Business owner’s policy is a combination property, liability, and business interruption policy. It is usually written to cover expenses of small and medium size businesses resulting from damage or destruction of business’s property or when actions or non-actions of the business’s representatives result in bodily injury or property damage to another.
- Businesses that qualify under this heading include…
- Office buildings three stories or under not to exceed 100,000 square feet
- Apartment buildings six stories or under not to exceed 60 dwelling units
- Any other buildings not to exceed 7500 square feet for mercantile space
- Buildings occupied principally as an apartment, office, or engaging in trade or commerce
Properties that cannot be insured under this policy include banks, condominiums, bars, restaurants, automobiles, recreational vehicles, contractor functions, and manufacturing operations.
Bodily Injury Liability (BIL). Pays damages for which you are legally liable arising from injuries, death, or property damage of others. Included are expenses of lawsuits, court costs, and other costs. Bodily injury coverage pays for damages caused to a third party.
Burglary. Coverage against loss as the result of a burglary. Found as part of the commercial package policy that has generally replaced the special multi-peril insurance (smp) policy and the MERCANTILE OPEN STOCK BURGLARY INSURANCE policy. Covers loss of merchandise, furniture, equipment, fixtures due to force and violence to the exterior of a business’s premises in order to gain entry, and damage to the premises of the business as the result of the burglary. There is a coinsurance requirement that ranges from 40 to 80%.
Co-Insurance. A property insurance policy may contain a “co-insurance” clause. Co-insurance is an arrangement by which the insured, in consideration of a reduced rate, agrees to carry an amount of insurance equal to a percentage of the total value of the property insured. Generally, the co-insurance clause, which is expressed as a percentage (80 percent is common), will be triggered when the policy limit for the insurance is less than the fair market value of the property multiplied by the co-insurance percentage. The following equation is used to determine what amount may be collected for partial loss:
Fair Market Value x Co-insurance percentage = Amount of insurance required.
Compare the amount of insurance actually carried to the amount from the above calculation. If the amount actually carried is equal to or greater than the amount in the calculation, the full loss less any deductible amount should be paid.
If the amount of insurance actually carried is less than the amount from the calculation, the amount of the loss paid, less applicable deductible, will be the percentage of the actual amount carried as relates to the amount which should have been carried.
Combined Single Limits vs. Split Limits. Liability insurance limits for Bodily Injury and Property Damage coverage may be purchased either under a single limit for both, or a separate (split) limit for each. For example, combined single limit may be $500,000.00 for both Bodily Injury and Property Damage. You are liable for an accident causing $300,000 of medical bills and $200,000 of property damage. Since the combined damages are equal or less than the combined single limit of $500,000, your insurance pays all the bills. Split Limits may be $250,000 per person and $500,000 per occurrence for Bodily Injury and $100,000 per accident for Property Damage. You cause the same accident. If the $300,000 in medical bills are for a single person, your insurance will only pay $250,000. Since you have only $100,000 in Property Damage, $100,000 is the amount your insurance company will pay.
Damage to Rental Premises. Damage to Premises Rented to You – formerly known as Fire Legal Liability Coverage – covers your liability to others if you occupy leased or rented property for which you could be held legally liable for damage to the property due to fire or explosion.
Deductible. A deductible is the amount of loss the insured pays in a claim before the insurance company makes any payment. The purpose of a deductible is to discourage small claims that the insured can manage as a normal cost of doing business. The larger the deductible an insured accepts, the lower the premium charge.
Earthquake. This endorsement extends your cause of loss to include damage that results directly from an earthquake. Coverage is provided for replacement of buildings only. All earthquake shocks that occur within a 168 hour period (one week) are considered to be a single occurrence. A separate deductible applies and is determined by the value of the insured property.
Employee Benefits. Employee Benefits Liability is liability produced by improper handling or errors or omissions in the handling of employee benefits programs. Employers can be held liable for such errors that result in an uncovered or improperly handled loss to an employee.
ERISA – Fiduciary Liability. In 1974, The Employee Retirement Income Security Act (ERISA) was enacted to protect the interests of the participants and beneficiaries of employee benefit plans. Fiduciaries of employee benefit plans assumed new responsibilities relating to the management and administration of those plans. Under ERISA, fiduciaries may be personally liable for breach of certain responsibilities or duties imposed upon them under the law. ERISA created significant liability exposure for anyone “exercising discretionary judgment or control” in the administration or management of the pension/welfare benefit plans or their assets. The Act created significant personal liabilities on that person who “exercises discretionary control” over such plans. While there are requirements under the ERISA Act for employee dishonesty coverage for the plan(s), employee dishonesty coverage does not cover the ‘discretionary judgment’ liability imposed individually on those handling the plans, which was imposed by ERISA.
