
• In-Home Business Insurance Policy
• Businessowners Policy (BOP)

Endorsement to Your Homeowners Policy Your homeowners insurer may offer an endorsement to your homeowners policy that adds additional property coverage and some limited liability coverage. For less than $20 a year, you may be able to double your standard policy limits for business equipment from $2,500 to $5,000. This option is usually limited to businesses that have less than a set amount of annual receipts, usually around $5,000.

In-Home Business Insurance Policy Some insurers offer specific in-home business insurance policies with some of the same features as larger commercial policies but with lower policy limits and at a lower premium. With this coverage, generally at a price of less than $300 a year, you can insure your business property for $10,000. The policy includes general liability coverage with the limit you choose, between $300,000 and $1 million.

Should you have to shut down your business because of damage to your house, the in-home policy will cover the income the business loses and ongoing expenses, such as payroll, for up to one year. The policy also provides limited coverage for loss of valuable documents, accounts receivable, offsite business property and use of equipment.

Businessowners Policy (BOP) Many insurers offer small businessowners policies combining a wide variety of coverages in a single policy. You may want to talk to your insurance agent about whether the broader property and liability coverages you would get with a Businessowners Policy (BOP) are recommended for your business.

BUSINESS VEHICLE INSURANCE
Your personal auto policy probably provides coverage for some business use of your vehicle. A personal auto policy is unlikely to provide coverage, however, if the vehicle in question is used primarily in business. It will not provide coverage for any vehicle owned by a business.

Should you be driving your auto for a business purpose and get into an accident for which you are liable, an injured person could sue you personally. Will your personal auto policy have enough coverage to pay all the damages? If not, a lawsuit may be filed against your business. You may want to discuss whether you need a business auto policy with your insurance agent.

WORKERS COMPENSATION INSURANCE
States have varying rules about when an employer must provide workers compensation insurance. If you have three or more employees, you should check with your state department of workers compensation to see if you are required to provide workers comp insurance.

MORE INFORMATION ON COVERAGE
Property
Liability
Business Vehicles
Workers Compensation

Source: Insurance Information Institute, “Home-Based Businesses?” iii.org website. Accessed November 30, 2015. http://www2.iii.org/small-business-guide/insurance-for-specific-businesses/home-based-businesses.html

© Copyright 2016. All rights reserved. This content is strictly for informational purposes and although experts have prepared it, the reader should not substitute this information for professional insurance advice. If you have any questions, please consult your insurance professional before acting on any information presented. Read more.

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