Business Insurance Primer Whitepaper Part #1 – Liability Insurance
Presented here is a brief overview of some of the major types of business insurance. It includes a simple discussion on Commercial Liability and Property Insurance, and does not constitute insurance advice. This is not intended to be a description of coverage, and does not include details of the coverage nor the terms, conditions, qualifications, limitations and exclusions applicable. Policies should be reviewed in their entirety and related to your specific operations. Many insurers permit changes (Changes to insurance policies are usually called “endorsements” or “riders”) in their limitations or exclusions to match your specific requirements. As insurance advice must be tailored to the specific circumstances of each situation, nothing provided herein should be used as a substitute for the advice of a competent insurance broker. IN NO EVENT WILL RHODES & WILLIAMS LIMITED BE LIABLE FOR ANY DAMAGES WHATSOEVER, INCLUDING SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE INFORMATION PRESENTED IN THIS DOCUMENT.
Commercial Liability Insurance Overview
Here’s a brief overview of the major types of Commercial Liability Insurance. This is not intended to be a description of coverage. It does not include details of the coverage nor the terms, conditions, qualifications, limitations and exclusions applicable. Policies should be reviewed in their entirety and related to your specific operations. Many insurers permit changes* in their limitations or exclusions to match your specific requirements. *Changes to insurance policies are usually called “endorsements” or “riders”.
Commercial General Liability Insurance (CGL) is the standard liability policy for most business operations. It provides insurance funds to pay claims and/or defence costs for your legal liability for bodily injury, specified personal injuries and damage to tangible property of others arising from your premises, products or operations. Example: While working at your customer’s building, your employee fails to properly extinguish a cigarette. This results in fire damage to their building and an injury suffered by one of their office staff while escaping from the fire. Your CGL policy responds to pay for the resulting property damage, the bodily injury, and related legal expenses.
Employer’s Liability Insurance (EL) provides funds to pay claims and/or defence costs for your legal liability to your employees who sustain bodily injuries while working on your behalf. It is available only for employees who are not required to be insured under a provincial or state workers compensation plan. For example, your office worker who is not required to be insured under WSIB is injured while on the job and claims for his/her injuries.
A supplemental insurance coverage known as Contingent Employer’s Liability (CEL) is available for workers who are required to be insured under WSIB (or a provincial Workers’ Compensation plan). This insurance is usually included in today’s “package” policies as a supplement to the above CGL policy. CEL provides insurance if an employee suffers an on-the-job injury and Workers Compensation (WSIB) does not apply. Example: Your Ontario employee is injured while working on a job outside the province for a longer period than the out-of-province time extension allowed by WSIB.
Tenant’s Legal Liability Insurance (TLL) provides insurance funds to pay claims and/or defence costs for your legal liability from damage to a rented structure (this is usually a lease obligation) because this is excluded under a basic CGL Policy. Many of today’s “package” policies include this coverage. The limit of insurance should reflect the cost to construct the portion of the premises you occupy. Example: The TLL policy responds for damages caused to your rented premises as a result of a fire caused by your employee.
Automobile Liability Insurance provides insurance funds to pay claims and/or defence costs for injuries or damage suffered by others due to the negligent operation of your owned or leased automobiles. Specific coverage is defined in various provincial or state automobile insurance acts. Example: Your automobile liability policy responds to pay for damage caused when you accidentally hit another’s car causing serious bodily injuries to its occupants. Ontario Accident Benefits insurance, which is included in this policy, has undergone substantial changes in 2010/2011 and this should be reviewed by client and broker. Direct Compensation Property Damage (DCPD), All Perils, Collision and Comprehensive insurance is available to cover damage to your vehicle, usually subject to a deductible. Numerous extensions available through endorsements, each suited to a specific driving exposure. These need to be reviewed with your broker and the policy tailored to your business requirements.
Non-Owned Automobile Liability Insurance (NOA) provides funds to pay claims and/or defence costs for injuries or damage suffered by others due to the negligent operation of automobiles rented for business purposes for less than 30 days. It also includes coverage for your company’s liability if an employee uses his own vehicle for your business purposes. Coverage is also available to cover physical damage to a rented vehicle. There are numerous rules in connection with who pays what depending on the circumstances of the loss and the jurisdiction where the loss happens. Due to changes in governing legislation, this exposure has increased substantially in recent years and should be reviewed carefully with your broker so proper coverage can be put in place.