Fiduciary liability insurance was developed to address this ‘discretionary judgment’ exposure. These policies protect the plan administrators for their personal liability. Many times the agents and the insureds alike think that an employee benefit liability policy will provide this coverage. However, this is not true. Employee Benefit Liability is designed and intended to cover the administration of employee benefit plans – i.e., enrollment, communication, etc. These policies do not afford coverage for individual plan administrators for their individual personal liability under ERISA. Since ERISA’s passage in 1974, much federal legislation has been passed that increases an individual’s fiduciary liability exposure, such as: COBRA, Family Medical Leave Act, Omnibus Reconciliation Act of 1985, Health Insurance Portability and Accountability Act, Newborn’s and Mothers Health Protection Act, etc.
With the intent of fiduciary policies to coverage ERISA mandated liabilities, fiduciary policies exclude bodily injury which precludes coverage for most managed care claims (i.e. medical malpractice) and some plans exclude coverage for claims arising out of COBRA. These exposures are beyond the scope of most current fiduciary policies. Punitive damages are also commonly excluded.
In today’s litigious society, more and more lawsuits are being brought against plan fiduciaries for failure to comply with ERISA’s constantly changing provisions. These lawsuits subject the plan fiduciaries to the expense and inconvenience of unwanted legal proceedings, which often results in personal liability and loss of personal assets.
There are certain risk management steps that you can take to minimize your exposure to litigation and personal liability:
- Become educated about your duties: This could include soliciting the advice of actuaries, consultants or attorneys who are familiar with ERISA and attending seminars and other courses;
- Utilization of risk transfer with the purchase of fiduciary liability insurance.
While fiduciary liability policies may not be all encompassing in terms of coverage, they provide critical coverage to the employee(s) handling your benefit plans. If you do not currently carry fiduciary liability, contact LaMair-Mulock-Condon Co. to find out what is available.
Extra Expense. If your building was rendered untenantable by fire or any other insured peril, it would probably be necessary to secure other quarters to continue your business operations. However, the use of such buildings would undoubtedly involve many extra expenses, such as rent, installation of telephones, etc. Extra Expense insurance covers such expenditures over and above your normal monthly expenses.
Flood. A general and temporary condition of partial or complete inundation of normally dry land areas from:
- Overflow of inland or tidal waters
- Unusual accumulation and runoff of surface waters from any source
- Abnormal, flood-related erosion and undermining of shorelines
Flood also means inundation from mud flows caused by accumulations of water on or under the ground, as long as the mud flow and not a landslide is the proximate cause of loss.
Inflation Guard. An insured can insure a building for its full value at the beginning of the policy year; but, at the end of the year, it might not be covered for its full value. This problem can be corrected by adding inflation guard coverage. With inflation guard, the policy limit increases gradually during the policy term so that the total increase amounts to the desired percentage increase at the end of the policy term.
Liquor Liability. Liquor liability provides coverage for bodily injury or property damage which an insured may be held liable because of:
- 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.
- This coverage applies only if the insured is involved in the following activities.
- Manufacturing, selling, or distributing alcoholic beverages.
- Serving or furnishing alcoholic beverages for a charge, whether or not such activity requires a license or is for the purpose of financial gain or livelihood.
- Serving or furnishing alcoholic beverages without a charge, if a license is required for such activity.
Medical Expense. Coverage for medical expenses of persons who sustain bodily injury at a commercial insured’s premises or operations without regard to negligence. Medical expenses include first aid, surgery, x-rays, dental services, prosthetic devices, transportation by ambulance, and funeral services. This coverage is included in the commercial general liability policy as coverage part C.
Non-owned and Hired Auto. NON-OWNED AND HIRED AUTO coverage is for policies written with limits of liability of $1 million or more. It provides coverage for rental or borrowed autos as long as the insured does not own any private passenger vehicles, pick-up, panel truck or van and the use does not exceed 30 days.
Occurrence vs Aggregate. The limit of liability is often expressed as a value per occurrence and a separate value as an aggregate limit. The policy will pay no more than the per occurrence limit for each covered occurrence. The policy will pay no more than the aggregate limit for all claims during the policy period. On an insurance policy it would often be expressed as $1,000,000/$2,000,000 occurrence / aggregate. The aggregate limit will never be less than the per occurrence limit. Aggregate means the total paid out for all incidents during the policy period.
Property Damage. Pays damages for which you are legally liable arising from injuries, death, or property damage of others. Included are expenses of lawsuits, court costs, and other costs.
Sign. Sign coverage is generally provided as an endorsement to a business property floater policy. It covers neon signs for all perils, both while they are being moved and once they are in place. Signs that are attached to a building can be covered under the underlying property insurance. The sign floater policy provides broader coverage for each sign that is listed on the policy.
Valuable Papers / Accounts Receivable. Valuable papers (records) insurance provides coverage in the event that papers of intrinsic value are damaged or destroyed. Coverage is on an all risks basis that covers the cost of research to reconstruct damaged records, as well as the cost of new paper and transcription. The term “valuable papers” refers to written, printed, or otherwise inscribed documents and records, including books, maps, films, drawings, abstracts, deeds, mortgages, and manuscripts. Limits of coverage can be quite high; but the insurance company will not pay an amount in excess of the actual cash value of the loss, or the amount necessary to repair or replace the damaged or destroyed papers. Also, the papers must be kept under lock and key.