Umbrella or Excess Liability Insurance provides increased limits – in excess of your CGL, Automobile Liability and specified primary insurance policy limits. An Excess Liability policy, as the name implies, provides an additional amount of insurance in excess of the specified primary policy limit. An Umbrella Liability policy also provides an additional amount of insurance in excess of the specified primary policy (or policies) limit and it may provide more comprehensive coverage than the primary policies it covers in excess of. The Umbrella Liability policy is usually subject to a self-insured retention (S.I.R. or deductible) for claims not insured under a primary policy. Example: An automobile insurance accident results in a claim for $3,000,000. If your Automobile Insurance Policy has a limit of $2,000,000, it would pay the full limit. If your Excess Liability or Umbrella Liability Insurance Policy has a limit of $5,000,000, it would be called upon to pay the amount in excess of the primary policy’s payment = $1,000,000.
Errors and Omissions Liability Insurance (E&O) provides funds to pay claims and/or defence costs arising from your actual or alleged error or omission that results in a customer’s financial loss where no bodily injury or damage to tangible property is involved and as a consequence, coverage provided by your CGL policy is not available. Example: You manufacture and sell a software product that malfunctions and your customer incurs costs and a loss of revenue during the time required to repair it. He claims for his loss.
Professional Liability Insurance is today an interchangeable term for E&O insurance. Originally the insurance was available for only for doctors, lawyers, and accountants but today is broadened to include many other kinds of businesses with this exposure.
Cyber Liability Insurance provides funds to pay for claims and defence costs from claims for exposures created by our increased reliance on computers, internet, cloud and electronic commerce activities. This is a relatively new type of insurance and there is no industry standard cyber policy. Insurers are still fine-tuning their wordings so a review of your operations and resulting exposures is needed to determine which of the current policy offerings is best suited for your organization. Coverage is available for claims resulting from: system security failures that result in harm to third party systems; a system breach that results in unauthorized access to private information; a system security failure that results in your client’s systems being unavailable to their customers; privacy notification expenses including credit monitoring for affected customers; cyber threats including the cost of a professional negotiator and ransom payment; and others..
Some Cyber insurance policies also include first party coverage: damage to your system (virus, etc.) or denial of service and resulting extra expenses and/or loss of income.
Pollution or Environmental Impairment Liability provides insurance funds to pay for claims and/or defence costs resulting from bodily injury or property damage incurred by others due to a pollution incident from your property or operations. A wide variety of policies are available. Some insure only sudden and accidental spills and some include pollution occurring over a period of time. Some policies restrict the insurance solely to your legal responsibility to others and some include clean-up costs on your premises. All these policies have loss reporting requirements that need to be understood and followed carefully. If your operation has only a minimal pollution potential, limited coverage may be available in your CGL policy.
Directors and Officers’ Liability Insurance (D&O) provides insurance funds to pay for claims and/or defence costs to protect directors and officers of your organization from liability claims from a wrongful acts related to their activities as directors or officers. A coverage section in most D&O policies provides funds to reimburse the organization for claims paid by the organization to protect their directors and officers as required in the bylaws. There are numerous policy wordings available with substantial differences in coverage. This insurance is the directors or officers’ last line of defense before his/her personal assets are at risk so it is vital that professional advice be obtained to ensure that you obtain coverage to match your priorities. Recent legislation and court decisions have increased directors and officers’ personal liability for their actual (or alleged) wrongful acts whether the corporation is public, private or non-profit.
Employment Practices Liability Insurance (EPL or EPLI) provides insurance funds to pay for claims and/or defence costs resulting from a violation of an employee’s legal rights. Harassment, discrimination, and failure to promote are typical claims. Coverage for wrongful dismissal is limited in scope.
Fiduciary Liability Insurance provides insurance funds to pay for a claim resulting from a breach of fiduciary duty relating to an employee benefit plan such as: Group Insurance, Employee Profit Share/Stock Ownership Plans, Retirement Plans, etc.
Claims Made Liability Insurance Policies vs. Occurrence Liability Insurance Policies
Some of the above policies are offered on a “claims made” rather than “occurrence” policy basis. There are advantages and disadvantages to each. The major difference is how they respond to a claim. Occurrence – the policy in force on the date that the accident occurs is the policy that responds. Claims made – the policy in force at the time the claim is made is the policy that responds. Caution: claims made policies may contain restrictions that could jeopardize your insurance coverage in some circumstances. For example, many claims made policies require a claim that occurs during the policy term must also be reported during the policy term or coverage does not apply. Claims made policies should be reviewed carefully to ensure adequate insurance for your operations.
Additional liability insurance policies are available from specialty insurers for a variety of operations or exposures. Insurance for some of the following may also be available as extensions to the above policies.
- Aviation/aerospace/airport products or operations
- International operations, foreign risk
- Liquor sales
- Special events – sports, entertainment, fairs
- Publishers’ liability
- Vendors’ liability
- Marine liability/Protection & Indemnity
- Contractor requirements/Wrap-up policy, XCU coverage (Explosion, Collapse, Underground)
- E-commerce liability
- Intellectual property liability
- Internet liability
- Product recall
- and much more…..